Slacker, cynic, social critic... If you were born sometime between the early 1960s and 1980, you may have heard adjectives like these used to describe your generation. I am a Gen-Xer, and I am still haunted by the chorus of newspeople telling me that mine would be the first generation to do less well than our parents. Once that factoid made its rounds, Generation X never stood a chance, despite the unprecedented success, wealth and innovation many of us have managed to achieve.
The latest area in which we are reportedly not measuring up: retirement. Turns out, Generation X may never be able to retire. A study by the Pew Charitable Trusts called Retirement Security Across Generations found that Gen-Xers lost about 45% of their wealth in the 2008-2010 financial crisis. (Of course, it also points out that the savings rates among this group were already low on average.) "At the median," the report reads, "Gen-Xers will have enough resources to replace only about half of their preretirement income." Add to that the concerns that Social Security may not be able to live up to its promise after the Baby Boomers are through with it, and things are looking a bit bleak for the MTV generation.
I, for one, would love to defy these expectations and retire in grand style. Despite the predictions, Generation X can still retire comfortably. Here's some advice for saving for a Gen-X retirement.
At this point in life, many of us will have had access to at least one 401(k). If you have a 401(k) through your current employer, use it. If you are already saving in your 401(k), increase your contribution. Somewhere between 10% of your gross income and the contribution limit ($17,500 in 2013) is what you want to aim for in your 30s and 40s. Once you are in your 50s, you can add a catch-up contribution to increase your maximum (the catch-up limit is $5,500 in 2013).
A 401(k) offers a relatively painless way to save, because contributions are pre-tax and don't have a dollar-for-dollar impact on your paycheck. (In other words, you may save $100 per check, but it won't necessarily reduce your take-home pay by $100.) If you work at one of the companies that still offers an employer match, you get an automatic bonus just for saving in your retirement account. Even the most jaded and cynical among us can appreciate a good value like that.
As we get older, we take on more financial responsibilities. It can be difficult to know what to save for first. After necessities like housing, utilities, insurance and food, retirement should top the list. If you save routinely in a 401(k), you probably won't even think about the money you're saving. You can build a budget around your take-home pay. From that budget come things like college savings for your children. Saving for college in a 529 plan is a great way to save tax-free for education, but it's not as important of taking care of your future living expenses.
If you are feeling flush and have some extra cash beyond the workplace retirement account and other savings responsibilities, a Roth IRA is a great way to save even more money. You put in after-tax funds, but the money is generally invested and withdrawn tax-free at retirement. So you pay today's tax rate on your money, regardless of what happens to taxes in the future. If you think taxes have nowhere to go but up, a Roth is a great way to snub your nose at authority while making money. You'll feel like you are getting away with something. (Very punk rock.)
Does that sound weird? In my household, we share everything financial and are completely transparent about what we spend and save (except we each have a personal credit card we can use for gifts or splurges we don't want to share). Some people think this is perfectly normal, others would call us money hippies, who don't understand the importance of individual privacy. Either way, you should know something about how your spouse is saving. If you plan on living together, you should be saving with a shared goal in mind. And, of course, as you enter your 50s, you should start thinking about when and how you plan to retire. Where do you want to live in retirement? How will you spend your time? How will you draw down your retirement funds? And how can you take laziness to the next level?
I think there's an opportunity for this generation, known for DIY scrappiness and its (comparative) general disdain for materialism, to adopt a new retirement lifestyle. We have revived composting, home brewing, knitting and canning, just to prove that we could. Let's prove we can do pre-retirement and retirement differently: I'm envisioning backyard vegetable gardens, energy efficient homes, downsizing a home, or going from a two-car to a one-car household.
Most of us will have to cut expenses in retirement. By how much really depends on how you live now. It's a good exercise before retirement to try and cut expenses where you can. You can get a more realistic picture of exactly how much you need to live on (as opposed to how much you currently live on). And figure out where you can apply your own creative impulses to cut expenses.
If you are a spender (and I get it, some of us are), you can use your creativity to find ways to bring more money in before and during retirement. Whether you are selling crafts on Etsy, doing part-time blogging or writing work, or even keying data entry from home, you can quickly increase your retirement nest—or bring in some income during retirement.
I consider debt to be as much a priority as retirement, because no matter how much you save, too much debt will impact your long-term goals. Let's be clear, however: that means you should pay off debt and save for retirement simultaneously. Don't wait to pay off debt before you save for the future or you may find out the future comes sooner than you anticipated.
You may have a healthy relationship with debt in your working years, but as you near retirement you should wean yourself off those credit cards and attempt to spend only what you can afford. Again, it's good practice for the actual retirement years.
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