Gen X Retirement Tips for Millennials

While Gen Xers came of age in a world very different from that of the Millennials, the younger generation can still benefit from the advice of their elders. Here are some words of wisdom from Gen X financial experts to Millennials who want to be financially successful. Members of both generations won’t have to worry about having enough saved for retirement if they follow these suggestions.

Start a Business 

“Being your own boss in an increasingly challenging job market means never being laid off,” says Paul T. Murray, ChFC, CDFA and president of PTM Wealth Management in Chalfont, Pa. “In addition, you are in charge of your own destiny, can determine how you want to work and where, and can benefit from favorable tax treatment.”

Starting your own business doesn’t have to mean coming up with a novel idea for a product or service, getting venture capital funding and hoping to one day go public and pocketing enough money to retire at age 30. Real estate agents, insurance agents, financial advisors and many other professionals can start off as employees and later transition into self-employment. That setup lets you ramp up and scale back on work as your personal and financial situations change over the years, and you can work part-time or retire earlier or later than you might be able to do as an employee.

That flexibility also brings job security. “A real estate or insurance agent or a financial advisor won't be downsized by a company because their overhead is so low,” Murray says. “And each of these professions may offer the opportunity for 1099 income treatment, which means far more deductions than a standard W-2 employee.” You can save far more in a 401(k) plan when you’re self-employed; you can deduct business expenses; your business can pay for benefits such as healthcare and insurance; and you can deduct some of your home expenses if you’re a homeowner.  (Learn which kind of retirement savings plan you should be using in The Best Retirement Plans For Millennials.)

Murray was 41 when he formed his own LLC, but he doesn’t feel he waited too long. “I was effectively acting as a business owner while working as an employee for a large firm. I was then able to bring my clients with me in my new venture,” he says. “I would recommend this approach for Millennials who may need age or experience to gain more credibility in the minds of their prospective clients or customers.” 

His own experience notwithstanding, Murray believes that Millennials who want to take a bigger risk with entrepreneurship should do so while they have minimal financial and personal responsibilities. They should also know that even if they fail, their experience may make them a more attractive candidate for certain jobs because it shows that they had the guts and drive to go it alone, Murray says. 

Write Down Your Financial Goals

A recent study by psychology professor Gail Matthews, Ph.D., of Dominican University of California in San Rafael, found that writing down goals, committing to goal-directed actions and creating accountability by sending weekly progress reports to friends helps people of all ages and professions achieve much more than those who have not put their goals in writing and do not take these additional steps.

Written financial goals can help Millennials plan for retirement and reach nearer-term goals, too. These goals should be placed into three different buckets, says John T. Laurito, CFP, ChFC, CRPC, and president and CEO of Concord Wealth Management in Waltham, Mass. 

1. Short-term goals (the next three years): building up cash reserves for emergencies or opportunities; paying off credit card debt;

2. Medium-term goals (the next three to 10 years): saving up for a 20% down payment to buy a home; accumulating a certain amount in an investment portfolio;

3. Long-term goals (10+ years): retirement (enough savings to replace 70% to 80% of your income); college funding for future children.

“Good goals pass the S.M.A.R.T test,” says Laurito. “They are specific, measurable, achievable, results based and time bound.” Don’t fall into the trap of “missing the ‘A’ and setting goals that are too lofty and unrealistic,” Laurito advises. “A goal that is too aggressive can leave you feeling frustrated when you fall short,” causing you to give up. Instead, he says, set goals that are challenging but achievable.  

But try not to set aside so much money right now that you feel you can’t enjoy the present. Seek a realistic balance between present consumption and providing for your future.

“Financial goal setting doesn’t have to be restrictive and can lead to greater life flexibility down the line,” Laurito says. Having a cushion to fall back on will give you peace of mind because “you can afford to make decisions that align better with your long-term goals and values, rather than have to make decisions because they solve a short-term problem."

Start Saving Now

By now, you may be thinking, “Yeah, yeah. I've heard it all before: The younger I am when I start saving, the more money I’ll have later, thanks to compound interest, stock market returns, blah, blah, blah. But right now I can barely afford to pay rent, buy groceries and go out with my friends on Friday night, let alone save for retirement."  

Lidia Shong, 40, has been there. Shong is a Gen Xer who initially struggled to manage her finances and ended up with a career in personal finance and retirement planning. She now works as head of marketing for aboutLife, a San Francisco-based company that provides free online financial planning. “I started saving when I was 25 and was making $9.25 per hour. Now I’m 40 years old and I have $400,000 in my retirement accounts,” Shong says.

Her secret? “Start saving now, even if you think you don’t make enough,” she says. “When you get a job, sign up for the company's retirement plan and put money away from your very first paycheck.” That slightly smaller paycheck will become your baseline, and you won’t feel the pain of cutting back later.

It’s also helpful to see your cash-squeezed situation as temporary and to imagine how your current sacrifices will pay off later in specific and enjoyable ways.

“Most people get better-paying jobs as they learn new skills and progress in their careers, so your budget won’t always be so tight,” Shong says. “You don’t have to take that trip to Vegas now, when you can barely afford to stay at Motel 6.” Wait until you have more money, and you’ll have a much better time. “By then, you may even be able to stay at the Bellagio,” she says.

Create a “When Opportunity Knocks” Fund 

Once you’re a few years into your career, you’ll probably be able to save more easily. As part of an overall strategy of saving 20% to 30% of your gross income,“ set aside a portion of your savings for potential life-changing opportunities,” says William D. Pitney, MBA, CFP and financial focus engineer with FocusYOU, a financial and wealth planning firm in the San Francisco Bay area. Setting this money aside will let you take advantage of a business opportunity or pursue a worthy cause when the opportunity presents itself without having to worry about taking on debt or ending up in the poorhouse, he says.

As a general guideline, which can be adjusted according to your income, debt obligations and risk tolerance, try to save 5% to 10% of your income for your opportunity fund after you have a fully funded emergency fund and are saving at least 10% to 15% of your income for retirement, Pitney says. You want to be prepared to withstand the economy’s boom and bust cycles and financially survive a layoff without taking premature distributions from your retirement accounts. If you receive bonuses or stock options from work, funnel those toward your opportunity account to fund it more quickly.

Pitney’s advice reflects the same approach he has used to help himself and his clients succeed. He and his spouse saved aggressively in their 20s, which wasn’t easy because of their student loans. Those savings, along with severance pay, helped them survive a massive layoff in early 2003. They were able to comfortably meet their expenses for more than a year, which helped them transition into better long-term career options rather than having to tap retirement funds or take the first job that was available. 

“I now recommend that Millennials save more because I’ve seen the consequences when Baby Boomers and Gen Xers have not saved as diligently,” says Pitney. In short, he believes in saving as much as you can in your 20s and 30s in order to give yourself more opportunities later in life – a period that Millennials also view differently from their elders. (Learn why in Retirement Planning The Millennial Way.)

The Bottom Line

Millennials can learn from the financial successes, failures and regrets of Generation X, as well as the Baby Boomers who preceded them. It’s okay to enjoy some of the fruits of your labor in the present, but don’t overspend on dining out, expensive rentals and indulgent vacations today; save for your future, and facilitate those savings by writing down realistic goals and creating an accountability plan. Give yourself a cushion that will help you in times of unemployment and will give you the option to take advantage of life-changing business, travel and volunteer opportunities when they knock. The earlier you start saving, the easier it will be to achieve these goals and to retire when you’re ready. (Are you preparing well enough for retirement? Read Five Retirement Warning Signs for Millennials and How Gen Y Can Avoid Working Forever to find out.)