Come as You Are: Wealth Management for Gen X

A Gen X woman stands outside under a tree and looks into the distance, appearing thoughtful.

Editor’s note: This is part two of a series about wealth planning for different generations. Part one was Talkin' 'Bout My Generational Wealth: Baby Boomers. Future articles will address financial planning for Millennials and Generation Z.

Wealth management is a lot like curating a personalized music playlist: It's composed of ups and downs, features a diverse array of tunes and, most importantly, it's uniquely tailored to the listener.

Each generation has its own themes. In this second article of our series, we shift our focus from The Who of the Baby Boomers to Nirvana of Generation X, those born from 1965 to 1980. This is my generation, and we’re often referred to as the "sandwich generation,” because we find ourselves caring for aging parents and supporting older children, some of whom are navigating through college or the initial stages of their careers.

Much like the music of our generation, our financial soundtrack is enormously varied, consisting of both timeless classics and modern hits.

Long past smelling like 'Teen Spirit'

Our teenage years, when Nirvana’s anthem made a lot more sense, have long passed. For many of us, while retirement is still some years away, it is undeniably on the horizon. Therefore, it is critical for all of us — no matter what our income level — to maximize every retirement savings opportunity. Some of the tools to do that include:

• 401(k) plans. To take advantage of tax-deferral benefits, contribute as much as you’re comfortable to your employer-sponsored 401(k) plan. The annual contribution limit in 2024 is $23,000. That number may not be realistic for you to hit, but it’s good to know what you could be aiming for. Many employers offer matching programs based on employee contributions. Therefore, make sure that you’re contributing enough at least to fully access this benefit.
• Individual retirement accounts (IRAs). Outside of work, individuals may also contribute to a personal IRA every year. For 2024, the contribution limit is $7,000 per person. This is a great way to enhance retirement savings beyond employer-based plans.
• Catch-up contributions. For those 50 and over, take advantage of catch-up contributions. For 2024, the catch-up amount for 401(k)s is $7,500 (for a total of $30,500) and for IRAs it’s $1,000 (for a total of $8,000). Together, these catch-up contributions represent an additional $8,500 annually you can add to your retirement nest egg.

Don’t listen to Pink Floyd!

When the British band told us that we “don’t need no education,” many of us apparently disagreed!

While many Gen Xers now have children who are college age or older, it’s essential to view a 529 college savings plan not just as a college fund, but as a versatile tax-advantaged investment vehicle for education for the whole family, across multiple generations. Here are two reasons why:

• Beneficiary flexibility. It’s possible to change the beneficiary of a 529 plan. Therefore, when you create and contribute to a 529 plan for your child, you retain the flexibility to later transfer it to a grandchild, thereby optimizing family wealth across generations. Consider this a tax-advantaged savings account for your descendants.
• Rollover to Roth IRA. Some may be hesitant to contribute to a 529 plan based on concerns that the funds may not ultimately be used or needed for education. Thanks to the SECURE 2.0 Act, which took effect this January, you can roll over a portion of unused 529 funds into a Roth IRA, provided the account has been opened for over 15 years and the funds have been in the account for at least five years. Now, there are certain roll-over limits. The annual rollover limit is subject to the same IRA contribution limit ($7,000 in 2024), and there is an aggregate lifetime limit of $35,000. Unlike a contribution to a Roth IRA, there is no income restriction to this strategy.

'Old Friends'

With inflation and rising costs, many retirees are feeling increasing economic pressure as their savings may now be stretched to cover retirement. To wit, many Gen Xers may find ourselves hearing the words from the Simon & Garfunkel song “Old Friends” when wondering how to financially support our aging parents, who may or may not have been as careful with their savings at earlier ages. Here are two areas of parental care where we may need to step it up:

• Navigating costs. Communication becomes critical here as we may have to take a more active role in our parents’ lives, helping them balance their expenses and navigating the costs and logistics of long-term care or in-home care.
• Fraud prevention. With the prevalence of fraud and online scams targeting older adults, maintaining transparency and perhaps even control over our parents’ finances will be crucial in ensuring that their golden years have a chance to be untarnished.

'Shake It Up'

With so many different competing demands, The Cars told us to not fear shaking things up. Here’s where having multiple options and strategies comes into play. It is important to have a sound financial plan that includes understanding different “buckets” of savings and the investment horizon associated with each. This will range from short-term liquidity needs to the more long-term growth requirements, as outlined here:

• Immediate needs. Funds earmarked for helping elderly parents may need to be more liquid. Fortunately, with today’s heightened interest rates, many CDs and money market accounts are now offering more attractive interest rates than in the past decade.
• Retirement needs. Depending on the timing of retirement, one’s investment portfolio should have a proper allocation between conservative and more aggressive investments, adjusting to one's risk appetite. As we get closer to retirement, our focus would likely shift to more income-producing investments to account for the lack of incoming cashflow while working.
• Legacy planning. If there are sufficient assets to have a savings “bucket” for children and perhaps even grandchildren, that timing horizon is longer. This typically aligns better with more aggressive, riskier investments to capture potential long-term growth returns.

Health care: 'The Long Run'

The Eagles told us to use a longer lens when looking at life, and this works for savings as well — especially savings for health care needs as we age. Two ways to help tackle health care costs down the road:

• Maximize health savings accounts (HSAs). Contributions to HSAs are a great way to prepare for future health care expenses. While you can distribute funds from an HSA currently to cover immediate medical costs, it may make sense to think holistically about your savings strategy. Instead, it may be more beneficial in the long run if you were to pay for current health care expenses out-of-pocket and leave the money in the HSAs invested. The tax-free compounding nature of a HSAs over time is significant and may better serve you over your lifetime.
• Long-term care insurance. With health care costs continuing to rise, long-term care insurance is often a good way to account for future health care and home-care needs. In some cases, a hybrid policy may make sense as it can be later converted into permanent life insurance should you be able to cover your long-term care cost otherwise. This provides flexibility in managing future needs.

'Ch-Ch-Changes'

Lastly, it’s David Bowie who reminded us that change happens, and we need our plans and documents to be flexible enough to meet those always-changing life events. To help stay on top of things:

• Update your will. Many of us Gen Xers wrote our first and only will when our children were born. Since then, life has changed, bringing with it such events as divorces, widowhood or just children reaching adulthood. Our financial situations have also changed dramatically now that we’re in our mid to late careers. All these necessitate a review and (possibly) an adjustment to ensure our estate plans align with our current financial situations and wishes.
• Manage your digital assets. A relatively new consideration is the management of digital assets, which wasn’t prevalent when many Gen Xers signed our first wills. When updating your estate plan, it is important to speak with your attorney to ensure that your documents accurately account for the transition of these digital assets.
• Be proactive about estate planning. For those with significant assets, now is the time to engage in proactive estate planning to ensure efficient and tax-effective wealth transfer to the next generation. It’s far easier to make plans and have discussions before potentially traumatic and emotional events happen.

Navigating the needs of Generation Xers requires an understanding of the various competing needs in this “sandwich” stage in our lives. While we may have already taken many financial steps, it is important to revisit them regularly, update each to fit for our current needs, and make sure our financial soundtrack incorporates all of our current favorites!

Up next: We move from Nirvana to Beyoncé and explore tailored strategies for Millennials, born from 1981 to 1996.