Generation X (Gen X)

DEFINITION of 'Generation X (Gen X)'

Generation X, or Gen X, is the name given to the generation of Americans born between 1965 and 1984. Some researchers, like demographers William Straus and Neil Howe, place the exact dates a bit earlier (1961-1981). But all agree that Generation X follows the Baby Boom generation and precedes Generation Y (Gen Y) or the Millennial generation.

BREAKING DOWN 'Generation X (Gen X)'

Snapshot of a Generation

The name "Generation X" comes from a novel by Douglas Coupland, "Generation X: Tales for an Accelerated Culture," published in 1991. Though it's more useful for marketing than for sociology, generational theory (the assumption that people born within the same time frame can be considered a group, with similar views, values, tastes, habits, etc.) and the idea of a generation gap has gained broad acceptance in the U.S. The American generations covered in the theory are the Greatest Generation (born between 1901 and 1924), the Silent Generation (1925 to 1945), the Baby Boomers (1946 to 1964), Generation X and the Millennial Generation (1985 to 2000). (People born after 2000 are considered "post-millennial.")

In terms of size, Gen X numbers around 50 million, while both the Baby Boomers and the Millennials each have around 75 million members. Notable members of Generation X include Kurt Cobain, David Foster Wallace and Paul Ryan.

Like the Silent Generation, Generation X has been defined as an "in-between" generation. In terms of economic muscle, Generation X's earnings power and savings were compromised first by the dotcom bust and second by the financial crisis of 2008 and the Great Recession. In terms of social and political power, Generation X is sandwiched between the Baby Boomers who came of age of the Vietnam and Reagan eras and the Millennials of the Obama era. In fact, Gen X overlaps with another group called the Sandwich Generation, middle-aged individuals (roughly 40 to 60 years old), who – due to the trends of longer life spans and having children later in life – are pressured to support both aging parents and growing children simultaneously.

Gen X vs. Baby Boomers

A recent survey by Salesforce, the global cloud computing company, compared Gen X with the Baby Boomers. Among its findings:

  • Gen X clients are busier than Baby Boomers and have less time to spend with their financial advisors.
  • They tend to more self-directed than Boomer clients.
  • They are tech savvy, used to doing things online, and want more technology-based tools to monitor their financial affairs.
  • 73% of Gen X clients rely on peer reviews in selecting an advisor, compared to 57% of Baby Boomers.
  • Online reviews matter to 64% of Gen X investors vs. 53% of Baby Boomers.
  • The use of modern technology-based financial planning tools is a key factor for 83% of Gen Xers, vs. 71% of Baby Boomers.
  • 72% of Baby Boomers feel that their financial advisors have their best interests at heart, while only about half of Gen Xers feel this way.

Other Investment Preferences

Gen X investors use ETFs much more frequently than do older cohorts. This is not surprising, given that this investment option was popularized during the years in which Gen X members first became investors. Additionally, Gen X investors are much more likely to hold balanced funds, particularly target date funds, reflecting a desire to avoid risk.

Currently, 42% of this cohort uses a financial advisor, according to a 2015 Deloitte report, The Future of Wealth in the United States. According to a recent Harris Poll commissioned by Jefferson National in 2016, their top priorities in seeking financial planning help are finding experienced advisors and personalized advice with a holistic financial view. Their No. 3 priority was to hire a fee-based professional, instead of commission-based one.

Gen X's Financial Situation

Members of Gen X are approaching the middle of their working careers and potential peak earning years. About 68% of the CEOs of Fortune 500 corporations are from Gen X, as are many of their lieutenants. Many other Gen Xers are established professionals and entrepreneurs. Over the next 30 years there will be a major transfer of wealth – collectively, around $30 trillion – from Baby Boomers to their Gen X children. Over the next 15 years, according to the Deloitte report, Gen X’s wealth is expected to more than triple, from $11 trillion in 2015 to $37 trillion by 2030.

They're going to need it. A study by JP Morgan Asset Management found as a group Gen X is on track to become the first generation to be worse off in terms of being prepared for retirement than their parents. 

