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 includ e 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 saving 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 Fortune500 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 Reverse, 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 includ e 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 return 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 market still weigh heavily on their portfolio. 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