Gen Xers are set for a diversified financial future, especially when it comes to retirement, but two things weigh heavily on their wallets: time and fear.
A multi-generational financial literacy study by Investopedia found that Gen Xers — adults ages 42 to 57 — are confident in their core financial skills and focused on maximizing investments in their golden years. With that confidence comes a tinge of anxiety and some fear of changes in the financial industry such as the introduction of cryptocurrencies and the future of social security.
“Generation X tends to be equal parts cynical and suspicious,” said Generation X spokesman John Stoy, founder of financial investment advisory firm Verbatim Financial. He continued, “Generation X is in the home stretch. It's time to get real, to take an honest look at your retirement savings, current expenses, and how long you can still work. We all like to think that we have enough time to correct financial mistakes. For Generation X, that time has come."
About 80% of Gen Xers believe they have an intermediate or advanced understanding of the basics of personal finance, namely money, insurance, and paying taxes.
Generation X worries most about their financial future, counting retirement, savings, and digital currency know-how as their top three worries.
Slightly more than half (55%) of Gen Xers expect to retire, but one in four is unsure.
Gen X expects Social Security and 401(k)s will be their main source of retirement income, but cryptocurrency investments are also popular, amid reports of cautious optimism.
With the basics covered, it's time to prepare for retirement
Gen Xers are well versed in the basic components of personal finance. An Investopedia survey found that 75% to 80% of Gen Xers believe they have an intermediate to advanced understanding of personal finance fundamentals such as savings, debt management and insurance.
This generation is most confident in paying taxes (48% say they have advanced knowledge), managing their own consumption and budget (47%), and borrowing money and managing debt (45%).
In this digital age, Generation X relies heavily on the internet for personal finance advice. Their trusted sources of financial information are Internet searches (46%), friends and family (40%), financial information websites (36%), YouTube and online videos (32%), and experts or influencers. (26%).
Tony Johnson, a 57-year-old Gen X rep, says his parents and friends never talked about money. “It was taboo,” he said. “I just started learning about money in the last 5-10 years. I watch YouTube videos almost every day about everything. I'm learning different financial strategies that work for me."
While this generation tends to be comfortable with their day-to-day finances, their main concern is their financial future. Gen Xers are most worried about retirement (21%), followed by saving money (13%) and digital currency (13%).
Johnson has been active for 40 years now, with a few shows in the middle. “I started at DC Metro at 18 and retired at 47 with a full pension and then decided to move into the federal government,” he said. "Now that both of my kids are out of high school, I'm tired and burned out."
While the average retirement age can fluctuate depending on which state you live in, the average American retires at 64.6 and the average American woman retires at 62.3. 1 Inflation is rising, the cost of living is rising, and wages are stagnating. 2 3 This makes it difficult for most Americans to properly plan to leave a full-time job.
Retirement is the goal, but how?
Gen Xer Jen Carrington says that while she is eligible to retire next year at age 50, she needs to develop a strategy to cover health care costs and financial obligations for children and aging parents.
“Unfortunately, I'm not ready to retire; I helped my mother and disabled brother a little financially,” she said. “The only investments I have are my retirement accounts and I think they are more conservative than they should be. At almost 50, I should be much further away. However, I feel that this is next to impossible with young children and other family commitments."
Carrington's feelings are in line with the results of the Investopedia poll. Gen Xers have mixed feelings about retirement, and many are unsure how and when they will stop working, or what that will look like. When asked if they plan to retire in the near future, 55% of respondents answered yes. However
almost one in four (24%) said they did not know when or if they would retire, and another 14% said they did not plan to retire anytime soon. When asked when they would stop working, the median age was 64.
Retirement doesn't always mean unemployment these days. Johnson's many careers are a good example of how some people can technically quit their jobs, but start one or more subsequent paid jobs or jobs.
“The transition from getting a paycheck and savings to no paycheck and spending those savings is difficult for most people,” Stoy said. To this, he urges people to be more optimistic. “People are more flexible than we think. When people retire, they adjust their spending to their income and savings. There are ways to make this adjustment less painful, mainly by lowering fixed costs.”
A great retirement could offer more new job opportunities for Generation X, while creative solutions like geographic arbitrage could also lower the overall cost of living and add a sense of adventure to the retirement stage of life.
Social Security funded pension payments - for now
When they retire, Gen Xers plan to rely financially on a combination of traditional assets, namely social security plans (51%) and 401(k) plans (40%). Pensions, savings, and stock market investments also top the list, with cryptocurrency not far behind. The reality is that most people will need a combination of these sources of income, colloquially referred to as a three-legged stool.