According to data from the Federal Reserve, the median wealth of heads of families aged 40-61 (Gen X members currently are in their mid-30s to early 50s) was about $50,000 less in 2013 than in 1989. A 2015 survey by the Nielsen Company found that only 23% of Xers save money each month (vs. 36% of Baby Boomers) and feel confident in their financial future; 58% said they were in debt. Only 24% expect Social Security to be their main source of retirement income. A 2015 report by Transamerica Center for Retirement Studies showed similar results: 47% of Gen X respondents said they “strongly agree” or “somewhat agree” that they’re creating a sizable enough nest egg, compared to 51% of Millennials.

The Jefferson National-commissioned Harris Poll found that Gen Xers' goals reflect their advancing age, with 47% claiming that saving enough for retirement was of top importance. Next on their priorities list came handling their tax burden (30%) and financing their children’s education (22%). In contrast, Millennials surveyed in the same poll stated that their No. 1 financial worry was paying for a large expense; only 26% deemed saving enough for retirement a top priority.

Breakdown of Gen X Investments

A recent research report from Goldman Sachs, citing Investment Company Institute (ICI) data, says that Gen X households have an average of $194,000 invested in mutual funds. But that average masks large variations:

  • 17% have under $50,000
  • 46% have under $100,000
  • 29% have over $250,000

By comparison, Baby Boom households have an average of just over $300,000 in mutual funds. Median holdings are about $150,000. Meanwhile:

  • 18% have under $50,000
  • 48% have over $250,000

(The report assumes that mutual fund holdings offer a good approximation of total wealth, which also may include things like bank account balances and home equity).

Of course, members of Gen X have, on average, been saving and investing for fewer years than Baby Boomers, which explains much of the disparity. However, Goldman cites other factors.

Effects of Market Timing

On average, Gen X households began working, saving and investing during a period of lower investment returns than did the Baby Boomers. Comparing a typical Baby Boomer who began investing in mutual funds in 1991 to a Gen X member who started in 1998, Goldman estimates that average annual return on a balanced portfolio of 60% stocks and 40% bonds would be 8.6% for the former and 6.2% for the latter. The cumulative return for the Baby Boomer would be approximately three times greater, despite the difference of only seven extra years of compounding.

Many Gen X households began building their savings in periods of high market valuations, such as the technology bubble and dotcom bubble of the late 1990s, and in the run-up to the global financial crisis of 2008. The effects of the ensuing bear markets still weigh heavily on their portfolios. Additionally, the especially low interest rate environment of today also has had an adverse impact on their ability to increase financial assets. Meanwhile, the early experiences of Gen X investors with major market declines seems to have made them more risk averse.

The widespread layoffs and dim job prospects during the Great Recession caused about 15% of Gen Xers to dip into their retirement savings to cover everyday living expenses; 23% stopped contributing to retirement accounts, according to a report from the Insured Retirement Institute (IRI). In contrast, 20% of Baby Boomers made early withdrawals from their retirement accounts and 32% stopped contributing.

Other Challenges

Gen Xers' relatively lower levels of wealth will make it difficult for them to maintain their parents' consumption patterns, the Goldman report argues, given rising costs of education, healthcare and property.  Adding to savings is increasingly challenging for Gen X, however, since their real (adjusted for inflation) disposable incomes are growing at an average annual rate of about 1.8%, versus about 3.0% for Baby Boomers, when the latter were of similar age.

And then there's the sandwich syndrome: the fact that this generation is supporting and educating children while also providing care for aging parents.

Reinventing Retirement

The news isn't all bleak, as a 2015 study, Retirement 2.0, conducted by Ameriprise Financial, Inc. of more than 1,500 Americans between the ages of 35-50 with at least $100,000 in investable assets found. “Having grown up in a different era than their parents and seeing how the landscape has changed, Gen Xers aren’t counting on pensions or Social Security to fund their retirement,” said Marcy Keckler, vice president of financial advice strategy at Ameriprise.

Almost three-quarters of respondents plan to work after they retire from their official careers. Here are their top preferences: 

  • Working part-time only (53%)
  • Working as a consultant (27%)
  • Working in own business (20%)
  • Working in a home-based business (16%)
  • Working in a seasonal position (9%)

Although financial gains aren't the chief motive – those surveyed emphasized mental and social interaction will be the driving forces behind their decision to stay in the workplace – Gen Xers will still be earning to some extent. These intentions could explain why, in the IRI report, only 33% of this generation "lacked full confidence that they will have enough money to cover their retirement needs" – in contrast to 63% of Baby Boomers.

