Why retirement planning is harder for Gen X

14 October 2024

Written by Retirement Line

Financial advisers have met to discuss the extra complexity in retirement planning faced by Gen X compared to earlier generations.

At September’s FT Adviser Financial Advice Forum, panellists looked at the differences in retirement planning for Gen X (born between 1965 and 1980) and  Baby Boomers (born 1946-1964). 

They also discussed what financial advisers can do to better support Gen X clients. With the rising cost of living, limited access to traditional pension schemes, and family responsibilities, advisers are emphasising the need for tailored advice for Gen X in particular.

Who are Gen X and Baby Boomers?

Before diving into how financial advice could adapt, let’s clarify who these groups are. Gen Xers are currently aged between 44 and 59. They are typically balancing work, mortgage repayments, and supporting older parents and grown-up children. This is what makes them part of the “sandwich generation”.

On the other hand, Baby Boomers, now aged between 60 and 78, are generally seen as typically having more straightforward retirement needs. Many are benefitting from iron-clad final salary pensions and the housing market boom of earlier decades.

The challenges facing Gen X

Whilst many Boomers enjoyed a greater access to final salary defined benefit (DB) pension schemes (a guaranteed income for life), Gen X is more reliant on money purchase defined contribution (DC) pensions. This shift transfers the risk from employers to individuals, meaning the value of an individual’s pension now depends on personal contributions and investment performance. 

As a result, many Gen Xers will not have built up the same pension income potential as their predecessors. Gen Xers also often carry larger mortgage commitments into their later working years, and the property market has not offered the same gains to them as they did to Boomers. 

In addition to financial strain, many in this age group have grown-up children still living at home or needing help with home purchases or other financial support.

One topic discussed at the FInancial Advice Forum was the potential need for some Gen Xers to make difficult cutbacks on the support they provide for their grown up children. This would enable them to better prioritise their own retirement needs.

Sian Wood, compliance and operations director at Simpson Wood Financial Services commented: “I see that when talking to clients that they actually have an obsession and they have to help their children, it's at any cost. It's very difficult having those conversations with them to say, you can't afford to help your kids to be able to get them all on to the ladder.”

Why financial advisers may need to adapt their approach

Given these challenges, financial advisers may need to take a more personalised and holistic approach when offering retirement advice to Gen X. This could mean considering all assets, including property, investments and ISAs, to create a well-rounded financial plan and help to offset a potentially smaller pension pot. 

Sian Wood said another way to tackle this gap is for employers to take more of a front seat: “Employers can go a long way to helping the educational piece and investing in employee benefits advisers who can actually make a difference.

“When we're sitting with a client and we're having to say, 'do you realise you're going to have to contribute an extra £8,000, £10,000 pounds a year to reach retirement goals', they often say 'I can’t afford that with the cost of living and everything else’.

“However, if it was explained to them that if a £10,000 bonus that you receive as a higher rate tax payer went into their pension via salary sacrifice, and your employer gave you those national insurance contribution savings, you've got £11,380 a year - you are actually net better off £5,500 by doing that rather than taking that £10,000.”

Why tailored advice could be key

With a mix of defined contribution pensions, rising costs and multiple financial responsibilities, it’s critical that financial advisers take a broad approach for Gen X clients. This means not only focusing on pensions but also considering other savings and assets to ensure sufficient funds for retirement. 

Adapting retirement strategies to suit the specific needs of Gen X is essential. For those nearing retirement, a flexible, personalised financial plan will help manage risks and ensure readiness for the years ahead.

Source

Gen X financial challenges and why advisers need a new approach: Advisers must adapt advice to meet needs of Gen X. FT Adviser. Accessed 08 October 2024.