It’s a general warning from the wealth management industry: most Americans aren’t storing enough money for their golden years. But at the forefront of what is being called a broad retirement crisis are vulnerable savers within a particular age group.
Generation X seniors, who are now between 43 and 58 years old, Face a potentially acute financial crisis, according to the Society of Actuaries. This is a good part of the approx. 63 million cohort a major test of how wealth management advisors can best help their clients at an age when they need it most, according to the Society of Actuaries.
For a person of any generation, the last decade or so of earning power is typically a “crucial make-or-break period in retirement planning,” says the SOA, a professional group of actuaries, d especially since increased longevity means living without earning work can last 30 years or more. Older members of Generation X, born between 1965 and 1980, still have about 10 solid years of work left to secure their retirement.
They also have higher student loan debt. Add to that the decline of defined-benefit pension plans, the 2008 financial crisis, and the economic turmoil caused by the COVID-19 pandemic, and “Generation Xers don’t seem to be as well prepared as older generations for the future. retirement,” the SOA said in a report last February. “Many look to the future without much savings for retirement.”
The grim takeaway comes as an aging America beckons big changes to retirement laws. Last month, the Securing a Strong Retirement Act of 2022, a federal package known as SECURE 2.0, established new rules for making “catch-up” contributions later in life and withdrawing money from tax-deferred pension plans, and enacted provisions so that more companies offer pension plans and encourage their employees to contribute. By 2028, Generation X is expected to overtake baby boomers, who were born between 1946 and 1964, according to the Pew Research Center. By 2030, all baby boomers will be over 65.
“Given both how Gen Xers fit into normal working age and how close they are to retirement, Gen Xers are of unique and significant interest when it comes to assess retirement readiness and financial security,” the SOA study said.
If WWII individuals were the biggest generation, Gen X might be the least confident generation. Just 1 in 4, or 22%, said they retired from TransAmerica investigation released last October, feeling “very” confident that they can fully retire with a comfortable lifestyle. Only 28% “strongly agree” that they are building a large enough retirement nest egg.
Oops, I forgot to save for retirement
Older Gen Xers are of “unique and significant interest” due to historical factors including the decline of private sector pension plans, the move to 401(k)s during their peak earning years, the financial crisis of 2008 and the economic turmoil caused by the COVID-19 pandemic, the SOA said. And they provide insight into the retirement concerns of the generation after them, the millennials.
The employer-sponsored 401(k), which allows savers to contribute pre-tax income to a tax-deferred account, only took off in 1980 under a sweeping federal law that fundamentally changed how Americans save for retirement. Since then, the number of defined benefit pension plans, once the workhorse of the retirement industry, has steadily decreased.
That means the oldest baby boomers, born between 1946 and 1964, were about 35 years old before they could start saving in a 401(k). Meanwhile, the number of corporate pension plans with 100 or more members has plunged by nearly two-thirds, from nearly 26,000 in 1983, the peak, to about 8,400 in 2016, according to AARP, which cited the most recent data from the Labor Department.
The oldest Gen Xers clash with the youngest Gen Yers, whose cohort was born between 1981 and 1996. But instead of looking like the baby boomer generation that came before them, Gen Xers are more likely to reflect millennials when it comes to feeling and being financially secure and ready. for retirement.
“Many Gen Xers align more with the financial behaviors and status of millennials,” the SOA study says.
Blaming the historical change over their lifetime in how retirement is achieved.
Generation Xers are less likely to have a retirement plan than older generations. About 1 in 3 of the cohort said in the study that they or their spouses will receive a pension, compared to about 1 in 2 of baby boomers.
This means that Generation X and those who follow will have to rely on their savings in individual retirement plans, employer-sponsored 401(k) accounts, and Social Security to, at worst, make ends meet and, at best, , maintain a comfortable standard of living.
“Generation Xer are more focused on saving because they’re afraid Social Security won’t be there when the time comes,” said Carlos Legaspy, president and CEO of Insight Securities, a brokerage. in Highland Park, Illinois. “However, Gen Xer are generally also willing to take the risk and buy the dip because they think it’s a race against time.”
A key in the works came thanks to the 2008 financial crisis, the worst of its kind since the Great Depression. At the time of the recession, “Generation Xers were in the early to first half of their careers, some of the most important years for establishing a solid foundation of financial security,” according to the SOA study. From 2007 to 2010, the median net worth of Gen X households dipped 38% to $39,200 from $63,400, according to the Pew Research Institute.
What to do
The SOA surveyed 2,017 people of different generations in January 2021. It found that while 22% of Gen Xers have more than half a million dollars in savings and investments, 1 in 4 have reported having less than $10,000, like millennials.
As financial advisors strive to increase the net worth of clients of all ages, Gen X clients need a special twist, the report suggests.
The report’s recommendations include:
- Work towards a specific goal
- Grow your savings for years to come
- Avoid prematurely dipping into retirement savings
- Maximize employer matching contributions in a 401(k)
- Work longer
- Delaying Social Security benefits until age 67
- Maintain skills and contacts to improve employability
- Increasing Financial Literacy and Retirement
- Reduce living expenses
- Avoid high cost credit card debt
- Stay healthy and consider life and disability insurance
“Even with all the competing priorities vying for space in the family budget, we emphasize how important it is for our Gen X clients to stay engaged in retirement savings,” said David Johnston, partner director of Amwell Ridge Wealth Management in Flemington, New Jersey.
“You can borrow money to buy a house, a car and for college,” he added. “There isn’t a bank on the planet willing to lend money to finance someone’s retirement.”