Instead of living in a retirement community or moving somewhere warm, they also are looking forward to a retirement that is more physically active and intellectually stimulating. Travel and relaxation are at the top of their retirement to-do list. Half say exercise will be a big priority and nearly a third see themselves taking on meaningful volunteer work during their retirement years.

“The new reality is that Gen Xers are planning to reinvent retirement. They don’t have an on-off switch in terms of leaving the workforce and instead anticipate a gradual evolution into this new phase of life, which really sets this generation apart,” said Keckler.

Gen X Financial Planning

The potential for financial duress can be substantial, but steps can be taken to reduce stress, balance budgets and mitigate the effects of unplanned life events. Here are some recommendations for Gen X to get their financial lives in order, and deal with all layers of that generational sandwich: children, parents and themselves.

Make an (Estate) Plan

This is vitally important if you have dependent children and you do not yet have a will or other necessary documents. You do not want the fate of your dependents or your belongings to be decided by a judge in probate court, so now is the time to make an appointment with an estate planning attorney to get your will, living will, medical and durable powers of attorney — and perhaps a living trust — created in order to ensure the smooth and quick transference of all of your dependents, possessions and responsibilities to your heirs. And because estate settlement can be an emotionally delicate process, doing this now can allow you and your family to think through how this should be done from a calm, logical perspective.

Get a Comprehensive Financial Plan

When you were in your twenties, managing your finances was a fairly simple matter of getting into good financial habits, such as saving and budgeting. Now you are at the point where your finances are probably a bit more complicated and one financial variable, such as the amount that you contribute to your company’s 401(k) plan can affect several other areas in ways that are becoming difficult to compute or predict with any accuracy. This probably means that it is time to enlist a professional financial planner or financial advisor who can plug your cash flow, balance sheet, risk tolerance, investment objectives, time horizon and tax bracket into a sophisticated financial planning program. This can give you at least some idea of where you really are financially and what you need to do going forward in order to get to where you want to be by retirement. Just be prepared to see some unpleasant numbers at the end, numbers that may indicate that you will not be able to retire as soon as you hoped.

Manage Your Debt

If you are thinking about buying a house, then you will probably be wise to look first at a 15-year fixed-rate mortgage. Interest rates may never be this low again, at least in a Gen Xer's lifetime, and a 15-year loan only charges a third as much interest as a 30-year mortgage. If your debt load has become unmanageable, find one of the legitimate debt management firms that will help you get it under control.

Get a Head Start on College Planning

Although most experts will warn parents about diverting retirement savings into their kids’ college funds, this is definitely the time to open a Coverdell Educational Savings Account or 529 plan fund if none exists. Your kids can contribute to these funds as well as you, and money that you inherit from deceased parents or other relatives can also be sources of college funding. Opening an individual retirement account (IRA) for them can be another good choice as long as you’re confident that they will not withdraw the contributions for other purposes (except perhaps to buy a house or pay for college).

Get a Picture From Parents

Conversations about money between parents and their children can be awkward, granted. But if you have not spoken with your parents about the state of their health and finances, then it’s probably time to get the ball rolling in this area. If your parents’ health is failing and they have no estate plan in place, then you may be wise to fork over the cash yourself to pay and have this done if they consent. Consult an eldercare attorney for advice if you need help dealing with managed care issues and choose a designated sibling to be the point person for dealing with these matters. A common mistake made by the children of aging parents is the overestimation of coverage provided by Medicare, Medigap and Medicaid. Having an understanding of what needs to be covered out-of-pocket can determine if purchasing longterm care insurance (if that's still feasible) and supplemental insurance policies may be beneficial.

Have Returning Children Contribute

The pressure of caring for aging parents can be multiplied by the expense of supporting grown children. Requiring offspring who return home after college to help with household expenses (paying rent, buying groceries or assisting with the elders' care) can relieve some of the pressure associated with supporting multiple generations – and provide children with some life lessons in financial and fiscal responsibility.