If you are a member of Generation X, you’re parents are most likely Baby Boomers. Although most Baby Boomers are not financially prepared for retirement a lot of them do at least have some sort of inheritance to look forward to. Chances are, if the Boomers do inherit assets from their parents, they will spend them all supporting (and indulging) themselves in retirement, which will leave very little for Generation X to inherit. Therefore, if there was ever a generation that needs to get active in planning for the financial future, it is Generation X. Fortunately, most of us have time on our side.
Based on the definition from Wikipedia, the oldest members of Generation X are now in their early 40’s. If they wait until they are 65 to retire, they have 20+ years to prepare. We can’t count on Social Security to help us out and corporate pensions are vanishing into thin air. It’s up to us to make our own way. So, what should Generation X’s action plan look like?
1. Start saving NOW!
That’s all there is to it. I’m not talking $25 per paycheck. I’m talking about at least $100 per week. Of course, you need to be able to afford to save. But, if you think you can’t afford to save, then you probably need to give your budget a serious look. I’d be willing to be that most people could cut out some fat if they really wanted to.
2. Make sure your money is invested properly.
I know lots of people who have no clue where or how to invest the money they have in their 401(k) or other retirement plan. Not knowing how to invest your money could mean the difference between a secure retirement and a retirement spent eating beans. There are two ways to solve this problem: 1. Learn how by reading books or 2. visit a financial planner who can help you understand your choices.
3. Get out of debt.
My wife and I are STILL paying off debt from college. Some of it was necessary debt but most of it was the result of stupidity. Nonetheless, we are focusing on getting out of debt so that the only debt we have to worry about is our house note. Our interest rate on our mortgage is low enough that I’m not aggressively trying to pay off the house. Instead, I’m concentrating on paying off the other debt and investing in our retirement plan.
4. Set up some sort of emergency fund.
Hurrricane Rita taught me the importance of having an emergency fund that can be tapped when needed. EVERYONE needs at least three months worth of expenses in an account that be accessed easily. If you are one of those people who spends money just because you have it, you may want to make your money harder to get to by depositing it somewhere like EmigrantDirect, which is currently paying 4% or ING Orange.
There’s much, much more that Generation X can do to assure themselves a secure retirement. I hope to continue with this topic in the future. In the meantime, you can be working on the four suggestions above.