If you have children or grandchildren born in "Generation X" -- loosely defined as those people born between 1965 and 1980 -- you know they still have a long time to go before retirement. But that doesn't mean they shouldn't be thinking about retirement -- and saving for it.
Unfortunately, many members of the Gen-X cohort are doing a poor job of retirement planning. About half of all workers born between 1965 and 1972 are "at risk" of having too little money to maintain their standard of living during retirement, according to the National Retirement Risk Index created by the Center for Retirement Research at Boston College. (This study didn't include the younger Gen-Xers because their financial histories are not considered long enough to yield meaningful interpretations of future behavior.)
The Retirement Risk Index uses a variety of variables to come up with its projections, but they pretty much boil down to one conclusion: Older Gen-Xers aren't saving enough to pay for the type of retirement they'd like to have.
If you think your child or grandchild -- let's call her "Jen" -- might be in the low-savings group, what changes can you encourage her to make to reach a different -- and more favorable -- destination?
Here are a few suggestions:
• Don't panic. Gen-Xers have got one really good asset on their side: time. Even the first wave of Generation X members have got roughly 25 years until reaching the "typical" retirement age of 65. That means Jen still has time to make some moves that can help her make good progress toward her retirement goals -- if she doesn't wait too long.
- Take advantage of retirement savings opportunities. If Jen has a 401(k) where she works, encourage her to take full advantage of it. Her money will have an opportunity to grow on a tax-deferred basis, and her contributions are typically made with pre-tax dollars, which means the more she puts in, the lower her adjustable gross income.
Ideally, Jen should contribute as much as she can afford, increase her contributions whenever she gets a raise, and spread her money among the range of investments available in her plan. Also, if Jen can afford it, she should contribute to a Roth or traditional IRA every year. Both offer tax advantages and can be funded with money going into virtually any investment -- stocks, bonds, government securities, etc.
- Identify retirement goals. We all have different visions of the ideal retirement. While Jen might want to work until 65 and then open a small business, her friend might want to retire early and travel the world. Consequently, the amount Jen will need to save -- and even the investment philosophy she follows -- should be based on her individual retirement goals.
- Get professional help. It's not always so easy to create and maintain long-term investment strategies. Which investments are right for Jen's individual needs? How aggressive should she be? When should she make changes to her portfolio?
A financial professional can help Jen answer these and many other questions that will arise over the years.
For people in Jen's age group, retirement may seem like a distant vision. But it's moving closer every day -- and she'll want to be ready when it finally arrives.
Encourage her to take the steps necessary to prepare herself.
-- Ross Hage is a licensed investment representative with the firm of Edward Jones. For more information, call him at (928) 468-2281.