Gen X Faces Retirement Blues

Frequent visitors to this space know that I’m not just a proud Gen Xer. I also make a habit of, proudly at that, highlighting issues relevant to this generation and how advisors can better connect with clients in this demographic.

A martyr I am not, but someone needs to be up to the task of shedding light on financial issues facing those of born between 1965 and 1980. For those keeping score at home, my birth year is much close to 1980 than it is to 1965, but the point is, advisors should be aware of at least two retirement topics when it comes to Gen X.

First, the obvious. That being that the older members of Gen X are closing in on retirement age. Second, this generation isn’t feeling good about their retirement prospects. Not at all and that represents significant opportunity for advisors.

Consider Gen X Retirement Details

Earlier this year, the National Institute on Retirement Security (NIRS) released its “The Forgotten Generation: Generation X Approaches Retirement” report, which outlines some of the retirement issues facing Gen X. The list is unfortunately lengthy.

For starters, Gen X is the first generation to enter the workforce en masse just as private sector defined benefit pensions were going by the wayside. Sure, 401(k) plans, which came of age as Gen X entered the workforce and moved up the corporate ladder, are nice, but they lack the security and steadiness of defined benefit pensions.

Combine the lack of traditional pensions with the point that Gen Xers have endured events such as Black Monday in 1987, multiple recessions and the global financial crisis, and it’s easy to see why this generation’s retirement outlook is currently grim.

When looking at median retirement savings levels for Generation X, report finds that the bottom half of earners have only a few thousand dollars saved for retirement, and the typical household has only $40,000 in retirement savings,” according to the NIRS report. “Retirement savings for Generation X is highly concentrated among the highest earners, while Blacks and Hispanics have substantially lower savings and access to retirement plans as compared to whites.”

Regarding access to retirement plans, while 401(k) plans burst onto the scene in 1978, many Gen Xers lack exposure to employer-sponsored retirement plans.

“A big part of the problem is that far too many Gen Xers don’t have access to a retirement plan through their employer. Only 14 percent of Gen Xers have a pension plan, and only about half are participating in a retirement plan at their job,” notes Tyler Bond, NIRS research director. “As a result, a large share of Generation X has virtually nothing saved for retirement, and most who are saving are not close to savings targets that will enable them to retire with their current standard of living. Accruing savings takes time, and Social Security alone won’t provide enough retirement income. So it’s critically important that we change course quickly. The status quo means we are looking at elder poverty for many Gen Xers and pressure on their families for support.”

How Advisors Can Help

Clearly, Gen X is a demographic ripe for high-quality financial advice. For advisors working with this generation, it’s a balancing act of not being too effusive with rosy assumptions and not sounding like the “retirement reaper” is right around the corner.

The starting should be why getting a handle on why Gen X clients feel behind when it comes to retirement savings and build from there.

The good news is that the average Gen X 401(k) balance has appreciated markedly in recent years and this generation is the first that will be on the receiving end of the great wealth transfer. Positive points to be sure.

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