All generations have made headway when it comes to retirement savings, but Generation X is the weakest generation when it comes to finances, especially money management.
What makes a generation prepared for retirement is how it handles the basic foundational issues that cause the most financial stress, said Liz Davidson, founder and CEO of Financial Finesse in El Segundo, Calif. Those include how they handle cash flow—do they spend more than they earn each month?—paying off credit card balances in full each month and having an emergency fund.
"Gen X is doing less than the Millennials, which is surprising to us. Millennials are probably making less income and transitioning from college to paying for everything themselves, but they seem to be doing better than Gen X," she said.
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Part of the problem is that Generation X is at a different point in their lives than the Boomers or Generation Y. They are married, have children who need to go to school and have parents who may need elder care. The Boomers have already gone through this stage and the Millennials haven't reached it yet. That made Gen X "vulnerable from that perspective, going into the recession," Davidson said. With college expenses rising and health care costs exploding, it was the "perfect storm" for Generation X. Generation X encompasses 70 million people between the ages of 30 and 46.
So how bad is it? Financial Finesse, which provides financial wellness programs to large companies across the country, mines the data it receives from all of the participants enrolled in its programs. What it found is that 67 percent of people under 30 reported paying off their credit card balances in full each month, compared to 59 percent of Generation X.
"I would have expected that to be the opposite," Davidson said. This is an improvement for Generation X, as only 44 percent of this generation reported paying off their credit card in full in 2010.
"They are slightly less likely than other age groups to have an emergency fund as well and are least likely to have a handle on their cash flow, spending less than they make each month," she said.
One mistake that Generation X makes is "to prioritize our children or our parents above our own retirement," Davidson said. "In some cases, we've worked consistently with employees who can't afford [to pay into retirement] on a day-to-day living level. They are getting further into debt taking care of other people, which eventually is not going to work for them or whoever they are taking care of."
People are paying for their children's college educations and living in houses they can't afford, but they don't want to move and put their kids in a different school district, she said. "It's a process of realizing you can't always have everything you want right now, so how are you going to prioritize?"
Good students can get scholarships or financial aid to attend college, but "there is no scholarship for retirement," she said.
Davidson likened the retirement saving situation to that of sitting on an airplane with your children when the oxygen masks drop down. The airline tells the adults on the plane they should put their masks on first and then help those who need it because you can't help them if you can't breathe. The same is true for retirement, she said. People need to pay themselves first.
A recent report by the Insured Retirement Institute called "Retirement Readiness of Generation X" found that among the 70 percent of survey respondents who pinpointed a retirement age, the average was 64 years old, which means people expect to be retired for 20 years or more, based on life expectancy data.
But, only one-third of GenXers surveyed were confident they would have enough money to live comfortably in retirement, cover their medical expenses and pay for their children's higher education. A high percentage of GenXers are not married, according to the report, and they aren't as confident about their retirement savings as their married counterparts.
Three-quarters of GenXers reported having money saved for retirement, but only 41 percent have tried to figure out how much they need to save. Nearly half of GenXers have saved less than $100,000 for retirement.
The recession took a toll on Generation X. Many GenXers had to cut back on their retirement savings, as 15 percent made early withdrawals from their 401(k) plans, 23 percent stopped contributing to their retirement accounts and 22 percent stopped contributing to college savings plans, according to the IRI report.
The data also revealed that 21 percent of the older members of Generation X needed to dip into their retirement savings.
People have to focus on what they can control, said Davidson. For Generation X, "there is still time to make an impact, but that window is closing. Every year there is less time [to save for retirement] if they want to retire at a normal retirement age. That is why it is important to prioritize."
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