Generation X has faced many challenges for retirement savings, including a societal shift from pensions to employer-sponsored 401(k) plans, economic downturns, and the COVID-19 pandemic. Amidst economic changes, retirement savings may have taken a backseat, as Gen Xers shifted their spending habits to survive downturns and shifts.
But as Gen Xers near retirement age, the pressure of securing a stable financial future intensifies. With strategies such as opening and managing additional retirement accounts, examining existing portfolio risk and adjusting as necessary, and taking a hard look at income and expenses, there are ways to enhance financial security for your golden years.
Read below to learn how Gen X can overcome economic challenges and come out on top in retirement.
Review and Adjust Your Budget
Budgets are not a set-it-and-forget-it financial strategy and require frequent review and adjustment as life changes – which remains true as you near retirement age.
With inflation on the rise, prices for everyday goods and services have increased, meaning that your dollar may not stretch as far as it used to. That’s why it’s important to review your budget to ensure the one you created last still makes sense with your income, saving, and spending patterns today.
Mobile and online apps, like Mint and Spendee, are helpful tools for reviewing and managing a budget. These platforms allow users to connect bank accounts, retirement accounts, loans, debit and credit cards, and more in one place so you can see a financial snapshot at your fingertips and provide the information you need to see where you may be overspending and undersaving. Furthermore, you can set goals and benchmarks to ensure you’re on track for savings, paying off debt, and more.
Once you have a good understanding of your current financial snapshot, the next step is implementing change. Which areas should you reduce spending? Are you saving enough for the future? What is your plan for your upcoming merit increase or bonus at work? All of these questions will help you make decisions for adjustments, but if you need a strategy, try the 50/30/20 rule, which guides you to divide your income into three major categories: essential spending, savings and debt payoff, and nonessential spending. By assigning each dollar a category, you will be able to tighten up your expenses and understand where your problem and achievement areas are.
According to a 2023 study conducted by Prudential, only 46% of Gen Xers believe they have enough money saved for retirement. With that information, taking additional steps to save for the future is both necessary and crucial.
Saving for the future with retirement accounts extends past a typical savings plan because it allows you to put your money to work through investments such as stocks, bonds, mutual funds, real estate, and more.
If you haven’t already, make sure you’re enrolled in your employer’s 401(k) and match program if it exists. Utilizing matching contributions will help you get further at a faster pace than you would by saving on your own.
If you’re looking for extra ways to put your money to work, consider opening a Roth IRA. These plans are a great option for additional retirement savings that you can manage outside of a company-sponsored 401(k). Because these plans grow tax-free, you won’t owe any taxes on the funds when you withdrawal them in retirement, making it a win-win investment strategy.
Learn how you can utilize a Roth IRA by using the Slavic401k calculator.
Another way to expand your savings options is by utilizing catch-up contributions. This benefit allows individuals ages 50 and older to contribute additional funds to retirement plans, such as a 401(k) or IRA. In 2023, the catch-up contribution allowance is $7,500 for 401(k) plans, and an additional $1,000 for IRAs. The IRS changes the limits annually to account for economic changes, such as inflation, so make sure you review their website to stay up-to-date on the current rates.
Examine Portfolio Risk
As you near retirement age, it’s also a good time to review your portfolio risk and make adjustments that allow you to move from an aggressive portfolio to a moderate or conservative one. While there is risk with all investments, nearing retirement age means shifting from riskier investments and moving to more stable ones.
When considering your portfolio, think about your investment assets. Do you have CDs, stocks, mutual funds? While every portfolio should have a balance of variety, understanding your current position will help you make adjustments moving forward.
- Conservative: Investors select investments that have a steady return, and limited risk, including CDs and money market accounts.
- Moderate: Investors have a healthy balance between aggressive and conservative investments, including mutual funds and bonds.
- Aggressive: Investors are market-savvy and willing to take big risks on their investments in search of a big reward.
Learn about the different types of risk associated with your portfolio on the Slavic401k blog.
Diverse portfolios will help you mitigate risk as you transition from your career to retirement. Having a mix of different types of investments will help you offset market changes in your earnings and keep a stable balance over time, putting you in a better position for your golden years. Learn more about diversifying your portfolio here.
While there are many ways to prepare for retirement, it’s important for Gen Xers to review their current and projected financial snapshots in order to approach retirement savings in a proactive – versus reactive – way.