The first group of Gen Xers is turning 60 and scrambling to make up for the shortfall in their retirement savings. This generation, above all others, has had many financial hurdles to overcome.
This generation has high student loan debt that eats into disposable income.
Gen Xers have a unique financial challenge. They are called the ‘sandwich generation’ as they often take care of their ageing parents and their children. That is two generations to care for and doubles the financial burden of this group. Disposable income is significantly reduced.
Gen Xers are the first generation not to have access to traditional company pensions and have to save themselves. The days of defined benefit pensions are long gone for many professionals. This generation experienced employers who no longer provide company pensions. This entered the age of private pensions and private retirement savings, which unfortunately gets put on the back burner. Financial priorities are given to debt, living expenses and making ends meet.
Gen X find themselves in a situation where they need to make financial decisions for retirement based on the situation they are in and not on what is ideal. We can take a lesson from this to prevent being in the same situation.
To close the retirement gap, they are left with basically 4 options:
To increase savings and raise future assets, they need to save more money, which is challenging considering their current financial burdens.
The dreaded longer employment scenario. Unfortunately, this is a very much a reality not just for Gen Xers. Many professionals will not have saved enough to retire comfortably and might need to work a few more years to build a bigger pension pot. Starting retirement planning early in life could prevent working longer at retirement.
Gen Xers might consider switching investments to higher-interest-earning assets such as equities. While this seems like a solution, remember that increasing equities comes with higher risk. This could potentially be acceptable for a long-term portfolio, as it can ride the ups and downs of volatility over time, but over the short term, losses may occur to the portfolio.
It is recommended to consult with a financial adviser as they can help make your portfolio more efficient within your risk tolerance, which could earn better returns.
Unfortunately, Gen Xers may need to lower their retirement targets and lifestyle expectations and spend less in accordance with what their savings can sustain. This might mean a lower retirement lifestyle, e.g., travelling less, taking fewer vacations, or downsizing their home or vehicles to a more affordable option.
The due diligence exercise is the best way to trim spending and free up money for additional contributions.
This is probably the easiest way to find extra funds for retirement savings. Often, we don’t realise how much we spend a month on entertainment, hobbies, sports, eating out, subscriptions and impulse buys. By doing a proper analysis of spending, you can cut down on these expenses and channel them towards retirement savings.
One of the quickest and best ways to increase retirement savings is to increase monthly contributions to private pensions, workplace pensions or investments. Compound interest is your best ally in building capital.
The most important tactic to increase retirement savings is to consult with a financial adviser. They have the knowledge and expertise to optimise investments and find tax-efficient solutions to let you keep more money for retirement.
They can help shift the investment
Do not let fear rule your investment decision-making. If you are more than 5 years from retirement, you have time to increase your potential returns by increasing the equities portion of your portfolio. Equities mean higher potential gains but also higher risks. Investing in stable, well-performing companies over a long-term period (longer than 5 years) historically achieves good returns and could even out market volatility.
Each 1% of extra return potentially adds 10–12% more money over 15 years.
Find a financial adviser experienced in retirement planning, who can tailor a retirement portfolio according to your goals, needs, wants and risk appetite.
Your financial adviser will find the most suitable tax-efficient vehicle for your investments. e.g. putting your money in a trust or wrapper that helps potentially mitigate taxation. This means more money to earn valuable compound interest. Also, to ensure that you are in the right tax jurisdiction.
Retirement planning is a vital process that ensures financial independence, stability, and peace of mind in later years of life. A well-structured retirement plan helps to maintain one’s desired lifestyle, cover healthcare expenses, and handle unexpected financial challenges after leaving the workforce.
It is not a one-time activity but a continuous process that requires regular review and adjustment as personal circumstances, income, and economic conditions change. Through disciplined saving, wise investing, and proper financial guidance, individuals can achieve their retirement goals and enjoy a comfortable and stress-free life after retirement.
Please note, the above is for educational purposes only and does not constitute advice. You should always contact your advisor for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.
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