Retirement Realities for Gen X and Y
May 31, 2013
If you classify yourself as a ‘young adult’, basically between the age of 25 and 40, you’re facing some tough future financial realities.
First of all… there’s a good chance that you’ve still got student debt ranging somewhere between $30,000 and $60,000, and paying it off has only become more difficult over the years. After all, the term ‘boomerang kids’ (children that move back in with their parents during their adult years) wasn’t coined for no reason. With increasingly high levels of youth unemployment and low wage gains, it’s near impossible for some generation X and Y’s to be financially self-sufficient. Not only is having to move back in with your parents a real jolt to the self-esteem, but there’s also an impact on the (baby boomer) parents who are trying to gain their own financial freedom as they prepare for retirement.
And unfortunately, it doesn’t look like things are going to change for this financially unstable populace.
So, does this mean that you should just accept that a comfortable retirement is a pipe dream? No way! In fact, quite the contrary… recognizing that you’re in financial distress early on can help you take control of your money and conquer obstacles you will no doubt come across in the future.
Here are some challenges that Generation X and Y’s may face as they near retirement, and how to deal with them:
Pensions are near-extinction. Pension plans that are employer-sponsored, implemented to guarantee income after retirement, are more and more obscure. If you’re lucky enough to have an opportunity with a company that continues to offer a pension, don’t forget to factor that in when considering a spot on their payroll.
For everyone else… it’s time to take the bull by the horns and get started on creating your own ‘pension’. It’s never too late to start saving, but it doesn’t take a rocket scientist to tell you that the earlier you start, the better. This is the silver lining in recognizing financial turmoil at a young age, as opposed to later in life.
Social Security and CPP may start later and may be smaller. For Americans, policy changes to social security are deliberated every time another economic issue arises, and Canada is in the same boat. When you’re considering your long-term savings, don’t account for government funds – consider that a bonus. Start putting aside as little as 1% of your paycheck, considering that when you receive a raise, that percentage needs to increase. When you become immune to that 1%, step it up to 2% and so on. Include the savings in your monthly budget, almost like a ‘retirement bill’, and consider it a necessity.
Taxes will likely take a big chunk of your savings. With the US national deficit in the tens of trillions and the Canadian national deficit in the hundreds of billions, it’s hard to imagine that you won’t eventually have higher taxes to pay, whether it be next year or 25 years down the road.
To avoid paying taxes later, stash your savings in either a Roth account (US) or TFSA (Can). Both of these accounts offer a variety of long-term, tax-free saving options that make much more sense then simply ‘putting your money in the bank’. Of course, if your employer offers a traditional 401(k), take advantage of that first, and make sure you contribute enough to get the maximum match from your employer.
This isn’t to say that all Gen X and Y’s are facing these financial woes, and as mentioned, it’s not necessarily a bad thing for those that are. The recession, increasing tuitions and seeing parents struggle financially have all had a positive influence on how this generation prepares for the future. They have become, and are becoming, much more savvy homebuyers and are even expanding their horizons by looking at international real estate. They recognize that, in many cases, there are higher appreciation rates on international property – especially if purchased in the right place at the right time.
The other thing with Gen X and Y’s, is that (for the most part) technology is second nature to them. This automatically makes the world a much smaller place, meaning you can work and communicate from almost anywhere in the world. Additionally, travelling and living abroad with a young family isn’t daunting these generations how it did their parents. With endless blogs and websites available, it’s easy to find information and do research on pretty much anything (schools, cost of living, healthcare, etc) or anywhere.
Countries like Costa Rica, Honduras and Ecuador are becoming increasingly popular for this generation. Whereas the Boomers are looking for a (affordable) location to enjoy retirement, Gen X and Y’s are looking for personal enlightenment, gaining perspective, a sense of responsibility and naturally… a cheap place where they can get it all. These countries have that – and more.
If moving to Latin America to live, work and play in your 40’s, 30’s or even 20’s sounds appealing, why no check out our Discovery Weekends? You’ll see some incredible prices on local real estate and see how easy it is to navigate and communicate in this part of the world!