Retirement Planning for Gen Xers: Build Wealth and Retire Happy

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By Steve Lowrie, CFA

Special to the Financial Independence Hub

Are you a Gen Xer? Not quite a baby boomer, but too, ahem, mature to be a millennial? If you are in your 40s to mid-50s, your family financial planning has probably been on a wild ride lately. You may be wondering if you’ll ever get to retire with any wealth left to spend.

As we covered in “Retirement Planning for Baby Boomers”, you should also be incorporating retirement planning into your holistic financial planning. And, no, “I’ll just work forever” doesn’t count for peace of mind planning. Let’s take a look at what Gen X retirement planning looks like for many families.

Gen X Retirement Planning Essentials: Saving, Spending, and Investing

Whether you’re planning to fund your retirement or any other major life goal, the essentials aren’t so complicated. I’m reminded of a joke I heard a while back:

There was this guy, Joe, who dreamed of winning the lottery, so he prayed every day that he would. As time passed with no luck, his prayers grew more fervent. One day, he finally asked, “God, can you even hear me?” Lo, the heavens parted and he received his reply: “Joe, help me out here … Buy a lottery ticket!

So it goes with planning for retirement, or any other short-term or long-term financial goals. Skip the obvious, and you’re unlikely to get very far.

Many Gen X families I meet come to me anxious to learn how to best invest their savings and make money in the market. This is important, and we can definitely help with that, as I’ll touch on below. But first, consider this from “The Psychology of Money” author Morgan Housel:

“Since you can build wealth without a high income, but have no chance of building wealth without a high savings rate, it’s clear which one matters more.”

In other words, despite all the speculative, FOMO (fear of missing out) investing hype you may be tempted to follow in the popular financial press, don’t lose sight of FIRST setting aside money today to build wealth for tomorrow. Consistently spending less than you’re earning (without piling up high-interest debt to do so) goes hand in hand with saving. THEN comes investing.

Gen X Retirement Planning Challenges

These retirement planning essentials aren’t complicated. But they’re often much easier said than done, given the hurdles that often stand in the way. You probably don’t need me to tell you about the Gen X-style financial challenges you and your family are grappling with. But I will anyway. You’re welcome. 😊

When you were new to adulthood, financial planning was simple. You were single, no dependents. Your job didn’t pay much, but you figured you were destined for greatness. Other than college debt, you had few demands on your income. Maybe your parents were even pitching in. If you decided to move, you and a few buddies could transport everything you owned in a rental van, and still have time left for pizza and brew at the end of the day.

That doesn’t seem so long ago. But now you’re in your 40s or 50s, and “simple” has become a distant memory. These days, you’re juggling your own short-term and long-term financial goals; your parents’ needs; your kids’ wants; Toronto-area housing challenges; and, oh yes, that little career-crushing pandemic. Plus, your youthful vigor isn’t quite what it used to be. As the late, great comedienne Joan Rivers once said, “You know you’ve reached middle age when you’re cautioned to slow down by your doctor, instead of by the police.”

I get that it’s hard to incorporate retirement planning into all of the above. Relative to your here-and-now financial needs, retirement probably feels too distant and too daunting to tackle today.

But take heart. You can actually use that distance between now and retirement as a force for good … your good. If you can include even a few retirement planning best practices into your life, they should have a larger-than-life impact on your family financial planning.

What are some of your power moves? Read on.

A Gen X Edge: The Power of Compound Returns

As a Gen X family, you should still have decades between you and your ideal retirement. So, perhaps counterintuitively, you get to routinely set aside less if you start saving more right away.

The extra time you’ve got gives you the luxury of benefiting from compounding returns. That means you can snowball more returns on the returns you’re already receiving—and so on, and so forth. Bottom line, the more you manage to save, and the sooner you get started, the more likely your investment portfolio will have what it takes to come through for you in retirement.

Even modest savings can add up, especially once you put them to work in the market. Not sure where the extra dollars will come from?

