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. Continue Reading…
It’s one thing keeping up with the Joneses but a poll from Edward Jones finds that 61% of Canadians wonder how their friends or neighbours can even afford their lifestyles. This is especially so among Millennials (aged 18 to 34), 71% of whom felt this way, while 66% of Gen Xers aged 35 to 44 were curious to understand how those around them finance their purchases.
Seems to me this gives new meaning to the phrase The Millionaire Next Door, a popular book on how frugality is a key trait in building wealth. Typically, the kind of millionaires in the book live modestly and their net worth may not be obvious merely observing the size of a given home and/or what’s parked in the driveway. Conversely, it can also be that an apparent “millionaire next door” has no net worth at all but is fuelling their conspicuous consumption merely with debt.
Either way, it appears many of us are influenced by what our associates are spending their money on.
Sadly, the Edward Jones poll found that the pernicious practice of looking at the purchases of others may influence consumers to buy beyond their own budgets: a whopping 93% said they experienced buyer’s remorse after such purchases and admit to regrettable spending habits. Among Millennials, 96% experienced buyer’s remorse but so did 90% of baby boomers.
Among the types of purchases most likely to generate regret were tangible purchases, which were cited as a source of regret in 83% of cases. Clothing or shoes were regretted by 35% polled, jewelry by 28% and electronics by 26%. Millennials regretted spending on clothing/shoes in 47% of cases, while boomers were more likely to regret spending on jewelry (34% of them did).
While Millennials famously are supposed to value experiences over stuff, across the Canadian population, 83% regretted making impulse tangible purchases, versus 71% for experiential purchases.
Build spontaneous spending into your budget
So what lessons does this survey furnish for those seeking ultimate financial independence? “If you know you enjoy spending money spontaneously, build this into your monthly budget,” said Roger Ramchatesingh, Director, Solutions Consulting at Edward Jones in a press release issued on Monday, “When it is unplanned for, it can add up over time and hurt other long-term goals such as retirement or the purchase of a home.” Continue Reading…
The number of financial responsibilities facing Generation X – those ages 37 to 52 today – seems overwhelming. Getting married, having kids, and raising a family can be expensive enough. Now factor in building an emergency fund, paying down the mortgage, setting aside money for retirement, saving for your child’s education, and everything else that comes along with improving your finances. It’s a tall order – I’ve been there! In fact, I’m living it.
How do you balance paying off debt, saving, and investing with the everyday costs of supporting a family? Let’s start by setting up a simple plan for each of these categories to ensure that you are on the right financial path. Here’s how to fix Generation X finances:
Treat consumer debt like a financial sin
You can’t move the needle forward financially if you’re constantly spending more than you earn. But when your mortgage payment, car payment(s), daycare costs, groceries, and gas take up your entire available budget then you have no wiggle room to plan for unexpected costs.
Not only that, when the “I deserve this” moments come up and you want to treat yourself or your family to dinner, a movie night, or a vacation you end up going into debt (just this one time) to make ends meet.
Start with a list of everything you currently spend over a period of three months. Where does all your money go? Find a way to slash expenses so that you’re no longer going into debt just to get through the month.
Make it a rule: No new debt this year
Now it’s time to tackle your current debt, whether that’s in the form of a lingering line of credit or (gasp!) a high-interest credit card. If it’s the latter, put all savings and extra spending on hold and throw every extra dollar at that debt until it’s paid off. Continue Reading…
Young people today, and I’m talking about Millennials and those who just made it into Generation X, think they can do everything on their Smartphones, Handhelds or other mobile devices. But I have news for them. They can’t.
In Germany a pedestrian who was typing on a Handheld walked into a busy intersection, and was promptly killed by a passing car. It wasn’t the motorist’s fault. The person on foot was oblivious to where they were and what they were doing.
Nowadays people are apt to check their precious mobile devices twice a minute. Every thirty seconds. They exist in total crisis mode. This is a huge problem in terms of productivity. Here’s why.
