For decades, Generation X earned a reputation as the pragmatic generation. They were the first 401(k) generation, starting in the workforce as traditional pensions gave way to defined-contribution plansThey learned early that retirement security would largely be up to themThey saved, invested and have weathered bull markets and crises along the wayConventional wisdom suggested that these investors would continue working well into their 60s, maximizing earnings, growing career status, and steadily building retirement assets. Yet, something interesting appears to be happening. At New Canaan Group, where I am a financial planner, we have observed a growing number of Gen X clients expressing a desire not to merely retire, but to leave careers that no longer align with how they want to spend their time. Some intend to fully retire years earlier than originally planned. Others envision a second act, perhaps consulting, teaching, working part time, volunteering or pursuing a passion that generates far less income but delivers greater personal fulfillment. While every client situation is different, the trend is noticeable enough that it raises an important question. Why is Gen X suddenly rethinking the role of work in their lives, and how can we, as advisers, help them plan for this?About Adviser IntelThe author of this article is a participant in Kiplinger’s Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.The Great Wealth TransferA significant reason that Generation X households are exploring these options is that they increasingly have the financial resources to consider them. One of the largest drivers is the Great Wealth Transfer. As reported in Kiplinger’s recent Trillion Dollar Talk report, nearly $124 trillion will transfer between generations through 2048, with Gen X expected to inherit more than any other generation over the next 10 years, receiving nearly $1.4 trillion annually on average. The timing of the Great Wealth Transfer is particularly noteworthy because it coincides with the peak earnings years of many Gen X households. Inheritances are arriving when balance sheets are already strong, creating financial flexibility that previous generations did not have. A different definition of successHistorically, many Gen X professionals were conditioned to view career advancement as the primary path toward financial security and personal achievement. Climbing the corporate ladder, increasing compensation and accumulating assets were often viewed as natural milestones to success. Today, however, many Gen X investors appear to be redefining what success means. Rather than exclusively focusing on maximizing their assets, clients are increasingly asking us different questions: How much is enough?What if I no longer earned my current salary?Could I retire on my current assets?How can I regain more control of my life and time?This mindset shift closely resembles attitudes often associated with younger generations. Gen Z, for example, has become known for placing high value on flexibility, work-life balance and personal wellbeing. What’s surprising is that Gen X investors now seem to be reaching similar conclusions, albeit later in life and from a different starting point. In addition, for much of their careers, Gen X measured their success against immediate peers and coworkers. Today, they’re exposed to daily stories of early retirees, entrepreneurs, hobbyists and those who have designed lifestyles around lived experiences rather than work. Whether these examples represent reality or not, the message is still powerful. Life is finite, time is valuable, and there may be alternative ways to spend your most productive years.The pension challenge — and opportunityResearch highlighted in Equitable’s recent Gen X retirement study notes that only 14% of Gen X households have access to traditional pensions, compared with 44% of baby boomers. With pressure on other retirement systems such as Social Security, Gen Xers must rely primarily on assets they have accumulated themselves to generate retirement income. This creates both opportunities and planning challenges, but gives households more flexibility to leave careers early without worrying about the cost of leaving a pension system. Turning the dream into realityFor Gen X households who aspire to retire early or pursue a second career, enthusiasm alone is not enough. The goal requires thoughtful planning and disciplined execution. The first step is defining the goal — what does retirement mean? For many clients, it doesn’t necessarily mean never working again. Instead, it might mean replacing the high-stress career with something more manageable. Just as important, lifestyle goals need to be defined. Does the big house really matter? Would we be willing to relocate to a less expensive area? Does the lawn need to be this green?Second, investors should focus on maximizing savings during their peak earning years. Catch-up contributions to retirement plans, health savings accounts, deferred compensation plans and taxable investment accounts can help build the financial independence necessary to support a transition from traditional employment. Third, healthcare planning deserves special attention and is where we see many early retirement plans derail. Bridging the gap between employer-sponsored health insurance and Medicare eligibility can be incredibly expensive. After years of having subsidized employer healthcare, it’s easy to be blown away by the cost of self-insurance. Understanding these costs in advance, long before leaving the workforce can prevent unpleasant surprises later. Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel, our free, twice-weekly newsletter.Fourth, investors should stress test their plans. Retirement should be properly modeled, and should account for inflation, market volatility, longevity, tax changes and unexpected expenses. Running conservative projections might help determine whether an early retirement target remains realistic under less than favorable conditions.Finally, investors should consider the role inheritance might play in their planning, but avoid becoming dependent on it, as its timeline is uncertain. While many Gen X households will ultimately benefit from the Great Wealth Transfer, the timing and amount of inheritance is uncertain. Sound retirement planning should remain viable even if inherited assets arrive later than expected or differ from assumptions. Why wait?Whether influenced by social media, changing cultural values, economic success or the largest intergenerational wealth transfer in history, many Gen X investors are beginning to ask a new question: If money is a tool designed to create freedom, what exactly am I waiting for? For advisers, helping clients answer that question will be our defining purpose for the next decade. Related Content7 Tax Breaks and Strategies Gen X Might Often OverlookThe Overlooked Generation: An Expert’s Guide to How Gen X Can Finally Get AheadWhy So Many Gen Xers Feel Financially Stuck — and What You Can Do About ItThe Right Way and the Wrong Way to Use a 529 Plan That Doesn’t Cover the Full Cost of CollegeI’m a Financial Planner: Here Are Five Lesser-Known Ways to Avoid Estate TaxIMPORTANT — While this discussion summarizes certain information about Social Security and Medicare, it is not an official explanation or discussion of these programs, and any information provided directly by these programs will prevail. This article, which has been written by an outside source and is provided by Bennett Pardue, CFP® of Equitable Advisors LLC, does not constitute an offer, solicitation, or recommendation and should not be relied upon as tax, legal, or financial advice or a recommendation of any particular courses of action. Equitable Advisors LLC and its affiliates do not make any representations as to the accuracy, completeness or appropriateness of any part of any third-party content hyperlinked to from this article. Your unique needs, goals and circumstances require the individualized attention of your own financial advisors and financial professionals. Bennett Pardue offers securities through Equitable Advisors LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN), offers investment advisory products and services through Equitable Advisors LLC, an SEC-registered investment adviser, and offers annuity and insurance products through Equitable Network LLC (Equitable Network Insurance Agency of California LLC). AGE-9177427.1(10/26)(exp.10/30)This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Gen X Rethinks Retirement (Thanks, Great Wealth Transfer!)
