Plan Sponsors Should Address Financial Squeeze Put on Gen X

Struggling with debt and budgeting, Gen Xers are in their prime earning years, they are getting close to retirement and they are taking care of both their children and their parents.

Forty-two percent of Gen Xers are more focused on paying off debt than saving for retirement, according to research by Schwab Retirement Plan Services. The nationwide survey of 1,000 401(k) plan participants, including 368 Gen Xers, 315 Millennials and 317 Baby Boomers, found that 70% of Gen Xers feel that they are on top of their 401(k) investments but still experience financial stress while trying to meet their long-term goals.

Asked what is preventing them from saving more for retirement, Gen Xers say unexpected expenses like home repairs (38%), credit card debt (31%), monthly bills (29%), paying for their child’s education (22%) and paying off their student loans (11%).

As to what is causing the most financial stress for Gen Xers, they say it is saving for retirement (40%), credit card debt (27%) and keeping up with monthly expenses (23%).

“Plan sponsors and advisers are primarily focused on Millennials and Boomers, and rightly so, but I am not sure they call out to Generation X to offer them the help and guidance they need,” Catherine Golladay, president of Schwab Retirement Plan Services, tells PLANADVISER. “Gen X is feeling pressure on all sides. While they are in their prime earning years, they are getting close to retirement, and they are taking care of both their children and their parents.”

The first thing retirement plan providers can do to help alleviate Generation X’s financial stress is to make sponsors and advisers aware that this generation needs their help, Golladay says. “Specifically, they are struggling with debt and budgeting and want a holistic view of their finances. Many plan sponsors and advisers are in a position to help Gen Xers with these goals through financial wellness programs that cover paying down debt, budgeting, establishing emergency savings and how to invest their 401(k).” It is also important to offer them advice through managed accounts, Golladay says.

Chad Parks, founder and CEO of Ubiquity Retirement + Savings, and himself a Gen Xer who is also feeling competing financial priorities, says the first place advisers and sponsors can start is by offering Gen Xers account aggregation, so that they can see where their money is going. From there, they can establish a budget. “I would challenge Gen Xers that for the sake of their future, they make retirement savings the first line item in their budget, even if it is only $300 or $500 a month.”

Mark Anthony Grimaldi, Co-Founder of Grimaldi Portfolio Solutions and author of the book, RetireSMART, says that in spite of their competing priorities, Gen Xers should put themselves first, and then their parents and then their children. “There’s an unspoken belief among many retirement planners that Generation X consists of ‘those younger people,’” Grimaldi says. “They’re actually in their 40’s and 50’s, so some are just 10 years away from retirement. They have mortgages, second homes, kids going to college and elderly parents. They’re even thinking about long-term care policies. So, don’t underestimate their competing needs.”

According to Schwab’s research, 58% of Gen Xers say that their 401(k) is their largest or only source of retirement savings. This is true for 68% of Millennials and 48% of Boomers. While Gen Xers saved slightly more in their 401(k)s last year than the other two generations surveyed ($9,499 on average), this is only about half of the 2018 IRS contribution limit of $18,500 for those younger than 50. Boomers saved an average of $9,433 and Millennials, $7,257.

On average, Gen Xers think they will need $1.81 million for a comfortable retirement, while Millennials say the figure is $1.78 million and Boomers, $1.51 million.

Thirty-one percent of Gen Xers have taken out a loan from their 401(k), and of this group, 61% have done so more than once—higher than the other two generations. Forty-one percent do not know which investments in their 401(k) plan to select to have enough for retirement, and only 28% say they are very confident in making 401(k) investment decisions on their own.

They say they want help with calculating how much they need to save for retirement (41%),  determining at what age they will be able to afford to retire (38%) and how to invest their 401(k) assets (37%).

It is critical that financial wellness programs aimed at Gen Xers address the debt they are carrying, Golladay says. And since so many of them have taken out one or more loans from their 401(k), advisers and sponsors need to educate them about the negative ramifications of doing so, and help them create emergency savings.

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