Caught between two iconic generations, Baby Boomers and Millennials, the older side of Generation X quietly slips toward retirement age. Most, however, are not on track to meet their retirement goals. In fact, nearly 9 in 10 Gen Xers are falling short. Perhaps relying on pensions, the promises of social security, or a near-future raise, the majority of Generation X will be obligated to work into their late 60s and early 70s – without a financial solution. The good news, Generation X can take steps to catch up on long-term savings, meet goals, and comfortably retire. In the content below, we explore the current state of Generation X and explore five simple ways Gen X can catch up on retirement savings.
The Current State of Generation X
Generation X Americans, born between 1965 and 1980, are readily nearing the quintessential peak income years. While most Gen Xers began investing for retirement sooner than Baby Boomers, many experience difficulties saving while experiencing financial demands from children and aging parents, concurrently. For this reason, Generation X is often referred to as the “sandwich generation,” a term formerly applied to Baby Boomers.
According to the Transamerica Center for Retirement Studies, the median amount of Gen X retirement savings is about $70,000. The median deferral for employer-sponsored retirement plans is 7%. Furthermore, nearly 40% of Gen Xers have no retirement savings strategy. Taking medical expenses into consideration, the cost of living can increase yearly as individuals age. As Generation X currently ranges from 40 to 55, mid-life strains create savings challenges.
Only 65% of Gen Xers are optimistic about retiring by the age of 65. Even among the optimistic, most feel somewhat behind and pressured to catch up. For others, a comfortable retirement period feels hopeless. Keith Denerstein of TD Ameritrade commented, “The majority of people realize they do need to catch up. They are willing to take the steps necessary.”
Why are Gen Xers behind?
A number of factors impact the complex financial pressure felt by Generation X. As mentioned, living sandwiched between expenses of helping aging parents and raising children is a setback. Gen X matured during the phaseout of pensions for 401(k) plans, caught amid the rollout. The Great Recession affected a broad majority between 2007 and 2009. Others simply claim they do not make enough to stay ahead on retirement savings while paying for everyday expenses and debt.
5 Ways Gen X Can Catch Up on Savings
1. Set a Retirement Goal
Without a goal, Gen Xers are working towards an inconclusive end. One individual may intent to work for a while but still wants to put some retirement savings away. Another may hope to completely retire before 65. Setting an actionable goal is the first step to success.
2. Take Advantage of Workplace Resources
Most workplaces offer to match an employee’s contributed savings up to a designated percentage. Depending on the amount in a 401(k), Gen Xers should at least save enough to take advantage of matched dollars. Ignoring workplace resources forfeits money on the table. Additionally, traditional 401(k) plans are financed with pretax funds. Gen Xers should take advantage of the income tax savings of these retirement savings resources. Of course, Gen Xers—or any generation—with workplace resources should begin investing as soon as possible because growth potential increases as money has time to compound. If possible, Gen Xers should contribute the maximum amount towards their 401(k) plan. Most cannot save that much and that is alright. People should at least aim to increase their savings rate by 1% to 2%. Ultimately, small increases make a huge difference over time.
3. Use Retirement Savings Accounts Wisely
Once money is deposited into a 401(k), the funds should stay there unless an emergency or hardship situation requires withdrawal. Within Generation X, nearly a third have taken out a 401(k) loan. Ultimately, pulling savings from a 401(k) can bring detrimental repercussions including costly tax penalties.
Other worthwhile tax-advantaged retirement accounts include health savings accounts (HSAs) and individual retirement accounts (IRAs). HSAs are occasionally offered in the workplace, while IRAs are typically offered outside of the workplace.
4. Make Practical Trade-Offs
While generations choose differing trade-offs to catch up on retirement savings, Generation X typically considers small expenses. Extraneous costs, such as purchasing food and coffee for lunch, can be reduced by packing a homemade lunch and brewing coffee. Expensive outings with friends can be swapped for creative, inexpensive get-togethers. Extravagant housing can be downsized for a more moderate option. Even reducing lavish vacation spending is another practical trade-off.
Trade-offs before retirement are not accepted by all Gen Xers. Some prefer to reduce spending during retirement, work part-time throughout retirement, or work longer to comfortably retire. However, a few simple adjustments to regular spending practices will push Gen Xers closer to retirement goals.
5. Pursue Professional Help
Gen Xers tend to fear that a professional advisor will turn them away due to their lack of savings or retirement investments. The truth is that many financial advisors will work with clients on an hourly planning basis to set short-term and long-term financial goals, no matter how much they currently have in the bank or in retirement savings.
Furthermore, Generation X feels that the fees associated with financial planning may be too expensive for them. There are various options available in the financial advisory space, ranging from comprehensive financial plans to financial consulting that is done on an hourly basis. Getting good advice to get on the right financial track can be money well spent.
At DHJJ Financial, we are dedicated financial advisors, approaching financial planning with a full-service program that integrates individual income tax planning along with investment management. Our financial planning strategy is effective and holistic.
To inquire about further information, feel free to call us at 630.420.1360 or get in touch via our online contact form.