Pandemic-inspired savings: The pandemic might already have given you a head start, forcing you to travel and dine out less frequently or lavishly. The daily “commute” to your home office may also have shaved off some of your usual costs of living. I’m not saying you need to hunker down at home forever. But as you add back former spending habits, be deliberate about which ones you truly missed, and which weren’t such a big deal after all.

Cutting other corners: Schedule periodic family meetings to explore the possibilities. You could even make a game out of seeing who can find the most corners ripe for cutting.

Windfalls: Any time you receive unexpected dollars — a raise or better-paying job, a gift or inheritance, or if you actually do score some lottery winnings — do yourself a solid and set aside a good portion of them for your future self.

Automated saving habits: Once you’ve identified extra sources of income, don’t trust yourself to proactively move that money from spending to savings accounts. It’s too easy for it to end up “invested” in an extra latté instead. Quantify how much you’ve saved and set up an auto-transfer of that money straight into your investment account.

Another Gen X Edge: Investment Staying Power

Once you’ve got those savings stashed, your next step is to invest the stuff. Here, you’ll find another significant edge Gen Xers have over the Baby Boomers. Suffice it to say, there are a ton of sensible investment strategies you can deploy to enhance your expected returns. Properly managed, higher expected investment returns can translate to higher average retirement income once the time comes.

I am NOT talking about chasing the latest trading trends. I posted my take on that a while back in “Investing fads: Quack like a duck and you may get plucked.” Speculative trading is highly risky. Like the lottery, there’s a tiny chance you’ll win big. But it’s far more likely you’ll lose largely. That may be okay for the occasional scratch & win ticket (although we’d suggest you’re better off saving that money instead). It’s definitely no way to treat your life’s savings.

In contrast, we suggest efficiently harnessing the risks inherent in broad capital markets by investing in low-cost, globally diversified index or index-like funds, and then staying put in them. This positions you to earn higher expected returns created by the marvels of human enterprise … with one critical caveat: You need ample time to let those expected returns shine through. I covered this concept in “The price we pay for investment certainty”. Or, for an even deeper dive, take a tour of Dimensional Fund Advisors’ science of investing site.

Because you have a relatively expansive timeline in which to earn those long-term returns, you might be able to invest more aggressively: if you can tolerate the risks that may arise along the way. Either way, as I covered in “Tax Strategies to Boost Your Financial Savings”, you’ll also want to invest tax-efficiently, so you don’t end up unnecessarily funding the CRA instead of your own retirement.

When to call it Quits: A Cautionary note about Expecting the Unexpected

A final word about your personal retirement timeline. Have you been figuring you’ll just work longer than usual to make up for today’s spending needs? It’s a strategy you can include in your arsenal of retirement planning tactics, but please don’t depend on it exclusively. Even if you adore your career, there’s one thing the pandemic has shown us loud and clear: Things don’t always go as planned. As a Franklin Templeton 2018 retirement planning survey found:

“This reliance on retiring later is concerning as nearly a quarter of North American retirees actually retired earlier due to circumstances beyond their control, like health issues and company downsizing (23 per cent in Canada and 22 per cent in the US).”

And these observations were pre-pandemic, which means those “beyond their control” numbers may now be even higher.

So, when will you retire? How will you find a harmonious balance between enjoying your career years and saving enough for when they’re over … whenever that may be? Every family’s financial needs analysis is built on individual opportunities, particular challenges, and personal preferences: so hiring a personal financial advisor to assist may be among your greatest super powers of all.

Let us know if we can give your retirement planning a boost today.


Steve Lowrie holds the CFA designation and has 25 years of experience dealing with individual investors. Before creating Lowrie Financial in 2009, he worked at various Bay Street brokerage firms both as an advisor and in management. “I help investors ignore the Wall and Bay Street hype and hysteria, and focus on what’s best for themselves.” This blog originally appeared on his site on on Oct. 15, 2021 and is republished here with permission.

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