With many Gen Xers are now taking care of their parents instead of the other way around, there’s still time for the world’s last analog generation to learn a thing or two from the second-to-last.
The adults born from the post World War II baby boom (thus how Baby Boomers come by their moniker) shared a few common mistakes. Gen Xers would be wise to avoid those same pitfalls as they shuffle slowly but surely toward retirement, as they’re already at a deficit.
According to a Prudential Financial survey, 35% of Gen Xers have less than $10,000 saved, and 18% don’t have any savings. Add to this the fact that Social Security is not secure, only 20% of Gen Xers can rely upon a pension for retirement and the high costs of healthcare remain a concern, and Gen Xers need all the help they can get.
Boomers Were Thrown a Curveball That Gen X Should Be Able To Hit
During his years in the industry, Gaito has noticed a recurring pattern that is by no means unique to boomers but is certainly frequent among them.
“One common theme that I see is not saving as much as they should,” Gaito said.
But unlike later generations, boomers have a pretty good excuse — the entire nature of saving for retirement was turned on its head while they were in the workforce.
“Baby boomers were the transitional generation from pension plans to 401(k) plans,” Gaito said. “This shifted the responsibility without education on how to manage and save for retirement.”
The generation following them, whose members have lived and worked their entire lives in the era of the self-directed 401(k), can’t lean on the same excuse.
“It would benefit Gen X to not only learn to save but how to save,” Gaito said.
So far, Gen X isn’t doing that great a job of saving. As many as 30 million (46%) Gen Xers are nervous that they won’t have enough saved for their retirement.
Gen X Parents Should Break a Pattern That Started With Them
Boomers supported their Gen X children longer into adulthood than any generation that came before (though Millennials and Gen Z may be giving Gen X a run for its money in this department, with more of them moving home or staying at home).
In many cases, well-intentioned short-term financial assistance came at the cost of bad financial habits that are hard to break. Gen Xers are parents now — and they still have time to avoid making that trade-off.
“I think that most will say they did not support their adult children too long, but those who did have created a short-term and long-term challenge,” Gaito said. “If the ‘kids’ are dependent on adults for their lifestyle, what will happen when the parents pass away and they no longer have the support that they were used to? It is best to get them living their own life as soon as possible. Or as a friend of mine said, to get them out of your wallet.”
Overstayed Nests Are Bad for Both Generations
When parents allow their adult children to rely on them for too much for too long, they not only deny their kids the gift of self-reliance, but they also ensure they’ll have less to get by on for themselves later in life.
“In my experience, there have been two areas that have been impacted to support adult children,” Gaito said. “The first is tapping retirement accounts and the second is home equity. The problem with this is that seldom do they get paid back. It is tough to hold your children accountable but learning to repay debts is a lesson that should be learned early. It is ok to help your children out, but not to the detriment of your retirement.”
That’s not to say there’s nothing that could ever justify tapping into your retirement account or your home’s equity to help out an adult child, but boomers did it more than Gen X ever should.
Gen X Should Save Like Boomers, but Invest More Strategically
Boomers, by and large, were diligent about building nest eggs, but that building often happened on autopilot.
“They did a great job saving for retirement, but never looked at their statements and were significantly impacted by market fluctuations,” Gaito said. “The second lesson is that when rules or taxes changed, they failed to change their strategy on the location of their retirement assets due to these changes. For example, with taxes at historically low rates, many people have changed from a traditional 401(k) plan to a Roth 401(k) plan. I am sure they did not intend to save in a low tax bracket to take it out in a higher one.”
Prudential Vice Chair Rob Falzon commented on the Survey that Gen X faces possibly the most complex landscape facing retirement of any prior generation. “This data underscores how important it is for Gen X to adopt a new set of retirement strategies designed to protect and grow their savings, and, when possible, translate their assets into reliable sources of future income.”
Gen Xers Should Learn, Prepare and Evolve
The most important piece of advice Gaito would ask Gen Xers to follow that their parents did not is to change with the times.
“Baby Boomers tried to implement retirement like their parents did,” he said. “But their parents had more security with pensions from companies. Baby Boomers for the most part failed to create their own pension and lived in fear of a market downturn.”
Gen Xers also fear an economic downturn, but they also have more pressing concerns such as concerns about being replaced by younger workers, and workers who will charge less money. Gen X will do better to set its sights on how to work with what they’ve got and plan for the future.
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Jordan Rosenfeld contributed to the reporting for this article.