I often write about the retirement preparedness (or lack thereof) of boomers — my peeps and the prime Next Avenue demo.
But how well is the generation right behind them — Gen X — doing on that score?
“They’re on a retirement collision course,” according to Catherine Collinson, president of the Transamerica Center for Retirement Studies (TCRS), which just published a survey of the 36- to 49-year-olds (as TCRS defines the group; there’s no universal agreement).
“Gen X is, frankly, at risk and they’ve been overshadowed in the headlines by boomers and Millennials,” notes Collinson. Some call Gen X “the neglected middle child.”
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Retirement Reality Bites
Here’s the problem: The online survey, Generation X Workers: Retirement Reality Bites Unless Answers Are Implemented, found that even though Gen X’ers started saving for retirement at age 27, they only have $70,000 (median figure) in their retirement accounts. And, the survey said, they expect they’ll need to save $1 million for retirement. About a third of Gen X workers surveyed (31 percent) believe they’ll need to save $2 million or more.
“Do the math,” says Collinson.
Oh, and did I mention that Gen X’ers will start turning 67 (the Full Retirement Age for Social Security benefits) one year before the Social Security trust fund is projected to run out of money? Little wonder that 83 percent of those surveyed are concerned that Social Security won’t be there when they’re ready to retire.
Dealt a Bad Hand
To be fair, Gen X has been dealt a rotten hand. Many bought homes just before the real estate crash (a new Zillow study says Gen X’ers are more likely underwater than boomers or Millennials); lost money when the stock market plunged and are saddled with enormous student loans. Only 12 percent said they’ve fully recovered from the Great Recession, according to the survey.
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But their retirement “collision course” can be averted.
“One of my big messages for them is: ‘You have the time to change your retirement destiny, but it requires taking steps now,’” Collinson says.
7 Retirement Mistakes of Gen X
Based on my read of the Transamerica survey, Gen X’ers are making seven retirement-planning mistakes. I’ll run through them and offer advice for each:
1. They’re not saving enough. Those with 401(k)s — the vast majority — are putting away 7 percent of their annual pay (median figure). “On the eve of turning 50, these should be some of their peak savings years,” says Collinson.
My two caveats: One, many Gen X’ers are also trying to squirrel away money for their kids’ tuitions, so they might ramp up their savings rate once the tuition bills are behind them. Two, they're hardly slackers. An impressive 83 percent of this generation is saving for retirement, according to the survey, and 20 percent of them have more than $250,000 in their retirement savings — only 7 percent did in 2007.
Advice: Collinson calls Gen X’ers “the 401(k) generation,” because this savings plan began just as many of them were starting their careers. Those who haven’t increased their annual contribution percentage in years (if ever) should resolve to do so in 2014 if they can afford it.
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2. A big chunk (27 percent) are tapping their 401(k)s for reasons other than retirement. They’re cashing out when they change jobs, making early withdrawals or taking out loans against their balances.
Advice: Don’t do this! Chances are, you’ll never replace that money in your retirement fund. Instead of tapping your 401(k), pump up the size of your emergency fund at a bank or money-market fund. If you don’t have one, open one. “If we learned anything from the recession, it’s that if you find yourself unemployed, you need a cushion to carry you over,” says Collinson.
3. Many (39 percent) don’t want to think about retirement investing until they’re closer to retirement. “They’ve got a lot going on in their lives,” says Collinson. “But they can’t afford not to be thinking about it.”
Advice: Educate yourself about the retirement investing basics. Websites such as LearnVest, Money.com and (shameless plug) Next Avenue can help. So can books and community college classes in personal finance.
4. They’re not estimating their retirement needs. Only 12 percent of Gen X’ers have used a retirement calculator or worksheet.
Advice: Take a few minutes and do this. “It’s like giving yourself a financial look in the mirror,” says Collinson. Don’t go crazy over “The Number.” But having a rough goal and knowing what it’ll take to reach it will help you see how much you should try saving each year.
5. Even when they do think about retirement, they’re neglecting some important factors. The survey found that more than half of Gen X’ers who say they have retirement strategies aren’t including in them: health care costs; long-term care insurance or tax planning. “To our dismay, their strategies are not terribly robust,” says Collinson.
Advice: Make sure you account for health care costs as a retirement expense. And come up with a plan to cover long-term care costs, in case they arise — it could be saving for them or buying a long-term care insurance policy. Just don’t delay if you’ll purchase long-term care coverage; policies become prohibitively expensive once you hit your 60s and 70s, if you can get approved at all.
6. They’re unaware of the “catch-up” contribution rules for retirement saving. A striking 49 percent of Gen X’ers said they weren’t aware of the “catch-up” rules, which let people 50 and older contribute more to 401(k)s and Individual Retirement Accounts (IRA) than those who are younger.
Advice: Once you hit 50, take advantage of this retirement savings tax goodie, if you can afford to do so. We don’t know what the catch-up amounts will be in 2015 yet, but for 2014 you can put up to $5,500 more in a 401(k), up to $1,000 more in an IRA and — for the self-employed and small business owners — up to $2,500 more in a SIMPLE IRA or SIMPLE 401(k).
In 2014, the standard maximum contribution for those plans is $17,500 for a 401(k), $5,500 for an IRA and $12,000 for a SIMPLE IRA or SIMPLE 401(k). With the maximum catch-up, that brings you to $23,000 for a 401(k), $6,500 for an IRA and $14,500 for a SIMPLE IRA or SIMPLE 401(k).
7. Very few are using financial advisers. Only 35 percent of Gen X’ers who are investing for retirement use a professional adviser to help them.
Advice: If you have a 401(k), and the plan offers investing advice as a feature, take advantage of that. “Relatively few 401(k) participants take their plans up on this service,” says Collinson.
Otherwise, hire a certified financial planner (CFP). You can find ones to interview in the directory at the Certified Financial Planners Board site. A topnotch planner will show you whether your retirement planning is on track and, if it’s not, what you need to do. Then you can go back to the rest of your life.