Could Gen X please stand up?
As a Gen Xer myself, it seems the press has left us behind, sandwiched as it were, between the Baby Boomers and Millennials. So, when an article purporting to describe me occasionally appears, I sit up and take notice. What do the media and financial experts think of my generation? Did they get it right? Or are they necessarily broad generalisations that don’t apply to me or my friends?
According to a recent article published in the Australian Financial Review (AFR), if you are a Gen X’er born between 1965 and 1980, the following applies to you:
- Many of us attended university and travelled in our 20s resulting in marrying, having kids and buying homes later than previous generations.
- Having started families later, major financial obligations continue well into your 50’s – and sometimes even later.
- 18 per cent of us own at least one residential investment property.
- 48 per cent of us are worried about running out of money during retirement.
- 30 per cent of us are worried we’ll never have enough savings to retire.
- Three-quarters of us think high levels of government debt will result in less government financial support being available when it’s our turn to retire.
- If we make it to age 65, we are expected to live to 85 as a male, and 88 as a woman, meaning we will require more to retire on than prior generations.
- Many of us will be among the first to retire with a lifetime of super accumulated (although when the super guarantee began in 1992 it was just 3-4 per cent of salary), and,
- Perhaps consequently, the average Gen X super balance is well below where it needs to be for a “comfortable” retirement.
- 55 – 59 year olds should have at least $316,000 in super.
- If you’re no longer working, and turn 60 next year or later, you will be able to access your super.
- From 2030, you’ll be able to access your super regardless of your work status after you turn 65.
- From 2032, depending on your eligibility, you’ll qualify for the age pension once you’ve turned 67.
With careers peaking later and the thick of family life occurring later, financial and retirement planning has taken a back seat. In fact, according to one major planning firm, only seven per cent of Gen X’ers are taking financial advice. And according to another financial planner quoted in the article, we are “in denial” about retirement because we think we are much younger than we actually are. I am almost certain every generation thinks the same way about the ravages of time.
Yes, many of us did go to university and travel, but I know just as many who settled down to work quickly, building careers and businesses. Sure, for those of us who could conceive naturally, we did tend to have kids later than our parents. Typically, we were born to parents in their early twenties, while we didn’t start having children in our mid-to-late 20s. Many of us continued having children into our late 30s, and some even in our 40s.
While I know a reasonable number of Gen X’ers who own investment properties, I know plenty more who don’t. Steeply rising prices made some of them choose not to buy, while others have chosen to eschew an investment property because they simply don’t want the maintenance or the obligation to return to the same destination for their holidays.
One difficult-to-dispute finding is that many in our generation will live longer than the generations that came before us. Fortunately, we have some superannuation to fund that longer retirement, but unfortunately, the government has managed, over a few decades, to shift the narrative. The new narrative – one we have swallowed hook, line and sinker – is that we are entirely responsible for funding our own retirement. For the previous generations, and for whom there was no super, the responsibility fell on the government through the aged pension. That pension is slowly being withdrawn such that three-quarters of Gen X may be justified in their expectations that “high levels of government debt will result in less government financial support being available when it’s our turn to retire”. And keep in mind the growing population of older people dependent on some form of social security needs to be supported by a declining population of workers and their taxes.
The majority of Gen X’ers have insufficient super to fund retirement (read here about why I think the definition of ‘comfortable’ isn’t comfortable at all), is a reality financial planners will try and help within the interim, but which some financial engineering and innovation will be required to ultimately solve.
The bottom line is that each generation experiences financial challenges and cost-of-living crises that higher returns (and ideally without higher risk) can help solve.
At the moment, and in the absence of newer innovations, I firmly believe private credit funds – those that can generate annual returns higher than the equity market’s average annual returns, without any of the volatility, while producing monthly cash income and annual returns of around 10 per cent, are going to be in very big demand for Gen X, as well as the baby boomers already facing their own financial challenges.
An increasing number of wise financial planners are looking closely at private credit as a solution to the need for attractive and truly uncorrelated returns along with cash income to meet the increasing costs of living longer.
Here at Montgomery, we distribute the Aura Private Credit Income Fund and the Aura Core Income Fund. If the AFR’s assessment of Gen X is correct, more of us should be taking a closer look at Private Credit.
Disclaimer
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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
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