Are Gen Xer's Prepared for Retirement?

According to a study by the private non-profit foundation TransAmerica Center for Retirement Studies, very few Gen Xers (defined as those born between 1965 and 1978) are fully prepared for retirement.

Gen Xers were badly hit by the financial crisis of 2008.  Only 12 percent said they have fully recovered from the Great Recession, according to the survey. This is an interesting fact considering the markets have come back to their pre-recession highs and then some. This tells me many fell into the nefarious behavior gap, selling out at the wrong time when panic set in.

According to the report, the majority of Gen Xers have about $70,000 in their retirement accounts. Yet they are expected to need between $1-2 million to retire comfortably.

In 2015, the first Gen Xers will turn 50 and the first Gen Xers will start becoming eligible for full benefits (age 67) in the year 2032.  Coincidentally, this is also around the time when many experts forecast that the Social Security Trust Fund will run out, meaning benefits could be cut by as much as 70 cents for every dollar.  That is a big cut if you are depending on Social Security to be your main stream of income!

Perhaps many Gen Xers know their savings coupled with social security, pensions, etc. won't be enough, so many of them plan to work past the retirement age or just never stop working in some capacity.  Some will likely choose part-time work that is less-demanding than their current careers. The report stated, “Generation X should take heed and extra proactive steps to improve their chances of remaining employed, given their plans to work past age 65 and in retirement.”

Bottom line is Gen Xers are not saving enough.  Most who have 401(k)s, are only saving 7 percent of their annual income. Many haven’t increased their 401(k) contributions since they started saving years ago. Those who are about to turn 50 should be saving a great deal more than that. The report stated, that only about half of Gen Xers, when they turn 50, are aware that they can now increase their contributions to their 401(k)s. This ‘catch-up’ clause in the legislation is intended to boost retirement funding but relatively few take advantage of it.  In 2016, an employee could put up to $6,000 more in a 401(k), up to $1,000 more in an IRA and about $3,000 more in a Simple IRA, under the ‘catch-up’ rules.  The report did point out that many are still paying tuition for their children’s college education which is limiting their ability to save.

Probably more worrisome is that fact that about 30 percent of Gen Xers tap their 401(k)s for early withdrawals or pull out funds when they change jobs. This is can be detrimental, according to the report, because only a few ever replace those funds in their retirement account. “Leakage from retirement plans in the form of loans and withdrawals can severely inhibit the growth of participants’ long-term retirement savings,” the report warns.

To make matters even more challenging, the vast majority of Gen Xers haven’t calculated the costs of their retirement properly. The report says they neglect to include items like long-term care insurance and funds for adequate healthcare – both of which can be large expenses in a retiree’s budget.

In the end, it’s not surprising that 65 percent of Generation X savers would like more advice from their employers on how to reach their retirement goals. About half say that they are unsure of the best strategy to plan for retirement yet they make their own decisions. That suggests that the majority need help with retirement planning, and they need it now. 

If you are unsure about your retirement you can reach out for a complimentary meeting to know exactly what it will take to reach your goals.