In 2020, 69.8 million people received benefits from programs administered by the Social Security Administration; In the same year, 5.8 million of them received Social Security benefits. four
Certified Chartered Accountant and Investment Adviser Anjali Pradhan says those who are far from retirement may not be so lucky. “Based on various calculations, the US welfare system is expected to be exhausted in the next 15 to 20 years. Therefore, it makes sense to prepare for retirement as if it were not going to be paid. If so, that's a bonus," she said.
“I can't even think of that possibility. How? It can't just go away," Rachel Alice, 42, told Investopedia when asked how she felt about the possibility of reaching retirement age and the lack of funds available for welfare programs.
Alice hopes that the federal government will be able to fulfill its social contract with those who have already paid into the social security fund. After nearly a decade of contract work with public service organizations, she said they weren't earning enough to save properly. “My husband and I definitely count on social security,” Alice said.
Social Security was designed to supplement pensions and savings, but not to completely replace the wages Americans received from their jobs.
Generation X may see crypto as the financial asset of the future along with more traditional investment vehicles. Investopedia found that over half of Gen X is invested (59%), with stocks (38%), cryptocurrencies (28%) and mutual funds (26%) being the most popular asset types. The reality is that most people will need a combination of these sources of income to retire, colloquially referred to as a three-legged stool.
Johnson adopted a mixed portfolio approach. He has a small bitcoin portfolio that he expects to work in conjunction with an IRA, two pensions, 401(k) savings, Social Security, and passive income from rental real estate, allowing him to raise about $150,000 a year. income during retirement.
Admittedly, the future belongs to cryptography
Digital currencies have become more and more popular over the past few years, especially among the younger generation, but as Investopedia has found, cryptocurrencies are also gaining interest in Generation X, with some optimistic caution.
When asked where they expect the greatest return on their investments in the next decade, Generation X responded strongly to crypto, even though digital currency is the third most troubling area of financial literacy for their generation after retirement (21%) and savings (13%) . .
Alice said that her husband is into crypto, but she doesn't like taking risks in money management so much that she doesn't even ask him how their investments are doing.
With few fees or regulations, digital currencies can be an attractive asset, but the value of a cryptocurrency can be very volatile. Pradhan says to proceed with caution.
“As Generation X approaches the penny
And, there is less and less time to recover from any setbacks,” Pradhan said. "The younger you are, the more risk you can tolerate in your investment portfolio." She recommends no more than 5% of assets invested in cryptocurrencies, which she calls a “super-risk asset.”
Investopedia found that some Gen Xers shared these sentiments. Despite their enthusiasm, only one in four Gen X investors say they trust digital currency as an investment vehicle. In addition, 47% of Gen Xers generally consider crypto to be too risky and 48% too confusing.
What does Generation X need?
In an age where digital currencies are seen as the future of wealth investing, Gen Xers are in a unique position to truly capitalize on the returns. But if they bet on their retirement, they could jeopardize their entire financial future.
Instead of completely discouraging Generation X from investing in cryptocurrencies, planners and advisors can help this generation achieve their financial goals by explaining how cryptocurrencies can successfully fit into long-term and short-term planning. Young Gen Xers who don't plan to leave their jobs for 15 to 20 years or more, and those who already have a diversified portfolio, still have time to explore, invest, and rebuild as needed.
Hypothetical scenarios that hedge bets on the rise of crypto and the fall of social security are unlikely to spur Gen Xers into immediate action. Instead, experts encourage them to learn more about how digital currencies can work alongside stocks, stocks, dividends and more to ensure financial peace in their golden years.
"Retirement can be very difficult psychologically, whether or not one has 'enough' money to retire," Stoj said. He recommends drawing up a detailed budget and comparing it with available funds. Re-evaluating costs can provide a comfortable airbag. “Perhaps it is time to seek professional help from a financial planner or consultant, if only for a second opinion,” he added.
The 2022 Financial Literacy Survey quantifies American adults' generational understanding of their own financial literacy. The survey was conducted from January 27 to February 7, 2022 using an online self-completion questionnaire among 4,000 American adults, 1,000 representatives of each of the following generations: generation Z (from 18 to 25 years old), millennials (26 years old). up to 41 years old), Generation X (from 42 to 57 years old) and Baby Boomers (from 58 to 76 years old). Quotas and data weightings were used to ensure that race/ethnicity, gender, region, and income are representative of the total and within each generation.