How Much Risk Should Gen X Be Taking With Retirement Savings?

Gen X Americans are part of the so-called “sandwich generation,” as many of them are caring for both aging parents and their own children, while also taking care of themselves.

In turn, these financial and economic circumstances might pave a difficult road toward retirement savings , and assessing how much risk they can take can be difficult to navigate.

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In fact, a Schroders report found that 45% of them have not done any retirement planning — compared to 43% of millennials and 30% of non-retired boomers.

What’s more, they say they need $1.1 million for a comfortable retirement, yet they expect to have $661,103. The savings gap exceeds the expected shortfall facing both millennials and boomers, according to the report.

The report’s conclusion: “The Gen X dream retirement may be slipping away.”

With that said, how much risk should they be taking with their retirement savings to achieve a comfortable retirement?

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Maximize Savings and Avoid Taking From Retirement Accounts

Rita Assaf, vice president of retirement products at Fidelity Investments , noted that Gen Xers are at a critical point in their financial journey, as many are balancing children in college, caring for aging parents and managing rising healthcare costs, as well as planning for retirement around the corner.

“With Gen X still in their prime earning years, it’s essential to maximize savings as much as possible,” said Assaf, adding that they should be focusing on how much income they think they will need in retirement, and those over 50 should take advantage of catch-up contributions. “One risk to avoid is taking out money from retirement accounts before age 59½, as doing so often comes with a 10% penalty.”

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Strike a Balance Between Growth and Capital Protection

For Gen X, the amount of risk to take with retirement savings should be a carefully calibrated decision, balancing the need for growth with the imperative to protect capital.

As this generation approaches retirement, they must navigate the challenges unique to their position — such as the need to support both children and aging parents — while ensuring their savings are adequately diversified and aligned with their risk tolerance, according to Chad Gammon, CFP and owner of Custom Fit Financial .

In turn, they should avoid excessive risk, prepare for long-term inflation and plan for healthcare expenses, he said.

To do so, they should assess their time horizon and avoid over-concentration in any single asset class, sector or investment.

“This includes company stock or high-risk investments like cryptocurrencies, which could lead to significant losses,” he said.

In addition, as retirement approaches, Gammon said, the order in which investment returns occur can significantly impact a portfolio.

In turn, he said Gen Xers should consider strategies such as gradually shifting to safer investments or implementing a “bucket” approach — separating short-term needs from long-term growth — to manage this risk.

Take a Fair Amount of Equity Risk – but Seek Professional Guidance

As some Gen Xers still have 20 years or so until retirement, it can be appropriate to still take some equity risk.

“Keep in mind that we don’t withdraw all our money the day we retire, so much of that money will stay invested decades into the retirement years,” said Bobbi Rebell, CFP and personal finance expert at CardRates.com . “In other words, this is not the time to move everything into cash — far from it.”

That said, Rebell noted that it might make sense to consult a financial professional and start taking a holistic approach so you can be ready to start making adjustments to your investment risks as you get closer to those retirement years.

“They should also be prepared for the possibility that they may retire sooner than expected and for that reason consider putting a portion of their investments into less risky investments,” she added, noting that a big risk is a savings shortfall, which is why consulting a professional as you approach the retirement years is so essential.

This article originally appeared on GOBankingRates.com : How Much Risk Should Gen X Be Taking With Retirement Savings?