5 Ways Gen X Can Prepare for Financial Curveballs in Retirement
Written by
Nicole Spector
Edited by
Zuri Anderson
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When it comes to retirement readiness, Gen X is not in a great financial place. Many Gen Xers, in fact, are worried about whether they will have enough savings to ride out their golden years.
This is a valid concern — and one that doesn’t necessarily point to you being financially irresponsible. Gen X has been dealt tough blows.
“As one of the 65 million members of Gen X, I’m not surprised that we’re behind the curve in saving for retirement,” said Brandon Wright, CEO and founder at Tongo, pointing to the housing crisis of the early 2000s as a common catalyst for Gen X’s financial insecurity.
“Many of us took out student loans to go to college, delaying buying our first homes,” he continued. “I could tell from my perch — owning a mortgage company in the early 2000s — that when we bought homes, we were also seduced by adjustable-rate mortgages and interest-only loans that inhibited our ability to build equity.
“That’s a big deal because over 50% of Americans’ wealth is in the equity of their homes. That’s the equity we need to purchase the downsized-condo for retirement.”
Even expected costs in retirement can be staggeringly high; but then there are the unexpected costs, or those you didn’t plan for. How can you get ahead of those before they strike and put your financial freedom at stake?
Here are five ways Gen X can prepare for financial curveballs that could hit it in retirement.
Get Devoted To Saving and Maxing Out Retirement Plans
Save, save, save. You’re probably tired of hearing this advice, but it’s really the most important thing you can do, no matter how relatively late in the game you may be.
“Most Gen Xers will need to start saving aggressively,” Wright said. “The most impact will come by increasing contributions to retirement accounts, specifically 401(k)s for salaried professionals and SEP IRAs for the self-employed.
“The tax benefits are important, but they are also really helpful for people who struggle with budgeting and saving to have retirement accounts that are hard to access and shielded from temptation.”
Pay Down Your Big Expenses Now
Which major financial obligations do you have right now that you can take off your plate, to an extent, before retiring?
“Mortgage is the big one,” Wright said. “If you can own your home before retiring, that’s a win.”
If you can’t pay off your mortgage in full before you retire, ensure your payment will be the same with a fixed-rate mortgage.
If financially feasible, hang on to the house you own.
“Continuing to build equity is important for three reasons,” Wright said. “First, you’ll eventually pay it off, and the expense will go away, expanding your budget. Second, if you decide to downsize eventually, then the equity from the sale will hopefully fund the new, smaller home. And third, it’s the source of last-resort emergency funds through a home equity line of credit.”
Look Into Long-Term Health Insurance
Regardless of whether you’re experiencing health issues (but especially if you are), you should look into getting long-term health insurance.
Medicare, for which you are eligible at 65, does not provide long-term care coverage or custodial care unless medical care is needed.
Long-term healthcare can hit retirees of all wealth statuses hard. Look into getting insurance to help take the edge off this enormous expense should it befall you.
Beef Up Your Emergency Fund
Every adult, no matter their income level, needs an ample emergency fund. Gen X needs to focus on beefing theirs up.
“One important step is to grow an emergency fund,” said Erika Kullberg, a personal finance expert, attorney and the founder of Erika.com. “Though Gen Xers might have savings already, an emergency account specifically for retirement can help to mitigate unexpected expenses such as surprise medical expenses or home-repair bills.
“Save six to 12 months of living expenses in a liquid account, such as a high-yield savings account.”
Diversify Your Portfolio
Gen Xers also should be focused on diversifying their portfolios.
“The shifting nature of the market and overall economic uncertainty warrants having stocks as well as bonds and other key assets to decrease the chances of risk incurred using only one type of investment that could ultimately yield fewer savings for retirement,” Kullberg said.
Get Realigned With Your Budget
Finally, it’s important to reassess your budget before retirement.
Understanding your post-retirement income, from Social Security to pensions, and aligning it with projected expenses, ensures you’re prepared for any surprises.
Downsizing your living situation or paying off debt before retiring can also reduce future financial stress.
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