Today's youngest Gen Xers are roughly 41 years old, while older Gen Xers are reaching their mid-50s. Even those on the latter end of the spectrum still have a number of working years ahead of them, and as such, have a key opportunity to catch up on retirement savings.
But catch up they must. The median savings balance among Gen Xers is a sorry $64,000, according to a recent Transamerica survey, and while that's certainly better than having no money socked away at all, it's a far cry from where workers that age should be.
How much retirement savings do you need?
There's no single savings target that guarantees financial security in retirement, and ultimately, the amount of money you'll need will depend on factors like:
- What Social Security pays you.
- What other retirement income sources you have available (such as income from a part-time job).
- What your expenses look like as a senior.
- How you fare health-wise and what you medical expenses amount to.
That said, as a general rule, it's a good idea to aim to retire with 10 times your ending salary in a 401(k) or IRA. Therefore, if you're in your mid-50s with only $64,000 in savings, it's clear that you have some catching up to do.
But don't think you're off the hook if you're only in your early 40s and are sitting on $64,000. Depending on your lifestyle and income, you might easily need 10 times that amount, so if you've been neglecting your nest egg thus far, it's time to prioritize it, and you can do so by cutting back on other expenses to free up more room for savings.
The good news, though, is that while $64,000 isn't a ton of money in retirement savings, it is a decent foundation, especially if you're a younger Gen Xer. Imagine you're 42 with $64,000 to your name, and you're able to put another $250 a month into your retirement plan over the next 25 years. If your investments in that plan generate an average annual 7% return, which is few percentage points below the stock market's average, you'll wind up with $537,000 -- not a small amount of money at all.
On the other hand, if you're 55 with a $64,000 retirement savings balance, and you contribute $250 to your 401(k) or IRA for another 12 years, you'll wind up with just $198,000 by age 67, assuming that same 7% return. And that's probably not enough to sustain you throughout your senior years. If we follow the 4% rule to determine a withdrawal rate, $198,000 in savings allows for just under $8,000 in annual income. Throw in the average yearly Social Security benefit -- roughly $18,000 -- and you're looking at getting by on just $26,000 a year, assuming you don't have an additional source of income or aren't planning to work as a senior.
Therefore, if you're an older Gen Xer with somewhere in the ballpark of $64,000, be sure to ramp up your savings efforts over the next decade or so. Socking away $1,000 a month, which you can do in a 401(k), over the next 12 years will bring you up to $359,000 (assuming that same 7% return), and that would give you $14,360 in annual income from savings if we use the 4% rule.
And yes, $1,000 a month is a lot of money to part with, and may require some sacrifice. But the alternative is risking financial struggles once your time in the workforce comes to an end.