Five Key Moves for Generation X Before Retiring
As Generation X (born between 1965 and 1980) approaches retirement, planning is more critical than ever. Sandwiched between baby boomers and millennials, Gen Xers have faced unique economic challenges, including the dot-com bubble, the 2008 financial crisis, job changes, and, most recently, the pandemic. These experiences have reshaped retirement realities, making it essential for them to adopt proactive financial strategies. Here are five key moves to consider before hanging up the proverbial work boots:
- Maximize Catch-Up Contributions
At age 50, Gen Xers can make “catch-up” contributions to their retirement accounts, such as 401(k)s or IRAs. These higher contribution limits are a golden opportunity to boost retirement savings, especially for those who may have been too busy paying off mortgages, student loans, or funding college tuition to save consistently earlier in life. Contributing the maximum not only increases your nest egg but may also reduce taxable income, offering a double advantage.Pro Tip: Prioritizing tax-advantaged accounts and maximizing your contributions each year gives you an edge in your race against time to secure a comfortable retirement.
- Diversify Your Cash Flow Streams
Relying solely on Social Security and your 401(k) might be too risky. Gen Xers should diversify sources of cash flow by considering rental properties, non-qualified investment accounts, or even starting a side business. Multiple sources of cash provide a cushion against the unpredictability of markets and economic downturns. It may also help your wealth outlive your retirement.Pro Tip: Avoid overconcentration in any one sector and high-risk investments. Develop and stick to an investment plan—even in market “ups and downs” and election years.
- Shed Debt—Strategically
Make a pay-off strategy. Carrying high-interest debt into retirement can severely impact your ability to maintain a steady cash flow. Gen Xers should aim to pay off mortgages, car loans, and any lingering credit card debt well before retirement. However, strategy is key: focus on eliminating high-interest debt first and consider refinancing where it makes sense.Pro Tip: Utilize balance transfer offers or home equity loans with lower rates to consolidate debt and use extra cash flow from eliminated debt to speed up the repayment process.
- Build a Healthcare Safety Net
Healthcare costs are a significant concern for retirees, and Gen Xers need to address this early. Investigate long-term care insurance, consider Health Savings Accounts (HSAs) if eligible, and estimate potential out-of-pocket costs for Medicare. Not planning for medical expenses can erode your retirement savings faster than anticipated.Pro Tip: Use an HSA for healthcare expenses—contributions are tax-deductible, grow tax-deferred, and withdrawals for medical expenses are tax-free. It’s like a triple-tax break!
- Create a Solid Withdrawal Strategy
Once you hit retirement, how you withdraw your funds can dramatically impact how long they last. Gen Xers need a game plan for drawing down savings, balancing Social Security timing, and minimizing taxes on withdrawals. Work with a financial advisor to create a flexible approach for withdrawing from taxable, tax-deferred, and tax-free accounts to provide needed spending money while minimizing the tax bite.Pro Tip: Delay Social Security until age 70 to maximize benefits and consider a Roth conversion ladder before retirement to reduce future tax burdens.
Retirement planning is no longer just about stashing cash in a 401(k). For Generation X, smart, diversified strategies are required to navigate debt, healthcare, and evolving spending needs. By taking proactive steps now, you’ll set yourself up for a financially secure and stress-free retirement—something worth working toward after years of navigating the workforce.
The opinions expressed are those of Tony Muhlenkamp of Muhlenkamp and Company and are not intended to forecast future events, guarantee future results, or offer investment advice.
