Gen-Xers May Never Be Able To Retire

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Gen-Xers may never be able to retire.

Recession will haunt Gen-X into retirement

You may think that Worrying about retirement is a Baby Boomer problem, but not anymore. A new study from Pew Research has some startling predictions, one being that Gen-Xers may never be able to retire.

Who is Generation X?

According to Wikipedia, the Gen X label is usually assigned to those who were born in the early 1960s to the early 1980s. The Pew study looked at those Gen-Xers born between 1966 and 1975 who are now 38 to 47 years old. The previous generation, known as The Baby Boomers, is considered to include those born during the demographic Post–World War II baby boom between the years 1946 and 1964 (according to the U.S. Census Bureau). Generation Y, also known as the Millennial Generation, is the demographic following Generation X and includes those born from the early 1980s to the early 2000s. It should be pointed out that aside from the U.S. Census Bureau having set dates for the Baby Boomer generation, there are no precise dates for when Generation X or Y start and end. Just because you do not fall into the year range of a particular generation’s label doesn’t mean that this information doesn’t pertain to you. If you currently work, and would some day like to retire, then this is for you!

So what did the new study show?

The new Pew Study, the latest to measure the impact of the financial crisis, showed that Baby Boomers lost about 28% of their net worth in the recession. While 28% may sound like a lot, because it is, that is nothing compared to Gen-Xers who lost nearly half of their wealth. On average Gen-Xers lost 45%, which equates to $33,000. That’s a lot considering they didn’t have much savings to begin with.

Why are Gen-Xers facing more financial challenges?

Wrong Queue, Mr. Grimley - This is Pensions - You're Only 83

Wrong Queue, Mr. Grimley – This is Pensions – You’re Only 83

Gen-Xers weren’t in good shape before the recession hit. While this group did have more assets than Boomers at the same age before the recession, they also had significantly more debt. The Pew Study showed by 2010 Gen-Xers had on average $80,000 in debt. Gen-Xers are also missing out on home equity that older age groups often rely on in retirement. Less than 2/3 of Gen-Xers were homeowners in 2010.

Other reasons contributing to Gen-Xers’ ill fated retirement plans:

  • Gen-Xers may not be able to count on Social Security benefits.
    Even if Social Security is still around, unlike previous generations, Gen-Xers will not get full benefits until age 67 (up from 65)
  • Life expectancy is rising, meaning assets will have to last longer.
    Unfortunately it seems Gen-Xers are simply not prepared. The majority (59%) have not even thought about how much money they will need to save for retirement, and most of those who have started saving have less than $100,000.
  • Job security played a huge role in Gen-Xers planning for the future.
    Those who still have jobs may not be in the executive level jobs they hoped for because Baby Boomers are staying in the workforce longer.
  • Gen-Xers were forced to pull from their savings.
    During the recession, 15% made early withdrawals from their 401(k) plans, 23% stopped contributing to retirement accounts and 22% quit putting money in college savings plans, according to a 2012 study from the Insured Retirement Institute.
  • High student loan debt is another problem plaguing Gen-Xers.
    Student loans have grown to nearly $1 trillion, exceeding even credit card debt. Gen-Xers face the obstacle of trying to pay down debt while saving for their future.
  • Many Gen-Xers bought homes at the peak of the housing boom.
    Home prices have fallen 34 percent since that time (since July of 2006, according to the Case-Schiller home price index) and nearly 8 million Americans faced foreclosure. Many boomers are counting on home equity to retire, but that’s just not an option for many Gen-Xers after the drastic decline in the housing prices post 2006

How Can Gen-Xers prepare for retirement?

Although this is a lot of bad news for Gen-Xers, the one upside they have, for the moment, is time. That means saving more and borrowing less if they hope to turn things around. There are some things you can do to help get you on the right path!

  • Plan, plan, plan!
    This is what I am working on with my clients everyday… you need to get a plan in place and you need to stick to it.
  • Saving is only part of the picture.
    Think about how to turn your money into a form of income. There are several different options when it comes to guaranteed incomes- talk to a financial professional who can help you determine what will best meet your needs.
  • Do not pull from 401(k) or retirement savings accounts early.
    This is something I stress with my clients- you’ll have to pay fees and taxes, and it will end up costing you much more than just the money you withdraw. It is simply not worth it.
  • Don’t forget to factor in inflation.
    I recommend calculating 3% annually for inflation. That means in 20 years, your cash flow needs will double.
  • You’ve got to consider health care.
    Even with Medicare and supplemental policies, a couple can easily spend more than $250,000 out of pocket on health care in retirement (according a report last year from Fidelity Investments).
  • Consult with a Certified Estate Planner!
    Gen-Xers were the first group to see their pensions replaced by 401(k) plans, which were widely adopted in the 1980s. Unlike a pension, 401(k) funds are based on a worker’s contributions, and put the investment risk and control of the investing in employee’s hands. For those that are investing-savvy, a 401(k) provides the individual with different investing options, but sometimes not doing any changes to your 401(k) can be just as, if not more, costly than making the wrong investment! It is always the right choice to ask for assistance when managing your nest-egg. A Certified Estate Planner is someone who can best advise you on the different retirement products and options available to you. Your CEP will help you choose a retirement product that will best fit your needs now, in the future, and even provide for your loved ones in the event of your death. A CEP can help you choose an insured retirement option that safely works for you by earning income, while still providing beneficial tax breaks. A CEP will help you by ensuring that each of your retirement products are properly structured to provide you the income you need and expect, while still taking advantage of the best tax breaks and incentives available. Jean Ann Dorrell, a Certified Estate Planner herself, along with the qualified & experienced staff at Senior Financial Security, Inc., is available to discuss and advise you of your retirement options as well as answer any questions you may have. Contact Senior Financial Security, Inc. today to schedule an appointment to explore your retirement possibilities!

Know your numbers!

How much will you need to save for retirement?

  • You can use this calculator to help determine the amount of money you need saved in order to retire.
  • 401(k)

  • Many can contribute to a 401(k) plan through their company. Sometimes your employer may even match your contribution dollar for dollar! This calculator can help determine the value of your 401(k) plan.
  • Roth IRA

  • A Roth IRA may be an option to help save for your retirement. This calculator can help determine what your Roth IRA will be worth when you retire.
  • Interactive Retirement Calculator

  • You may find that the calculator available by clicking here provides more insight while reviewing your retirement plans. This calculator not only helps figure out how much you will need in order to retire, but it also allows you to see what would happen if the economy takes a down turn or if you loose your spouse. It’s a nice resource and worth a look!
  • For more information about how to secure your retirement, contact The Smart Money Gal, Jean Ann Dorrell, and Senior Financial Security to set up an appointment today!