Contrary to the stereotypes from the 80s and 90s that labeled those born between 1965 and 1980 as disengaged slackers, today’s Gen Xers are anything but indifferent. Investopedia published the results of a 2022 multigenerational financial literacy study which found that Gen Xers are both invested and concerned about retirement, which is the biggest financial worry for this group. According to the survey, this generation is confident about managing their daily finances, but nearly one in four Gen Xers are not sure when, or even if, they will be able to retire.[1]
Northwestern Mutual’s 2024 Planning and Progress Study revealed that Gen Xers estimate needing about $1.56 million for a comfortable retirement however, the surveyed individuals within this age group had less than $110,000 on average saved to date.[2] This generation began saving at 36, later than millennials and Gen Zers, who started saving at ages 27 and 20, respectively, according to Fidelity’s 2024 State of Retirement Planning study.[3] Gen Xers had to opt-in to their employer’s 401(k) plan at the start of their careers. Tax reforms have since made enrollment an automatic process for new employees, and this makes a huge difference, reveals retirement expert Anne Lester, author of, “Your Best Financial Life: Save Smart Now for the Future You Want.”[4]
“Participation rates are typically as low as 60% when people have to sign up themselves, but over 90% when they’re automatically enrolled,” says Lester.
Most Gen Xers expect to rely on Social Security and 401(k) income in retirement but have concerns that Social Security may not cover much once retirement is a reality, or even worse, that Social Security funds will be depleted in the next 15 to 20 years. The Social Security Administration issued a message to the public in the the 2024 annual report. The fund’s reserves are expected to be depleted by 2033 and the continuing program income will be sufficient to pay 79 percent of scheduled benefits.[6] What’s more, the Center on Budget and Policy Priorities reported that 67 million people, or about 1 in every 5 U.S. residents, collected Social Security benefits in February 2024.[5] Finally, the retirement age for collecting full Social Security Benefits for Generation X is 67, later than the previous generation. If possible, it is best to save as if the benefit may not be available. Fortunately, Gen Xers still have time to right their savings ship, and can do so in the following ways:
- Increase retirement savings rate—The retirement savings rate refers to the percentage of income an individual allocates toward retirement annually. According to Vanguard, the average retirement plan maintained a savings rate of 11.7% in 2023, which included employee deferrals and company contributions. While many financial companies recommend putting in at least 10% of income, the percentage varies from person to person and is influenced by age, goals, timeline, etc. [7]
- Lower spending—Gen Xers who reduce their spending and live below their means save more for retirement and become accustomed to living on a smaller budget. Both are beneficial for the future.
- Make catch-up contributions—At age 50, individuals can make extra contributions to their tax-advantaged retirement accounts beyond the usual annual limitations. These are known as catch-up contributions. For example, in 2024, workers age 50 and older can contribute an additional $7,500 to their 401(k), 403(b), or governmental 457(b) plan.[8]
Gen Xers with retirement concerns or who need help preparing should talk to a financial advisor. Even those who feel they have a good grasp on their financial plan and investments should seek counsel throughout the process to cover all bases and well-position themselves for the future. SHP helps people from all generations set goals and develop individualized financial plans that fit their unique needs. Click HERE to schedule a complimentary review of your finances with SHP Financial today.
Sources
[1] https://www.investopedia.com/generation-x-all-eyes-on-retirement-5224396
[2] https://news.northwesternmutual.com/planning-and-progress-study-2024
[3]https://preview.thenewsmarket.com/Previews/FINP/DocumentAssets/663841.pdf
[6]https://www.ssa.gov/oact/trsum/
[7]https://www.cnbc.com/2024/06/24/average-401k-savings-rate.html