Prioritizing impossible with Handhelds
First, it is impossible to prioritize your day if you live on your Handheld. On the other hand, Microsoft Outlook is an efficient way to do that – but only if you know how. Think of Outlook as a ten-ton truck that can carry ten tons of steel (i.e., a lot of information.) But if that’s a ten-ton truck, then your Handheld is a motorcycle and no motorcycle can carry ten tons of anything. It just doesn’t have the power to put your tasks into any intelligent order or scheme. You will be much more efficient, and productive, if you recognize what your Handheld won’t do.
Below is the text for a speech I delivered Monday evening at Toastmasters Port Credit. I’ll be devoting some full blogs to Toastmasters in time, probably under the Entrepreneurship section, because it helps people of any age cultivate two critical skills: public speaking and leadership. Since the idea is to speak without notes, my actual delivery was not identical to what you see below. It has been adapted for the blog but in a few days I may put up a video of my performance, which was clocked at around eight minutes. I imagine this expanded version would take 15!
Jon Chevreau (Twitter).
Thank you Mr. Toastmaster, fellow Toastmasters and esteemed guests. As I look around this room, I see a mix of people: everyone from students and those just embarking on the workforce to people who are already retired.
I’ve worked as a financial journalist for more than 20 years and can tell you the word Retirement is a favorite word of both the financial industry and the media. It’s a handy way to depict a far-in-the future “dream” that conveniently helps banks, mutual fund companies, insurance companies and others sell various financial products, from funds to annuities. And we in the media are almost as fond of the term retirement: I’ve seldom witnessed a newspaper, magazine or web site that turned away financial advertising!
I’m 61 and you could call me semi-retired. But my message to the younger people in the audience, and even some of the middle-aged ones who fear they’ve not saved enough, is FORGET RETIREMENT!
Is this heresy? Not at all. Because there is a better term: Financial Independence. As some of you may know, a month ago I launched a new web site called the Financial Independence Hub and everything I’m saying here can be found at the site.
XY Planning’s Alan Moore
In fact, it includes a guest blog by Alan Moore of XY Planning Network in the US who posted a blog on exactly the topic I’m talking about here. The X and Y refers to Generations X and Y, so he is providing financial planning advice to millennials and young people. And he too is telling them to forget about retirement but instead to seek Financial Independence.
Aren’t the two terms the same thing? Not really. To me, Retirement is the full-stop retirement our parents or grandparents enjoyed if they were lucky. They got a job out of college, enrolled in a Defined Benefit pension that guaranteed a certain steady future stream of income, hung in for the gold watch for 30 or 35 years, then retired at the traditional retirement age of 65. They could now watch day-time TV, golf, nap, play bridge or putter in the garden to their heart’s content for a decade or three. This is what I call the “full-stop” sudden retirement.
Perhaps some of you here are now enjoying such a retirement. Like Mark over there.
Show of hands: how many of you younger people here think they’ll be able to rely on a DB pension when they’re as old as Mark or me? And how many think they’ll stay with a single employer long enough to collect a big enough pension that they’ll never have to work again?
To the young, Retirement is a remote unattainable concept
The problem with the term Retirement is that it seems so terribly far away for young people. The official retirement age keeps rising: it’s now 67 for younger folk instead of 65, if you’re talking about the eligibility age for Old Age Security, and I wouldn’t be surprised if it reached 70 at some point. So telling a 20-year old they should cancel their SmartPhone service in order to save money for a retirement half a century away is hardly an inspiring message, is it?
But that’s what all the retirement peddlers want you to do: put away 10% or preferably 20% of your income by practicing delayed gratification. They may tell you that you’ll need a million dollars or more in order to retire one day. Too often, sadly, young people hear that and figure it’s so impossible they may as well give up and spend it while they have it.
In other words, they are telling young people that in order to enjoy a decade or two of leisure when you’re old and grey, that you need to deny yourself pleasures like travel or eating out while you’re enjoying your youth.
