Gen X retirement: Tick tock
Generation X, retirement isn’t far off. With the oldest of this age group turning 50, here are some things Gen Xers should do, today.
Unlike our parents, we Gen Xers — those born between the early 1960s and early 1980s — have a lot of tools and information to help us with retirement saving. We are more likely to have employer-sponsored retirement plans such as a 401(k) or 403(b) from early on in our careers. We have virtually unlimited access to financial data and analysis via the Internet.
All this should make saving and planning for retirement easy, right? Not so fast.
Recently, I walked into a conversation between my husband and brother-in-law on the merits of pre-tax retirement savings. My brother-in-law said that he didn’t participate in a retirement plan because he didn’t want to tie up his money until 59½.
I explained to him the benefits of pre-tax savings — because he is in a fairly high tax bracket, he could reduce his federal and state income tax and defer tax payments on his money until retirement when he may be taxed at a lower rate. And because he is self-employed, he saves on self-employment taxes as well. Meanwhile, he can put some money into after-tax savings that he can access anytime.
Like my brother-in-law, a lot of us fail to make sufficient use of our retirement planning resources. Fortunately, it’s not too late yet for Gen Xers. Take these following steps to get started with savings.
1. If your employer sponsors a retirement plan, participate immediately. Contribute at least enough to get any matching contribution your employer offers.
2. If a Roth 401(k) is available to you (in which you save post-tax money now for potentially tax-free benefits later), strongly consider it. Or, save in a Roth individual retirement account if you qualify under the income limits, which are $131,000 for single filers and $193,000 for couples.
3. Build up a cash reserve of three to six months’ worth of living expenses so you don’t have to tap your retirement savings should unexpected expenses occur. I’ve seen so many people do the right thing and start contributing to a retirement plan in their 20s, only to cash it out or borrow from it because they didn’t have any liquid savings available when something went wrong.
4. Once you have a cash reserve and some pre-tax and Roth retirement savings, consider additional investing for intermediate-term goals, such as buying or remodeling a house, saving for your children’s college expenses or even longer-term goals like early retirement.
The great news is that we Gen Xers have excellent tools to help us as long as we use them properly. Seek help from a reputable financial advisor to make sure you’re on the right track, or to help you get there.
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Jordan Lochner Mills is a consultant at Wipfli Hewins in Minneapolis.
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