People in Generation X -- those in their 30s and 40s, born between 1965 and 1984 -- have solid reasons to be stressed out about their financial futures. Many are saddled with debt, have not saved as much as they should have for retirement, and perhaps were underemployed during recent economic downturns. Many are worried about rising healthcare costs, the possibility of reduced Social Security benefits in the future, and rising inflation. All is not lost, though, because they still retain a valuable edge: time.
The pessimism of many Gen Xers regarding their eventual retirements is evident in a recent survey by the Insured Retirement Institute (IRI). The IRI's "Don't You (Forget About Means)" report on Gen X's retirement readiness featured sobering statistics such as the following:
- 35% of Gen Xers report having more trouble in the past year paying their mortgage or rent.
- 13% of them withdrew funds from a 401(k) prematurely from a retirement account over the past year, while 18% stopped contributing to one.
- 58% of Gen Xers believe they will retire at age 65 or later, and 24% think they'll work until at least age 70.
- Only 24% are confident that they'll have enough money with which to live comfortably in retirement.
- 41% see themselves as not very knowledgeable or not at all knowledgeable about investing.
- 56% have less than $100,000 socked away for retirement.
These are unquestionably troubling numbers. Anyone struggling to pay for housing is not likely to be able to sock money away for retirement -- not to mention for college costs, replacement cars, or other needs. Premature withdrawals from retirement accounts are very damaging to our financial futures, removing money that could be growing for us on a tax-favored basis. Failing to contribute to retirement accounts is another financial blunder. Not having enough saved and invested for retirement is a good reason to be not confident that you can retire on time. Deciding to keep working longer is a reasonable response to that, but as we get older, when we retire is not always under our control. Many older Americans lose their jobs unexpectedly, while others become too ill to work, or have to leave the workforce to care for others.
Clearly, this is not a great situation for many people in their 30s and 40s. Still, it's not a hopeless one.
Reasons to be hopeful
Despite all the strikes against many Gen Xers, all is not lost for them. They have a bunch of options and one key edge: time. Even if they're one of the oldest Gen Xers, roughly 50 years old, they may still have 15 or more years in which to save aggressively and invest effectively. (Note that I didn't suggest investing aggressively. It's fine to take some risks, understanding the risk-and-reward trade-off, but investors can do quite well simply aiming to match the stock market's overall return, via an inexpensive, broad-market index fund.
If you have 15 years until retirement and you can sock away $8,000 per year in an IRA, 401(k), or other account, and you earn the stock market's long-term average annual return of close to 10%, you can end up with about $280,000, a rather useful sum. If you can do so for 20 years, you might end up with $504,000!
Working longer, as many Gen Xers assume they will have to do, is another option. It won't work for all, but for some it will, and it offers the benefits of being able to earn and sock away more money, being able to let your investments keep growing without needing to start withdrawals yet, and being able to remain on your employer's health coverage, saving some medical costs.
Delaying when you start collecting Social Security benefits (which are initially available at age 62, at a reduced rate) can also help, as for each year beyond your normal retirement age that you delay, up to age 70, you can boost your monthly checks by a significant 8%.
A smart move for Gen Xers (and anyone else) worried about their financial future is to take the time to draft a retirement saving plan, estimating how much you'll need to amass, how you'll do so, how you'll spend money in retirement, and so on. Don't be afraid to seek professional help with this, either. What you pay for that can be more than offset by savings from improved financial strategies and better sleep at night. Favor fee-only financial advisors, whom you can find via referrals from friends or at the website of the National Association of Personal Financial Advisors.
No matter what your current financial situation is, with a little planning and action, you can make your future much better.