Gen Xers Are Facing an Alarming Retirement Reality

Generation Xers are adults born between 1965 and 1980, and they represent almost 64 million Americans or nearly 20 percent of the population. Gen Xers are now in their 40s and 50s and are the next generation in line to retire behind the baby boomers. Now, a new report from the National Institute on Retirement Security (NIRS) finds a dismal retirement outlook for them.

The Forgotten Generation: Generation X Approaches Retirement” suggests that many Gen Xers aren’t building enough savings to maintain their standard of living when they retire. The report offers an analysis of solutions that could improve the retirement outlook for Gen X related to Social Security, SECURE 2.0 legislation, state-facilitated retirement plans, and tax policy.

What We Learn from the Report

According to the Forgotten Generation report, the average Gen X retirement savings balance (nearly $130,000 for individuals and $243,000 for households) suggests that many higher earners may not be saving enough, if those savings are intended to be one’s main source of income in retirement. Most Gen Xers won’t have a pension, and Social Security benefits will only replace between a quarter to a third of one’s income if one retires at “full” retirement age.

These are some additional findings from the report:

  • As for savings in workplace retirement plans and IRAs, “the bottom half of [Gen X] earners have only a few thousand dollars saved,” authors of the NIRS report wrote. The median amount that Gen X households have in retirement savings is just $40,000.
  • Social Security benefits for some might ultimately be reduced, since lawmakers have yet to address the program’s long-term solvency. Current projections suggest that if no action is taken, Social Security will only be able to pay 80 percent of promised benefits by 2034, which is when Generation Xers will have begun retiring.
  •  Across the board, “most Generation Xers, regardless of race, gender, marital status or income, are failing to meet retirement savings targets,” the report notes.

Another Study Also Shows that Generation Xers Are Feeling the Squeeze

Another study, the 2023 Annual Retirement Study, conducted by Allianz Life Insurance, found that 61 percent of Gen Xers said they are “more afraid of running out of money than death.” The study surveyed a sample of 1,000 individuals ages 25 and older, who are residing in the US. To participate, the individuals had to have an annual household income over $50,000 if they were single or over $75,000 if they were married or partnered, or at least $150,000 in investable assets. The study also found that planning for the new retirement reality is particularly challenging for Gen Xers. Unlike millennials, who still have ample time to save before retirement, and boomers, many of whom are already in retirement, Gen X is realizing that retirement is getting closer and they may not be ready, nor do they have a clear picture of how to get there.

In fact, Gen Xers’ confidence in their ability to financially support all the things they want to do going forward is the lowest among generations (69 percent Gen X versus 76 percent millennials and 86 percent boomers). This lack of confidence could be driven by lack of financial knowledge. Gen Xers are the least likely to have an understanding of the mechanics of saving for retirement. Here are some of the other findings:

  • A majority of the participants (56 percent) didn’t know where to start planning beyond having a basic retirement account like a 401(k) or IRA, according to the study.
  •  Only 42 percent of the participants had a written financial plan.
  • Eighty-five percent expressed concern about the adequacy of their Social Security benefits.
  • Sixty-three percent of respondents are worried that employer-provided retirement benefits may be insufficient.
  • Nearly 40 percent of Americans admit their retirement strategy is derailed, and they aren’t sure when or how they’ll get it back on track.

Along with this lack of confidence is a realization among Gen Xers that time may be running out on their retirement planning. Forty-seven percent say they can’t even think about saving for retirement right now and are just trying to take care of day-to-day expenses.

How Much Should an Individual Have Saved by Retirement?

Everyone’s circumstances are different, but one broad recommendation suggests that by age 45, one should have saved two to four times their household income; three to six times by age 50; and four and a half to eight times by 55. These recommendations vary, however, depending on what age someone retires, their marital status, where and how they plan to live, whether they will have a steady monthly paycheck from a pension, how much they can expect from Social Security, and how much may come from other potential income sources in retirement, such as part-time work or a rental property.

