Born between 1966 and 1980, Generation X will be the next cohort to commence retirement in Australia.
The oldest members of this generation will be turning 60 next year. That's significant because it's the current preservation age for superannuation.
This means those Gen Xers will be able to access their lifetime savings under various conditions. The most common conditions are retiring from work or starting a transition-to-retirement income stream.
Gaining access to funds is the key prompter for many Australians to commence their retirement, according to the Australian Bureau of Statistics (ABS).
However, a global survey of 8,550 investors in 23 countries by Natixis Investment Managers found many Gen Xers do not feel adequately prepared for their retirement.
In fact, 48% of Gen Xers think they won't have enough money saved to enjoy their retirement years. High inflation compounds this concern, with 41% of Gen Xers saying it is killing their dreams.
Natixis said:
At a time when they are entering the "pre-retiree" phase of planning and may be looking to accelerate savings, many Gen Xers find themselves sandwiched between the financial pressures of supporting their kids and caring for elderly parents.
… Generation X is striving to address retirement funding while they still have time enough to transpose plans and grow the assets they'll need to be successful.
When it comes down to it, though, they will need to face up to three key challenges.
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3 key challenges for Gen X in retirement planning
Not having enough funds to retire
The global survey found 60% of Gen Xers accept that they may have to work longer to fund their retirement. However, 47% are worried they won't be able to work long enough.
These concerns correlate with ABS data showing the average age at which Australian workers intend to retire is 65.4 years. However, the average age of actual retirement is 56.9 years.
Many Australians are forced to retire early due to sickness, loss of employment or caring for someone.
Inconsistent investment expectations
Natixis said Gen Xers' experience as investors has been shaped by a 25-year bust and boom cycle. This may be warping their expectations for investment returns.
According to the report:
In their 20s, Gen Xers got their first hard-knock lessons about investing when the tech bubble burst in 2000. In their 30s, they learned another hard lesson from the global financial crisis.
The losses may have hardened their resiliency, but many found some rewards in their 40s as a decade-long bull cycle pushed markets to record highs. This may be where their biggest challenge lies.
On average, Gen Xers say they have long-term return expectations of 13.1% above inflation. High hopes may have been rewarded in the past decade, but now, as interest rates remain elevated and inflation lingers, Gen Xers may be ready for a reality check. Especially when financial advisors say 9% is more realistic.
Needing professional advice
The survey found 56% of Gen Xers feel they need professional help with financial planning. Natixis says many Gen Xers don't want to use traditional financial advisors and are turning to digital options instead.
Natixis said:
Generation X is increasingly incorporating automated platforms into their mix of advisors.
In fact, the number of Gen Xers globally who say they prefer digital advice to in-person advice increased significantly in the past five years. Where just 35% shared this preference in 2019, almost half (49%) preferred digital in 2023.
Here's what Gen Xers need to do now
Natixis says there are four key steps for Gen Xers in planning their retirement.
Set a realistic financial plan
Natixis says your financial plan should take into account how your income and expenses will change once you stop working. Australians can use the regularly updated AFSA Retirement Standard to guide them.
Face your tax liabilities
Natixis says Gen Xers need a strategy to help moderate the effects of taxes on their income, savings, and investments.
Reconsider risk
The survey found that 47% of Gen Xers feel they are taking more risk than they should to get better returns on their investments.
Natixis says:
As they get closer to retirement, they may want to look for strategies that can help dampen volatility and ensure their portfolio is properly diversified with a mix of stocks, bonds, and other asset classes.
Talk to an advisor
Natixis says now is the time for Gen X pre-retirees to find out how their assets can be put to work to provide a sustainable income in retirement.
The investment manager notes that Gen Xers may also need advice on how to balance saving for their retirement while supporting their elderly parents and providing for their children.
It appears Gen Xers' experiences supporting their parents in old age have scared them. Nearly one-quarter of survey respondents said their greatest fear in retirement was going broke due to healthcare costs.
The survey also found 13% of Gen Xers are worried about the amount of money they are spending caring for their parents today, and 22% are concerned they won't be able to leave their kids an inheritance.
