It’s high time Gen X takes retirement seriously

  • Gen Xers are heading into peak earning years and are set to overtake the baby boomers as America's wealthiest generation.
  • The first Gen Xers are getting their AARP cards, but 40 percent do not have a strategy for retirement and only 39 percent work with an advisor.
  • Savvy about 401(k) plans and wary of fees and fakes, Gen Xers are cautious about turning to financial professionals. Those who do need to be clear about expectations and goals.

Born into the Cold War and squeezed between two larger demographic groups, Gen Xers have long been known as the "forgotten generation." But for a bunch of loners whom the media gave up on in the mid-1990s, we Gen Xers have done pretty well for ourselves.

We've built our own businesses and communities, quickly adapted to changing business environments and the rise of tech, and survived the worst financial crisis in modern history. As a Gen Xer myself, I'm proud that everyone who called my generation slackers was proven wrong.

Yet, as Gen X heads into their peak earning years, the majority of them have not channeled their professional successes into better planning for retirement. The first Gen Xers received AARP cards two years ago, but only 8 percent have saved enough to be on track for retirement.

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Gen X is the first generation to lose several retirement benefits the previous generations had taken for granted. It's the first generation that can no longer rely on employer pensions for a secure retirement, and will be the first generation unable to rely on full Social Security benefits, which are on track to be depleted in 2034, according to the Social Security Administration's 2015 report.

All things aside, it is too early for Gen Xers to give up on retirement security. After all, Gen X's best earning years are still ahead. In fact, according to Deloitte Consulting, Gen X will experience the highest increase in share of national wealth through 2030, growing from under 14 percent of total net wealth in 2015 to nearly 31 percent by 2030, and overtaking baby boomers as the wealthiest generation shortly after.

So how can Gen Xers reach their retirement goals? Sadly, 40 percent of Gen Xers do not have a strategy for retirement and only a little more than one-third (39 percent) of Gen Xers work with an advisor, according to a TransAmerica Center study conducted in 2016.

This may not be surprising when you consider that Gen X was the first generation that had to work their way through employer 401(k) plans. It's natural to be wary of fees and expenses associated with an advisor when you think you can do it all on your own.

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However, retirement is more complicated than most people think, and Gen Xers' confidence in their ability to manage their own finances may be impeding their chances of reaching a fully secure retirement. Gen X needs to set a vision for retirement and develop a plan for realizing it. They also must recognize that an advisor's expertise can be critical in keeping investors on track and helping them reach their goals.

With a majority of wealth managers offering seemingly similar services, it is likely that when the forever-skeptical Gen Xers look at the wealth advisor space, they don't immediately see what differentiates one financial professional from another.

But not all financial professionals are the same, and Gen X should know whether they're dealing with wirehouse representatives, brokers, registered investment advisors or other financial professionals.

One of the first things to do before engaging with an advisor is to determine what kind of relationship you, as an investor, want to have with your advisor. For some investors, a transactional relationship is sufficient, while others may want a deeper, more inclusive, advisory-based relationship.

If you are looking for an advisory-based relationship, the first thing to understand about your financial professional's credentials is whether he or she is a fiduciary — and whether he or she is a fiduciary all the time.

A fiduciary means the advisor is legally bound to put your interests first. This fiduciary concept now applies to all advice given on retirement accounts, due to the Department of Labor's fiduciary rule. That said, it is important to understand your financial professionals' credentials and the full scope of their activities and affiliations, as well as how they are compensated, to ensure they act in your best interest across all accounts.

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While the financial services industry has quite a bit of work to do in bringing more transparency to the titles used to describe different financial professionals, it is the responsibility of investors to ask the right questions to determine whether the financial professional they work with meets their requirements.

The good news is that technology advances, expanded product lines and increasing competition in the industry are all slowly moving the pendulum toward the investor when it comes to value, price and services.

For the price-conscious Gen Xer, this means a better opportunity to find the right fit for financial advice. But again, it all starts with you. As you begin discussions with your financial professional, be clear about your expectations and needs. For example:

  • How comprehensive are your financial needs? Do you just need to save for retirement, or are you also looking to save for kids' college expenses, to buy a second home or perhaps make other big investments?
  • What level of service do you need? Is a quarterly face-to-face meeting enough for your financial needs, or do you need a higher level of service, with more frequent advisor interaction?
  • How much technology is too much? Are you comfortable with allowing technology to make some — or all — of your investment decisions? Are you comfortable with interacting with a chatbot versus a human being?
"Gen Xers need to accept that they are falling behind on retirement readiness. Retirement planning requires a good amount of discipline and dedication."

As with everything else, when it comes to financial advice, there is hardly a one-size-fits-all approach. A big part of the responsibility in defining the investor-advisor relationship depends on you. Clearly outlining your expectations at the beginning will help set the stage for a long-term, rewarding relationship.

Many Gen Xers are in the midst of raising kids, taking care of elderly parents and managing high-profile careers. But as Gen Xers start preparing for their golden years, they should also spend time thinking about their own legacies and what they want to leave behind to their children and their communities.

A good financial advisor who not only understands your financial priorities but is also interested in your life goals can be instrumental in helping you define and build that legacy.

The time to act is now. My generation has come a long way in navigating the new world of 401(k) plans and non-secured retirement benefits, but Gen Xers need to accept that they are falling behind on retirement readiness. Retirement planning requires a good amount of discipline and dedication — not to mention many trade-offs. As Gen Xers enter their top earning years, there is no better time to begin planning for retirement than now.

— By Gabriel Garcia, managing director for Pershing Advisor Solutions

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