What Generation Xers Can Do to Improve Their Situation

The good news if you are a Generation Xer is that you still have time. If you are a Gen Xer concerned that you won’t have enough in retirement, there are some things you can do today, along with some benefits available now and coming online in a few years, that may help. Some suggestions are as follows:

  • Figure out what likely sources of income and income-producing assets will be available to you in retirement. For instance, you can request a benefits’ estimate from Social Security on your earnings to date. Your 401(k) provider likely has calculators online to help you assess if you’re on track to have adequate savings in retirement.
  • Determine what changes you can make: Whether it is saving more, planning to retire later, and/or postponing your Social Security benefits to get a larger monthly check, now is a good time to figure out what you can do to improve your financial situation in the future.
  • Pay down debt: Many people set a goal to be debt-free prior to retirement. That means paying off student loans, car loans, mortgages, and especially high-interest credit cards. The idea is to owe as little as possible in retirement.
    • Paying off those loans will mean that you could focus more on saving and investing for retirement.
    • Prioritizing paying off debt will reduce your expenses in retirement — hopefully making more room in your budget for all the things you would like to do.
    • Some people choose to downsize their home and lifestyle to help pay off debt before leaving the workforce.
    • Avoid going into debt during the end of your working career. You should think twice before making a major purchase that often comes with debt, such as buying a vacation home.
  • Reduce risk in your portfolio: As you approach retirement, it is wise to reduce risk in your portfolio. This is because you have less time to recover from losses during times of market volatility, and you will need to start using your portfolio to generate retirement income soon.
  • Put any extra money toward retirement: Not having enough savings for retirement is a serious risk for your financial future. In the worst case, you could run out of money — a major fear for most Americans. Unless you have already retired, it’s never too late to save and plan for retirement.
  • Take advantage of tax breaks, including deductions for saving for retirement and heath savings accounts (HSAs). Also look to diversify future retirement options and maximize employer match contributions with Roth employer retirement plans whenever possible.
  • Stay informed about new programs and benefits: Nineteen-plus states have introduced new programs to make saving easier for workers and the self-employed who don’t have access to a workplace retirement plan. Most are auto IRA contribution programs, which provide an easy, tax-advantaged way to save and invest for retirement through automatic deductions from their paycheck. The rules differ by state, but some allow employers to make contributions to their employees’ accounts.
  • Pay attention to new laws: The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and SECURE 2.0, which was enacted last year, are two recently enacted federal laws that are intended to help working adults save more and get access to workplace retirement plans. Learn more here.
  • Be aware of new provisions: One provision that may be especially helpful to Generation Xers who work part-time is a requirement that employers must grant a part-time worker access to the company retirement plan if that employee worked at least 500 hours per year for two consecutive years.

Also, changes to an existing Saver’s Credit may help lower income Generation Xers. “The Saver’s Credit will become a Saver’s Match beginning in 2027. The NIRS report notes. “The Saver’s Match will equal 50 percent of a tax filer’s retirement plan contribution, up to a maximum match of $2,000, and the match will be deposited directly into the filer’s retirement plan account.

Planning for Retirement

If you’re similar to many of the survey respondents (whether you are Gen X or from another generation) and you’re worried about your retirement, the best thing you can do is to plan ahead! Whether your retirement is coming up soon or is many years away, it is important to protect your hard work and your golden years with effective retirement planning and long-term care financial planning.

Besides being a Certified Elder Law Attorney, I am also an experienced retirement planning advisor and long-term care financial advisor through my affiliation with Protection Point Advisors.

Retirement planners, such as myself, generally work with people ages 50 and older, who are within ten to twenty years or so of their desired retirement age.

To get started on retirement planning, estate planning, or long-term care planning, please contact us to make an appointment:

Northern Virginia Retirement Planning: 703-691-1888
Fredericksburg, VA Retirement Planning: 540-479-1435
Rockville, MD Retirement Planning: 301-519-8041
Washington, DC Retirement Planning: 202-587-2797

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.

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