Gen X Clients Need Help Saving for Retirement. What’s The Cure?

The oldest members of Generation X are turning 60 this year, but many of them are not confident that their retirements will be just like heaven.

Data from Cerulli released in September showed that four out of five Gen X 401(k) participants don’t expect they’ll be able to maintain their current standard of living in retirement, and two-thirds of them have less than $100,000 in individual retirement assets, according to Cerulli. Gen X covers people born between 1965 and 1980, so there’s a wide range of ages, from those turning 60 this year to those who are 45. Education and outreach to this generation, which is known for being independent but also pragmatic, is critical to help them boost their savings. For advisors, working with these individuals can give a needed boost to their retirement readiness, and help provide clients with added value. 

But it’s important to not treat this generation as a homogenous block, said Marc Fowler, director of retirement education at Human Interest. It’s also necessary to “nuance your strategy, your education outreach, etc., to be able to work not only with the folks who still have 20 years but also work with those folks who are really looking at retirement as a near-term option,” Fowler said.

Show Me How You Do That Trick 

Stephanie Nanney, partner at Private Vista, who works with plan sponsors, said it’s not surprising that Gen X lacks confidence because cumulative stock market performance between 1998 and 2008, when many had started investing, was negative overall. Being bookended by the dot-com crash and the Great Financial Crisis may have scared them away from contributing to their retirement plan. 

To combat those fears, Matt Waters, partner and wealth advisor at Prime Capital Financial whose firm also works with plan sponsors, said the No. 1 thing he tells 401(k) investors is “just get started.” If participants are saving but at low levels, he’s found success with encouraging gradual increases, such as increasing savings rates by 1% every time someone gets a raise or bonus, or to mark their calendar to annually remind the person to increase their savings. Gradual increases are easier to handle, rather than touting the industry standard to save 15% to 20% of income, and appeal to Gen Xers’s pragmatic nature. “It’s the small, digestible steps that people can take that don’t hit their cash flow at home so dramatically,” he said.

For people who aren’t already maxing out their 401(k), suggesting catch-up contributions once they hit 50 isn’t helpful. Instead, he likes to show low savers the power of compounding interest and how just slowly increasing savings can make a difference. “We’ve worked with lots of participants. They look up 10 years (later) and they’re like, ‘Wow, I never thought I would ever have this much money.’ And it’s because of these little decisions that they were able to put in place years ago,” Waters said.

Whenever I’m Alone With You

The Gen X demographic is now the “sandwich” generation juggling competing savings goals and responsibilities, including saving for children’s education, saving for retirement and possibly caretaking. Olivia Le Blan, vice president at Douglass Winthrop, said she worked with a client who was 52 and was stressed about meeting both his retirement and his three kids’ educational savings goals. Her analysis showed that he should focus on his retirement savings first. “We basically told him, ‘You really have to secure your own oxygen mask before helping others,’” she said.

Dina Caggiula Alongi, head of participant experience at Vanguard, said because savers have multiple goals, looking at participants’ holistic financial picture helps them feel more confident. With retirement anywhere from five to 15 years out, Gen X may be reaching an “aha” moment when they realize they need to take their retirement savings much more seriously, said Krysta Dos Santos, head of financial planning at GenTrust. They may be more willing to work with financial advisors. A lack of confidence may prohibit Gen X from actively saving money, so building confidence is key, she said.

Nanney said advisors may be able to appeal to the practical, independent mindset of Gen Xers by reminding them to think about diversification and their risk profile, and stick with that, rather than chase market trends. Target date funds can appeal to those who may not want to be as engaged.

Friday, I’m in Love. Savings platforms should be designed so that participants feel in control of their financial future without being overwhelmed. Educational material can sometimes still be too advanced for plan participants. As an example, Fowler said he was at a recent conference where people were asking him the difference between traditional and Roth 401(k)s. Webinars and other material can be useful, but human interaction such as live enrollment meetings when a plan sponsor offers a new plan to employees is important, he said. It allows employees to learn about the plan, how it functions and enables people to ask individual questions.

Waters said advisors need to consider both the workforce and how to deliver education. “It’s not a suitable practice to just drive people to a website and expect that they’re going to be able to read about stocks and bonds … Most folks don’t have the bandwidth for that,” he said.

When Waters works with blue-collar companies, he may tag along to a safety meeting and speak for 15 minutes at the end. “There’s no magic bullet. It’s really a number of different things,” he said.

Instead, Alongi encourages plan sponsors to look at recordkeepers’ data, which can provide insight into participant behavior, contact-center interactions and popular topics. She said plan sponsors that access Vanguard’s financial wellness assessment data can use it to make decisions about plan design choices such as auto enrollment, auto increase and target date funds. “All of those features pay dividends in making sure more participants can get to retirement readiness,” Alongi said.