Hamilton Herald Masthead

Editorial


Front Page - Friday, June 24, 2016

Gen Xers must juggle both money and time


Financial Focus



Stan Russell

If you’re an older member of Generation X – that is, if you were born in the early- to-mid-1960s – you may have a lot of “balls in the air.”

You are saving for your own retirement – which might not be that far away – while at the same time possibly wanting to help pay for your children’s college education. And you may also be assisting your aging parents in some ways. How can you manage this juggling act?

To begin with, you need to emphasize your retirement. Now that you are likely in, or near, your peak earning years, you should contribute as much as you can afford to your 401(k) or other employer-sponsored retirement plan. Your plan likely offers you a range of investment options, so you can create a portfolio that’s appropriate for your needs. The money in your 401(k) or similar plan can grow on a tax-deferred basis, and your contributions are typically made with pretax dollars. So, the more you put in, the lower your annual taxable income. You won’t have to pay taxes until you take withdrawals, but if you do withdraw money before you reach 59½, the withdrawals may be subject to a 10% IRS penalty.

Even if you’re contributing to a 401(k) or similar plan, you’re probably still eligible to contribute to an IRA. Like a 401(k), a traditional IRA offers tax-deferred growth potential, while a Roth IRA can provide tax-free earnings distributions if you’ve had your account at least five years and don’t take withdrawals until you’re at least 59½.

If you devote most of your investable income to your retirement plans, you may not have much left to help pay for your children’s college education. But that may not be a disaster – after all, they could get scholarships and financial aid. And even if they need to take out student loans, they have a lot more years to pay them back than you have until your retirement. If you can afford to help your children, choose a smart college-savings vehicle, such as a 529 plan, which offers tax-free earnings distributions as long as the money is used exclusively for qualified higher education expenses. (If it’s used for other purposes, you’ll be taxed on it and also could face a penalty.)

How about your elderly parents? How can you best help them? Hopefully, they will not require any outright financial assistance from you – but that doesn’t mean you can’t assist them in other ways. If you haven’t already done so, try to find out as much as you can about their estate plans and any arrangements they’ve made should they become incapacitated. Ideally, you’ll want to get answers to questions such as these:

– Have they named a durable power of attorney? 

– Have they chosen an executor for their estate? 

– Have they thought about they would pay for any long-term care services they might need, such as a nursing home stay?

It may not be that easy to have these conversations, but they are important – especially if you are going to play an active role in your parents’ plans.

Clearly, as a Gen Xer concerned about retirement, college-age children and aging parents, you’ll have a balancing act involving both money and time. But with planning, patience and realistic expectations, you can help yourself and the ones you love.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor (member SIPC). Contact Stan at Stan.Russell@edwardjones.com.