At the end of 2007, Financial Finesse, a Manhattan Beach, California-based financial advisory and guidance firm, recorded an 11% increase from the year before in the number of calls related to retirement finance coming in on its toll-free financial helpline.
The jump is significant, says Liz Davidson, Financial Finesse’s CEO, not only because such increases are usually incremental, but also because a large number of the calls were from Generation Xers, for whom retirement is still a long ways off. The calls show, though, that proper retirement planning is becoming an increasing priority for Generation X, Davidson says. “Generation Xers want to be prepared for their retirement,” Davidson says. “They know how important retirement finance is.”
Generation X–those who currently are between their mid 30s and late 40s–are definitely on the ball when it comes to planning for their retirement, agrees Sabrina Lowell, an advisor with San Francisco-based Mosaic Financial Partners, Inc., and they are also lucky in that they have far more resources to make use of than the baby boomer generation that precedes them. Indeed, thanks to the wide variety of print and online attention that is being given to money management in general and retirement planning specifically, Generation X is an extremely financially savvy generation, Lowell says, and as such, many Generation Xers have the ability to start saving for their retirement much earlier than the previous generation did.
“Generation X has learned early on about being self-sufficient in retirement,” says Lowell–whose client base is about 40% Generation X. “Many expect to receive reduced Social Security benefits, for instance, and most don’t even factor that into their planning at all. Much of Generation X has never known what a defined benefit plan is and the way things are going, never will either.”
Of course, being financially savvy does not necessarily translate into being financially prepared, at least not in the here and now. Many Generation Xers are dealing with mountains of debt, Davidson says, and they question Financial Finesse reps about how to deal with this. “On the one hand, many people in this generation seem to be aware of the need for retirement planning, but we get a lot of questions on topics like the pros and cons of taking out a loan to finance retirement,” she says. “We do see people in Generation X capping their retirement plans for short-term gains.”
To be fair, though, Generation X’s cash crunch is not only a consequence of living for the present. Many people in this generation are taking care of children and have concerns about being able to care for older parents, she says. And Generation X has to bear a far greater burden for healthcare than any other generation has ever had to.
The good news is that Generation X still has time, and that time can be used efficiently since retirement finance is already an issue at the forefront of most peoples’ minds. Companies have caught onto this, too, Davidson says, and many are taking steps to help Generation X become more efficient retirement planners by focusing on the issues that are pertinent to them. “We’re seeing an increased focus on basic money management at many companies, with the understanding that this is the first step toward retirement planning,” she says. “Companies know that it is important for the younger generation not to be in the urgent position that many pre-retirees are now in, so they are making it a point to take care of their younger employees.”
Many companies are also taking steps to make savings plans more geared toward Generation X, Lowell says. The option of self-directed 401(k) plans (which allow participants to select investment vehicles in the wider market beyond what their employer offers), for instance, is gaining ground and many Generation Xers are taking advantage of them. Roth 401(k)s and Roth IRAs are also popular among Generation X, and would spare them the worry of tax erosion on accumulated wealth later on in life.
“Generation X can also avail of options like online trading and alternative asset classes like publicly traded commodities, which Baby Boomers might consider too volatile,” Lowell says. “This generation really is lucky in that it has access to so much information and can, if helped, make some really good decisions for the future.”
Financial Finesse provides full service financial education programs to over 400 organizations across the U.S., combining financial workshops with phone-based financial coaching, in- person financial planning sessions, and online content and tools to deliver personalized, ongoing financial planning programs.
Generation X is the number one demographic calling the company’s financial helpline, Davidson says.