How Gen X can start preparing today for retirement
Since time is a critical factor for Gen X, the focus now should be on maximizing savings, minimizing debt, and leveraging every available financial tool. Most Gen Xers are in their peak earing years, so this is a great time to make a few changes and begin catching up for retirement. Here are some key, actionable steps we recommend for Gen Xers looking to close their retirement savings gap:
1. Maximize Tax-Advantaged Contributions
This is the most direct way to boost your nest egg. Contribute the maximum allowable amount to your employer-sponsored plan (like a 401(k) or 403(b), or any IRA you have. Since most employers offer a contribution match on your 401(k) investments, contribute at least enough to get the full match. This is free money and an immediate 100% return on your saving. Consider using a Roth IRA or 401(k), as these are taxed now, not later. While you pay taxes on your contributions now, you can withdraw in retirement tax-free, which offers a hedge against potentially higher future tax rates. If you are 50 or older, you are eligible for "catch-up" contributions above the standard IRS limits. These are subject to change each year, so be sure to check the current rates or check with your financial/investment advisor. For 2025, individuals 50 or older can contribute an extra $7,500 to a 401(k) and an extra $1,000 to an IRA. Those aged 60-63 may qualify for even higher limits.
2. Aggressively Reduce High-Interest Debt
Every dollar going toward high-interest debt (like credit cards) is a dollar not compounding for retirement. Focus on paying down credit card balances and other high-interest loans aggressively. Aim to have car loans and other significant installment debts paid off before your planned retirement date so your fixed income isn't eaten up by monthly payments.
3. Extend Your Timeline (If Possible)
Time is the most powerful wealth-building tool. You may consider working longer. If you can delay retirement by even a few years, you achieve a "double benefit:" You have more time to save and earn returns on your existing savings and investments, and you delay drawing down your savings, allowing them more time to grow. If you are able to work longer, consider delaying Social Security benefits claims past your earliest eligibility age. Benefits increase significantly for every year you wait until age 70.
4. Utilize a Health Savings Account (HSA)
If you are enrolled in a high-deductible health plan, an HSA offers a "triple tax advantage" that makes it a powerful long-term savings tool. Contributions are tax deductible, growth is tax-free, and withdrawals are tax-free for qualified medical expenses. Once you reach age 65, you can use the funds for non-medical expenses without penalty (they are taxed as regular income, similar to a traditional 401(k)).
5. Optimize Investments and Lifestyle
Review your asset allocation to ensure your investment portfolio is still appropriately balanced for your time horizon, balancing necessary growth potential with risk management. Look for creative ways to manage caregiving responsibilities or trim non-essential expenses to redirect cash flow toward retirement savings.
6. Get Clarity and Professional Help
Many Gen Xers lack confidence due to lacking a clear plan. Start by tracking you actual current spending precisely. Estimate how much annual income you'll need in retirement, then work backward to determine your required nest egg. Of course, we always suggest seeking financial advice from a qualified professional. As a generation that values independence, many Gen Xers avoid advisors. However, we can help you create a personalized "catch-up" strategy, navigate tax changes, and keep you disciplined.
