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Why Gen X Faces a Tougher Road to Retirement than Boomers


Published June 29, 2016 • 7 Min Read

Retirement probably seems quite far away for many Canadian Gen-Xers.

In demographic terms, Generation X is the group of people born after the post-Second World War baby boom, and today are aged approximately 36 to 50. Typically, they are in their peak earning years, many with a mortgage and children to look after. Some might even still have student loans to pay off.

Retirement isn’t yet top of mind for this generation, at least compared to their predecessors, baby boomers who are currently in their 50s and 60s. But according to Richa Hingorani, senior manager, Financial Planning, at RBC, Gen X should be making retirement a priority. While they may be further away from retirement, Gen-Xers also may have a harder road to walk toward retirement than baby boomers.

“Gen-Xers are a smaller group than baby boomers and they have certainly received less attention, but they are likely to face even longer life expectancies, with related implications to their health and retirement income,” notes Ms. Hingorani.

It’s no secret that many Canadians are not saving sufficiently for retirement. The 26th Annual RBC RRSP Poll – a survey of 2,217 Canadians over the age of 18 – revealed that although 58 per cent of respondents agreed that one of their top concerns was running out of money if they live to 100, almost one-third of respondents (31 per cent) reported they hadn’t yet started saving for retirement.

One of the challenges Gen X faces in attaining a comfortable retirement has to do with the 2008-09 recession, explains Ms. Hingorani. Market volatility affected both generations and had an impact on their accumulated savings. But in addition to that impact, Gen Xers felt another blow. “Gen-Xers were in their high income-earning years at that time – the recession negatively impacted their pay scales, curbing their ability to save toward goals,” she says. “Even the increases they would have seen on their salaries slowed down and they’ve taken a long time to recover. That savings ‘runway,’ if we want to call it that, was really altered for Gen X-ers.”

The real estate market is another factor that particularly has an impact on Gen-Xers, adds Ms. Hingorani. “They bought their houses in a housing bubble, which has had an effect on the amount of the mortgages they have taken on,” she notes. “The length of their mortgage amortization and the volume has been higher than what baby boomers took on, so Gen-Xers could be more prone to carry debt into retirement if they don’t pay attention to this.”

Robin Taub, a Toronto-based financial literacy consultant and author, agrees that Gen-Xers will likely face more hurdles on their way to retirement than boomers. For her, one of the biggest issues has to do with pension plans. “A lot of boomers may have worked for companies that had defined benefit pension plans, while most plans for Gen X are defined contribution plans, if a company offers any plan at all,” explains Ms. Taub.

“A lot of boomers may have worked for companies that had defined benefit pension plans, while most plans for Gen X are defined contribution plans, if a company offers any plan at all.”

In a defined benefit pension plan, the income you receive is predetermined and managed by the company. In a defined contribution pension plan, the amount you receive is not predetermined. The investment of funds is generally directed by you as the employee, and the amount you receive varies according to the performance of your investments.

“You really are reliant on building up your own savings, whether that’s an RRSP (Registered Retirement Savings Plan) or TFSA (Tax-Free Savings Account) or a non-registered account,” says Ms. Taub. “There’s obviously the Canada Pension Plan (CPP) and Old Age Security (OAS), but, depending on your lifestyle and your cash flow needs, you’ll need to have [also] saved [for] yourself. I think that’s a really big difference.”

Accumulating funds can be a challenge because some Gen-Xers are not saving enough, adds Ms. Taub. “People may be counting on the value of their house, especially if they live in Toronto or Vancouver, but for that strategy to work you have to be able to downsize to something less expensive, and that’s not always easy. It may require moving to a smaller city or town, or a much smaller home than you are used to. It ends up being a lateral move for a lot of people.”

Consumer behaviour has changed with Gen X, notes Ms. Hingorani. “The way debt is being used and how we are using credit cards started with Gen-Xers. The idea of plastic money readily appealed to that generation and they got into the cycle of being in debt, with bigger mortgages and credit card balances.”

Added to this is the challenge of being the sandwich generation: caring for aging parents who are living longer – often with chronic illnesses – and also wanting to provide support for university-aged children.

If you are feeling squeezed in the middle of that “sandwich,” says Ms. Taub, it’s time to sit down and have a talk with your loved ones, including your partner, children and parents. You may feel it’s important to help the people in your life, but be sure to “pay yourself first,” she advises.

“Have open conversations about what’s affordable and what’s possible,” she suggests. “Sometimes kids have to contribute to their education by working or getting scholarships or taking on student debt. All these factors come together to mean that Gen-Xers do have a harder time in saving for retirement or in the overall preparation toward retirement.”

“Added to this is the challenge of being the sandwich generation: caring for aging parents who are living longer – often with chronic illnesses – and also wanting to provide support for university-aged children.”

Not all factors are negative though, says Ms. Hingorani. While Gen-Xers may not feel prepared for retirement, the positive side is they have a longer savings runway than baby boomers, which gives them more time to get on track.

To make retirement planning a priority, Gen-Xers need to put together a written retirement plan, she advises. “The important word is written because having it on paper means you can share it with your spouse or partner and others. This makes you more accountable and increases your chances of staying the course.”

Start envisioning what retirement could look like, then work backward: What could you do today to make that happen? Then put together a budget showing what you are currently spending.

“Until you know what’s coming in and what’s going out, you’re not going to be as effective at saving money,” Ms. Hingorani emphasizes. “As soon as you put a list together of money you’re spending, you realize all the expenses you can avoid. Now you’re in a position to say, ‘This is money that will be dedicated toward retirement.’”

Ms. Hingorani points out that, while Gen X may not feel it has the time or expertise to make retirement a priority, that’s where expert advice comes in. “Accredited professionals can help you plan for your retirement by talking to you about your life goals and what is important to you and then considering the related financial implications. Together with a planner you will be able to create a plan and, more importantly, decide on actions to take, such as saving towards retirement or paying down debt.”

This article originally appeared in the Globe & Mail in February 2016.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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