Wealth Planning Commentary – January 21, 2025

Gen X and Retirement Concerns

People between the ages of 45 and 60, labeled Generation X, are increasingly worried about retirement. Despite many having substantial liquid assets, some find themselves questioning whether they’ll be able to afford their retirement expenses when everyday costs rise. According to a recent Allianz Life survey, inflation is a top concern for all earning generations, but Gen Xers are more worried than Boomers or Millennials.

Generation X is now the “sandwich generation” because they shoulder financial responsibilities on multiple fronts: themselves, aging parents, and children. Rising living costs, such as higher housing prices, homeowner association fees, insurance premiums, and medical expenses, have made financial planning more challenging. At the same time, many are still saving for their children’s college tuition or managing other child-related financial obligations. Elder care for aging parents, whether through caregiving costs or facility fees, adds another layer of complexity, both financially and emotionally.

Addressing these concerns requires a dynamic and proactive approach to financial planning. Adjusting spending habits is often a helpful starting point. Even small reductions in discretionary expenses can have a significant impact over time. Downsizing to a smaller home now or when the kids go to school may significantly reduce costs and free up assets for investing in a diversified portfolio.

Another strategy worth considering is moderately delaying retirement. According to Natixis research, many Gen Xers plan to retire around age 60. However, extending a career by a few years can provide meaningful benefits. Remaining in the workforce allows for continued savings, maintaining employer benefits, especially healthcare, and delaying Social Security, which increases monthly payouts. For those reluctant to continue full-time work, exploring part-time roles or pursuing a career in a different, potentially less demanding but more rewarding field is a viable alternative.

Another key strategy is maximizing retirement accounts. Increasing contributions to 401(k)s and IRAs can significantly boost retirement savings over time. Catch-up contributions, which are $7,500 for 401(k)s this year, are available to people 50 and older. Beginning in 2025, additional catch-up contributions for those 60 to 63 allow for up to $11,250 annually, provided the employer permits it.

Roth conversions also deserve consideration, particularly for those in their 40s and 50s during lower-income years. These conversions create a tax-free income stream in retirement, offering significant long-term benefits.

Ultimately, there is no single solution to secure Gen X's retirement. A combination of strategies, including spending adjustments, delayed retirement, increased savings, and thoughtful tax planning, often works best.

Please reach out to your Wealth Manager with questions about retirement.