The Generation That Plans

On the TV sitcom “The Brady Bunch,” Jan Brady often complained about having to live in her older sister’s shadow (“Marcia, Marcia, Marcia!”). The media’s unrelenting focus on baby boomers may cause a similar sense of frustration for Gen-Xers, who are often left out of the spotlight. 

Simply put, it’s a numbers game. Generation X, comprising those born between 1965 and 1976, has only 41 million people. In comparison, there are 76 million boomers (born between 1946 and 1964) and 72 million Gen-Yers (born between 1977 and 1994). Talk about a “sandwich generation”!

Popular perception hasn’t been kind, either. Gen-Xers have been labeled as “reactive,” “cynical” or “slackers.” But while they may have a reputation as kids with iPods, the truth is they’re more likely to be professionals with BlackBerries. And they’ve done a better job of preparing for a financially secure retirement than their elders, the boomers. But even so, there’s a lot more they can do.

DOING A BETTER JOB THAN THEIR PARENTS…

While many boomers have been caught unaware of their retirement needs, a large number of Gen-Xers have been delving into the details. According to a Harris poll, 70 percent of Gen-Xers don’t expect a pension and 65 percent aren’t counting on Social Security. (1) Instead, 55 percent said they’ll rely on investments to fund retirement.

…BUT THERE’S MORE TO DO

Although planning better than their boomer parents has paid off for Gen-Xers in the form of higher savings, it’s not all smooth sailing ahead. Like many boomers, Gen-Xers have been delaying marriage and kids, which means that college costs will hit at a time when retirement is, hopefully, just around the corner. 

So being prepared for all of these financial needs is especially important. If you’re a Gen-Xer (or know one), here are some key steps to staying financially fit and on track to retirement:

*MAKE SAVING AT LEAST 15 PERCENT OF PRETAX SALARY A PRIORITY.

If you got a late start (say, no savings prior to age 35–40), you’ll want to increase that number to 25 percent or 30 percent. While the house payments and the kids’ college fund may take up a big chunk of your income, get started with whatever percentage you can afford — every day you procrastinate means a bigger struggle down the road. Wait until you’re 46 to begin saving for retirement, and you’ll need to save 41 percent of your pretax salary to catch up!    

*REMEMBER, THE CLOCK IS TICKING ON RETIREMENT.

You’ll want to make sure you have a detailed retirement plan. Decide on an appropriate asset allocation you can live with over the long haul, no matter how the market fluctuates in the short term 

*IF YOU’RE PRESSED FOR TIME, CONSIDER AN AUTOMATIC SAVINGS PLAN, in which you contribute money automatically to your retirement plan from every paycheck.    

*IF YOU’RE WORRIED ABOUT MANAGING YOUR PORTFOLIO, CONSIDER A TARGET FUND that “targets” a retirement date and automatically adjusts your asset allocation as you near retirement.   

*TRACK YOUR SPENDING TO FIND WAYS OF CUTTING BACK.

Do you really need to spend $4 a day on a double mocha latte? Could you live without an SUV, opting instead for a car that costs less and gets better gas mileage to boot? Even the small stuff adds up!   

*GET USED TO LIVING ON A LITTLE LESS NOW.

It will be a lot harder later on, if you spend at or beyond your means for years.    

*TAKE ADVANTAGE OF YOUR EMPLOYER’S 401(K) OR OTHER RETIREMENT PLAN, at least up to any matching contribution. Consider a deductible traditional IRA or Roth IRA, if you’re eligible.    

*WHEN YOU GET A RAISE, DON’T RAISE YOUR STANDARD OF LIVING. Earmark as much as you can for retirement savings.  

*NEXT TIME YOU GET A BONUS, DON’T IMMEDIATELY SPEND IT.

Try to put most or all of it into your retirement savings.   

*RESIST THE TEMPTATION TO CUT BACK ON SAVING FOR RETIREMENT, regardless of what’s going on elsewhere in your life. Convince yourself that your retirement funds are untouchable; don’t tap the till for anything but retirement.  

*REVISIT YOUR RETIREMENT PLAN ANNUALLY.

Don’t just review your portfolio’s investment performance — also monitor your ability and willingness to save.

For an online version of this story, please click the following link:

http://www.schwab.com/public/schwab/research_strategies/market_insight/retirem

ent_strategies/planning/the_generation_that_plans.html?cmsid=P-

1964482&lvl1=research_strategies&lvl2=market_insight&refid=P-1072058&refpid=P-

994220

1. Harris poll conducted for the American Institute of Certified Public

Accountants, March 2006.

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