Let me tell you, any of the grey hairs here would probably love to take their retirement savings and use it to book passage on a time machine that would let them relive the Swinging Sixties. If you’re 20 today, I imagine that your 70-year old future self would feel the same way about your life right now.
A more attainable goal
So what do I suggest as a substitute for the word Retirement? I call it Findependence, which is just a contraction of Financial Independence. I’ve written a book, Findependence Day, which is just the day you’ve reached Financial Independence. The ebook I talked about in my third speech here is a sort of “Coles Notes” summary of that book.
Financial independence is generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities.[1] For financially independent people, their assets generate income that is greater than their expenses.
In practice, I think this means being able to survive without the single stream of income most call a full-time job.
Leaving the nest at 27 is NOT Financial Independence!
Defined this way, Findependence can occur decades before the traditional Retirement, so it’s a goal that young people may find is more worth shooting for. Interestingly, last week I blogged at MoneySense and at the Hub about a study about young people and their financial readiness to leave home. They used what I consider an incorrect definition of financial independence: that if they left the nest and stopped depending on the Bank of Mum and Dad, that they were therefore financially independent. If they could get a job and pay their rent, that was the definition, which resulted in the absurd headline that most millennials hope to be financially independent by age 27.
I don’t think so. Even with DB pensions, the earliest most people aspired to Financial Independence was 55, which is the earliest some pensions permit early retirement. Anyone hear of Freedom 55? That London life campaign was one of the most successful sales pitches for Early Retirement. Yet only a few government workers or business executives who strike it rich ever retire that early.
Why do billionaires keep working?
Why is that billionaires like Warren Buffett continue to work? Or young tech entrepreneurs like Mark Zuckerburg? Don’t you think Zuckerburg, who’s all of age 31 or so, couldn’t be findependent by now? Obviously, they have passion and are driven by purpose.
What does that tell you? Age 55 is way too young to “retire’ in the classic sense of doing nothing: playing golf, watching daytime TV, reading all day. Yes, many people THINK they’ll travel all the time once they retire but as I wrote on another blog last week, travel is overrated and expensive, and is really something you would only want to do some of the time, not ALL of the time.
Integrating the Three Boxes of Life
Findependence is about integrating education, work and play. On my sister site, Findependence.TV, I’m interviewed about a concept called The Three Boxes of Life, which is the title of a classic book by Richard Bolles. In the old days, we started life in the first box, Education, spent 15 or so years there, then graduated to the second box, Work. We stayed there for 35 to 50 years, and then came traditional Retirement, the third box of total play and leisure.
On the video, I talk about there being really only a single day: you work a bit each day and make money, you learn a bit each day and at the end of the day, you may “play” by getting some exercise, reading, watching TV or whatever.
On the site, there are blogs on concepts like mini-retirements and the four-hour workweek. Wouldn’t it make more sense to take the occasional mid-career sabattical or series of three-month vacations earlier in life, rather than saving it all for ten or 20 years of doing nothing when you’re too feeble to appreciate it? That’s why the subtitle of Findependence Day as well as The Financial Independence Hub is “While you’re still young enough to enjoy it.”
Plan for Longevity, not Retirement
Meta celebrates her 98th birthday. With Alizon Sharon (c) and Ruth Snowden (r).
Life expectancies are on the rise because of advances in medical science and more of us are practicing better health habits, with a focus on proper diet and exercise.
We can all expect to live a lot longer than we once thought, which is why the “Hub” ends with a section on Aging and Longevity. There you’ll find some blogs by Mark Venning of ChangeRangers.com, who coined the phrase “Plan for Longevity, Not Retirement.” I think it’s a great concept.
And it isn’t just a theoretical concept. On Sunday, we had a dinner party for a female friend of ours who celebrated her 98th birthday. She showed us a custom-printed card from – get this – her co-workers. You see, Meta still works two half-days a week at a local printing company. So she still spends a little time in the Work box. She also reads a lot, swapping books with my wife (Ruth, above), so part of her days are in the Education box. And she still travels and parties, so that’s the Leisure box.
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