By Lyman Howard
Learn more about Lyman on NerdWallet’s Ask an Advisor
Were you born between 1963 and 1980? That would make you a GenXer. We have our own set of financial circumstances based upon when we came up through the system. Here are some key financial issues you should pay attention to today as a member of this generation:
Help Your Parents to Prepare:
As children of the “silent generation” that was born in the 1930s and early 1940s, we have parents who were producing us amidst widespread acceptance of divorce and birth control, leading to small families and fewer siblings. That leaves a bigger burden on each of us to care for parents as they reach their 70s and 80s. They will live longer than even they expected, and have themselves experienced two stock market busts and a housing bust at precisely the time they were hanging up their spurs and transitioning to living off of the nest egg. With their stretched investment portfolios and rising healthcare costs, we GenXers will likely be stepping in financially to assist them. Long Term Care Insurance and medical directives should become part of the conversation. People who have a stroke and go into nursing homes tend to do so in their late 70s and early 80s, where they survive for approximately 3 years on average. Those can be emotionally and financially draining times for everybody. It merits some preparation. Learn more about long-term care insurance here.
Don’t Neglect Your Own Savings:
We GenXers, currently aged 33-49, have to be saving seriously for our own retirement right now. Regular contributions need time to compound and grow. Time is an even bigger success factor for compounding than rates of return, making it most important to save now and to do so regularly. Unfortunately, the latest recession has made people halt retirement account contributions at this watershed moment. If you are contributing 10-20% of your salary to savings accounts currently, keep going! If you are one who has stopped, please reconsider your budget priorities and start saving again, even if you are saving for kids’ college at the same time. Full Social Security benefits for us won’t be available until age 67, but that’s a mere 17 years away for our oldest GenX members. Social Security is only a safety net, anyway. You must save to make up the difference in income required for the lifestyle you desire. For an estimate of what you will you be paid in Social Security benefits, visit the Social Security Administration’s website and create your online account today.
Be Proactive About Tax Planning:
We’ll hit our highest earnings years in our 40s and 50s if history is any guide, meaning this upcoming decade. Figure that income taxes will be going up from today’s levels. Don’t believe it? Visualize the demographic wave aging ahead of us, leaving the workforce and wielding increased voting influence. You must prepare for this through smart tax planning. Choosing when and where to take tax deferral in your investments starts today. Should you pay taxes today if it gets you better tax treatment later? You betcha. Roth IRAs can accomplish that if you start early enough, so run the numbers. If saving beyond the contribution limits of qualified retirement accounts, you should seek investment choices that allow you to defer taxes for year after year, such as growth stocks, index ETFs, and US Savings Bonds. Talk to your CPA or financial advisor about this.
College Costs Squeezing From Below:
If we GenXers have children, most are getting close to college age or already attending. Tuition costs have outpaced inflation for decades. You are past the point of seeding a small starter college fund by this point. It’s time instead to strategize financial aid (minimize assets in the child’s name, shop around colleges for better aid packages, get creative with home equity lines of credit, time shift your income), seek tax credits where available, look at tapping into life insurance cash values if it’s allowed, and be sure earmarked funds aren’t at risk in aggressive investments. There are plenty of resources such as NerdWallet’s NerdScholar to help you to get started.
Lock In Proper Amounts of Life Insurance Now:
Yeah, it sucks to feel that your body is falling apart. That is just part of reaching your 40s, sorry! It’s a good reason not to delay getting life insurance. If your household income must fire on all cylinders to get family goals accomplished, you owe it to your spouse and family to apply for enough life insurance. Get medically approved before you have a medical issue. No problem! Term insurance is cheaper than ever these days, and you can lock in a long enough time period to get you through the woods. Visit your workplace benefits department to see if you can purchase through your employer’s group plan.
Make Your Next Refinancing a Fifteen Year:
Our Generation bought homes in the real estate boom on the assumption that home values only go up, and that we should buy a maximum house with minimum down. That turned out to be a bad choice, and we have hopefully learned our lesson. Home equity should be built up steadily, and a debt free retirement is the most carefree retirement. If you want to: 1. Pay less total interest over the life of the loan 2. Build equity faster and 3. Own your house free and clear someday, then consider getting out of your thirty year mortgage and into a fifteen year, provided you feel secure enough about your sources of income to manage the larger monthly loan payment. This might mean waiting until your kids are finished with college and you are renting their old bedrooms to them for money (kidding!) and generally have extra cash flow. GenX is at the optimal time to consider the fifteen year mortgage. Lots of online calculators are available.
Now, please get moving on this stuff…then kick back, crank up the “Yacht Rock”, and relax with a cold…. Fresca?