At this time from high inflationWhat are you cutting?
The answer may depend on your generation. For Generation X – that is, people born between 1965 and 1980 – the answer is obvious. Anything but retirement savings.
Gen Xers have cut back on their spending over the past year, choosing instead to prioritize saving for retirement. It makes perfect sense: the older general, now in their mid-fifties, is nearing retirement and doesn’t want to change his carefully thought-out retirement plans.
For a generation that has found it difficult to save for retirement, this late payment could be a game changer. And for everyone else, it’s a great example of how to save for retirement even when times are uncertain.
Which generation is better for money?
Analysts have always been pessimistic when it comes to the prospects for Generation X’s retirement, and for good reason. General Xers They are less likely To have any more retirement plan than their parents of the same age, and it has been suggested that Generation X can Learn from the millennial generation When it comes to saving for retirement.
General Xers themselves expressed their pessimism. many of them pessimistic about their financial outlookAccording to the Inflation Impact Survey conducted by State Street Global Advisors. Compared to both millennials and baby boomers, Generation X reported higher levels of stress and anxiety during the pandemic and in today’s inflationary environment. In addition, only 22% of Generation X workers are Very confident that they will be able to retire fully a comfortable lifestyle, according to a recent report by the Transamerica Center for Retirement Studies.
It’s no surprise that members of Generation X are more negative about their finances, says Bree Williams, head of State Street’s Department of Practice. “With work, family, and life commitments colliding, this generation is understandably pessimistic and deeply anxious,” she says.
The current record rate of inflation across the economy is making matters worse. Inflation reduces the amount of discretionary money Generation X can spend, says Carolyn McClanahan, certified financial planner and founder of Life Planning Partners. “with High costs of food, rent and transportationBesides stagnant wages, people do not have much other discretionary expenditure.
Inflation drives spending cuts
But people are able to change. With higher daily living expenses, we might have expected Generation X to find it more difficult to save for their nest eggs. This is not the case. In fact, the State Street Global Advisors’ Inflation Impact Survey says just the opposite: this Gen X prioritizes their retirement plans on vacations and other forms of spending.
Among other strategies, Gen Xers choose to cut discretionary spending and delay major purchases, all in the name of not sacrificing their contributions to long-term financial goals such as retirement or education savings.
In nearly every category of “non-essential” spending, the Generation X report noted spending cuts far more than their younger and older peers. Nearly two-thirds of Gen Xers said they reduced their discretionary spending in the past year, compared to just 37% of millennials. Meanwhile, only 5% of Gen Xers contributed less to their retirement funds, compared to 18% of Millennials and 11% of Boomers.
How to save when inflation is high
Given how hard it is for Gen Xers to save up for retirement, this latest focus on building a nest egg is particularly impressive. Indeed, many analysts see Gen X’s response to current inflationary pressures as a model worthy of emulation. With retirement approaching, the average General Xer seems to be fully aware The negative impact that inflation can wreak on pension funds, and I decided to do something about it.
Their strategy? It’s very simple. Reduce discretionary spending and channel savings into long-term investments, despite recent market volatility. As Douglas Bonbarth, Financial Adviser and President of Bone Fide Wealth said: “I think Generation X has seen a lot over the last couple of market cycles and realize that volatility is part of the game. They also have some time on their side to invest for retirement, so making up for losses will be easier for them than Baby boomers.”
This isn’t a new strategy of course, but it’s still a good one. As McClanahan says, “My advice is the same for all generations – stay out of debt, have an emergency fund, and make sure you don’t waste your money on meaningless spending.”
In other words, Gen X simply does what we should all do.
Gen X long game
Cutting discretionary spending is nothing new: it’s been good advice for generations. However, it takes some determination to do so at a time when prices are rising very quickly.
That’s why Gen X should be commended: not just because they prepare themselves well for retirement, but because they set a good example.
It is a lesson that could prove invaluable. As Williams notes, about half of all investors believe that lessons learned from navigating the current inflationary environment will have a lasting impact on spending and saving habits in the future. In other words, the current period of inflation may be teaching us all how to approach the next.
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Retire With Money brings the latest retirement news, insights and tips to your inbox. Elizabeth O’Brien has covered retirement for over 10 years.
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