Gen X: caught between competing priorities

This financially stretched generation needs to make the most of their peak years, writes Zoe Fielding.

Life is busy and expensive in your 40s. Members of Generation X – born between 1965 and 1980 – are juggling work and family commitments and making compromises on a range of competing priorities.

In their peak years of earnings (and expenditure) Gen Xers still have a decade or three to go in their working life before they'll be able to access their superannuation and any age-pension.

While it's easy to put off making decisions about retirement with so much else going on, there are life-changing benefits to establishing a solid financial plan now.

Gen Xers have time to accumulate big savings

Maximising contributions into a superannuation fund, one of the lowest-taxed options available, will turbocharge Gen Xers' savings after 15 to 30 years of compound growth.

For example, if a 45-year-old on an income of $90,000 can salary-sacrifice $10,000 a year into their super fund, they'll forego just $6550 in take-home pay but boost their superannuation balance by $8500 over the year.

If they can maintain that for the next 20 years while earning a 7 per cent return from their super fund, the total $170,000 in extra contributions will more than double to almost $350,000 due to compound interest. So be thoughtful about your superannuation investment options and use MoneySmart's compound interest calculator to try out your own calculations.

Many Gen Xers have benefited from having superannuation throughout most, if not all, of their working lives. The superannuation guarantee – under which employers must now pay 11 per cent of an employee's salary into their nominated super account – was introduced in 1992, when the oldest members of this generation were in their late 20s.

And those who bought property in their 20s and 30s got in before the housing boom so have benefited from rising home prices.

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Gen X faces huge financial pressure

Australian social researcher Mark McCrindle of McCrindle Research, says that while these factors have boosted the wealth of Gen X, this age group faces financial challenges that previous generations didn't.

"While this generation has had super for most of their working lives, it wasn't at the amount that it is today when it began," he says.

"This generation also has longevity gains [in life expectancy], and has expectations for retirement that are far beyond what was traditional. So they are looking at playing a bit of catch-up [with their super]."

Gen Xers can expect to live more than 20 years in their retirement, so their savings will have to stretch. Their own parents are also living longer, so they can't rely on an inheritance any time soon to top up their retirement savings.

In addition, with kids now moving out of home later, Gen X parents are supporting their children for longer. And with parents of teenage kids now dealing with rising expenses such as school fees, utility bills and housing costs, the increased cost of living has hit Gen X the hardest, McCrindle says.

According to the May 2022 Australian Credit Card and Debit Card Statistics by Finder.com.au, Gen X also has the highest level of credit-card debt of any age group, requiring 7.8 months on average to pay off their credit card debt.

McCrindle explains a possible reason for this: "Generally they're moving into being two-income households, but they've got higher costs: pay TV, digital devices for school, private school fees, trips and travel as a family – there are new categories of spending in addition to the older ones."

One in three Australian high-school students attends a non-government school, up from three in 10 two decades ago, Australian Bureau of Statistics data shows.

Working families with younger children – aged five and under – spend an average of 7 per cent to 8.5 per cent of their annual income on childcare, according to the 2017 Household, Income and Labour Dynamics in Australia Survey (PDF, 12.5 MB). That's up from 2002–03 when childcare costs were between 5.7 per cent and 6.4 per cent of annual incomes.

Housing is also taking up a larger chunk of income. The ANZ Corelogic Housing Affordability Report from March 2022 shows that the national median dwelling value had risen to an estimated 8.5 times the national median annual household income level. This is a record high, increasing from 6.8 since the onset of COVID-19 two years prior.

Essential retirement-planning tasks for Gen Xers

Gen Xers need a plan to ensure they can repay their mortgage and other debts before retirement, while building a nest egg that will provide for a comfortable future lifestyle.

Setting a retirement date – however far in the future – can help with making necessary financial decisions, such as how much to save considering the need to cover long-term healthcare and insurance costs, as well as tax planning.

It's also important to understand and plan for the impacts of unexpected events such as unemployment or illness.

The bottom line is that Gen Xers still have plenty of time to set themselves up for the future – but they do need to start now.