Generation X investors, born between 1965 and 1980, are approaching retirement at a time when financial challenges are significant, especially compared to baby boomers who often benefited from defined benefit pension plans. Most Gen Xers rely on defined contribution plans like 401(k)s, and only 14% have traditional pensions versus 56% of boomers. This shift means many Gen Xers are underprepared for retirement, needing to accumulate more wealth while navigating market volatility risks as they near retirement age, typically considered between 50 and 55 with 10 to 15 years still left in the workforce.

A major concern for these investors is the risk of market crashes occurring at inopportune times, often referred to as sequence-of-returns risk. Historical examples like the dotcom bubble burst show how long it can take markets and stocks, such as Amazon, to fully recover—sometimes a decade or more. The broader S&P 500 index also took years to regain past highs post-dotcom crash and the Great Recession, underlining how devastating crashes can be for those needing to draw on their portfolios soon after a downturn.

Financial advisors recommend that as retirement approaches, investors should reduce reliance on S&P 500 funds alone, despite their strong long-term performance, to avoid being forced to sell investments during downturns. Strategies such as maintaining a “retirement war chest” of two years’ worth of expenses in cash or short-term bonds and gradually shifting assets toward bonds over time, known as a glide path, can protect income needs immediately prior to and during early retirement. This helps avoid needing to liquidate long-term growth investments during market lows.

Another emerging concern is the heavy concentration of certain tech stocks in the S&P 500 associated with AI, reminiscent of the dotcom bubble’s index concentration, which could heighten risk of a significant correction. Experts advise diversifying away from top concentrated holdings and balancing stock exposure with bonds. An experienced advisor can help construct portfolios designed to weather volatility and reduce the danger of sequence-of-returns risk, which is particularly critical for Gen X investors who do not have time to recover from a market crash as they move into retirement.