Unless the numbers change, a multitude of GenXers will probably be forced to accept a lower standard of living in their retirement than their seven younger decades. Currently less than half of Gen X has saved $100k to prepare for the escalating costs of future life. With the rising costs of medical care, those expenditures will be large.
The recession has hit Gen X hard, with a substantial portion of members drawing down on their 401(k)’s or suspending contributions due to insufficient income.
The Census reports that median net worth in Gen X households dove about 60% from 2005 to 2010, from $80k to a little over $33k. Clearly the recession has had devastating effects on this stratum’s growth trajectory.
An even more alarming trend than Gen X’s lack of savings is its lack of investment awareness. This presents cause for concern given the way that control is shifting. Our parents had the government and their employers’ defined benefit plans to help them with their retirement. But the 401(k) participant must have some investment skill in order to accumulate wealth. Gen X needs to step up to the plate, yet not enough Xers have sat down and figured out how much money they will need to retire. They are now the ones in the driver’s seat…and it’s going to be a rocky road ahead.
Considering that 32% of Gen X females are currently divorced, separated, or never married, more women than ever before are now assuming the role of CFFO, or Chief Family Financial Officer. Yet the numbers imply that, disappointingly, Gen X women expect someone else to make decisions about money for them. Half of women in this cohort depend on their employer to educate them about retirement and will openly classify themselves as having next to no investment knowledge.
It is alarming to learn that one third of the females in this group can not explicitly quantify how much money they have saved for retirement. Only one quarter have a formal plan. Women in this age group tend to contribute a lower percentage to employer sponsored plans and outside retirement accounts than men. Lack of understanding of investment options was cited as a barrier to savings by more women than men universally for all generations under the age of 65. It would be ideal if the women’s lib movement would have carried over to investing the wages; but the stats show that after the paycheck is where it gets lost on Gen X. Investing early on in the game is especially critical for women because in our younger years is when the gap between wages is narrowest between genders.
Women are growing more powerful and they need to become more confident with money. The female CFFO will be in command of two thirds of consumer wealth over the next ten years. This is a clarion call to the women of Gen X: pay more attention to investing your money because more of you are outearning men, becoming as educated as men, and finally, likely to be without a man (divorced, separated, or never married) than your mothers, aunts, and grandmothers. You can’t eat that $3k retail value Prada bag when you’re 80 years old. And those Manolo’s won’t pay your medical bills either. So you should be obsessing over which mutual fund to pick in a 401(k) plan instead of over whether to buy the Hermes or Ralph Lauren Ricky Bag in Red Crocodile. Because the way things are going, it is the women of this world – not their husbands, the government, or their employers – who are going to be running the modern family.
Sara Grillo, CFA
Grillo Investment Management