Gen X Angst Over Retirement

The disenfranchised continue to feel marginalized even about their golden years.

Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…

The interesting study

The experts at Allianz Life Insurance Company have put together a new Generations Apart study that looks at how Baby Boomers (age 49-67) and Gen Xers (age 35-48) feel about their financial future and retirement. While plenty of previous studies have looked at Boomer’s feelings about retirement, this is the first widely available study that really breaks down how Gen X feels as they inch closer to retirement.

They study asked 1,000 Gen X members and 1,000 Baby Boomers about their thoughts. Some interesting results are highlighted below.

The big result

Gen X stressed about financial future

The feelings of Gen X detailed in this retirement study hold true to how Gen X has often been characterized, at large – full of angst, feeling entirely pessimistic and showing signs of hopelessness not seen since the days of Fitzgerald, Hemingway and the rest of the Lost Generation.

The fascinating details

Like the Baby Boomers before them that are already moving into retirement at 65, more than eight in ten Gen Xers feel “that a retirement starting at age 65 spent ‘doing exactly what you want’ is now unrealistic.”

  • 67% believe the “supposed targets” for how much money you need to retire are off
  • 64% are stuck in retirement planning because they’re uncertain how to move forward
  • 44% believe they’ll never reach a point where they have enough money to retire
  • Gen Xers also believe they’re more burdened by high monthly expenses (80%) and they face more risk (78) than previous generations

Interestingly enough, while Baby Boomers also believe they had it tougher than their parents, they actually tend to agree that Gen X has it even worse:

  • 65% of Boomers agree Gen X has a tougher road ahead for retirement planning
  • 68% of Boomers feel it’s harder for Gen X to save, in general
  • 73% also agree it’s harder for the younger generation to get a job, and 69% believe it’s harder to keep that job once a Gen Xer has it
  • 72% of Boomers feel it’s harder for younger generations to stay out of debt, too

With all of those challenges that even their parents can see, is it really any wonder that almost half (48%) of Gen X members feel that they simply don’t have money to put away for retirement, given all of their current expenses and obligations.

What you can do

In the past, experts have tried to put retirement planning goals in terms of the percentage of income you need, So, for instance, experts may recommend that for every year of retirement you’ll need 65-75% of your salary to live comfortably during your golden years. However, that can still be confusing, because it doesn’t really tell you what targets you should be hitting BEFORE age 65 – it only tells you how much you need once you get there.

Luckily there’s a different formula that’s becoming more popular that gives you some targets to hit in the years leading up to retirement age:

  • At age 35, you should have saved an amount equal to your annual salary
  • At age 45, your savings should equal three times your salary
  • At age 55, retirement savings should equal about five times your salary
  • So by age 65 or 67, you have eight times your salary saved up

According to that line of thinking, most Gen Xers should have at least 1-3 times their annual salary already saved. If not, they’re running a little behind. Luckily, there’s still time to catch up. Of course, you’ll need money to fund your retirement and that’s often where challenges really start to arise. However, the steps below can help you get on the right track:

  1. Check with your HR department to see if you’re eligible for a 401(k) retirement option.
  2. If so, talk to your HR team about signing up to use this option. As for how much you should set aside, check if your company has a “match” program – where they contribute a dollar or percentage of a dollar for every dollar your contribute up to a certain amount. Your contributions should match your match.
  3. Once you’ve confirmed how much money would be taken out of each paycheck, readjust your budget to account for the decreased income.
  4. If you can’t cover the income drop and you get a big tax refund every year, consider decreasing your tax withholding to offset the income drop. You’ll get a smaller refund next year, but your paycheck amount will be larger each month.
  5. Once you have pre-tax retirement deductions set up through your employer, review your budget again to see how much free cash flow you have every month. This is the money you have left over once all obligations and necessary expenses are covered.
  6. At least 10% of your income should be going into savings every month, and at least a portion of that savings can be devoted to other retirement assets, like an IRA or Roth IRA.
  7. If you’re not saving 10%, divert as much free cash flow as you can afford to monthly savings.
  8. Make this a line item in your budget with a set transfer date so you make sure to save this money every month.
  9. If you don’t have enough free cash flow to save that much, then you need to either adjust your budget or pay off credit card debt to decrease the amount you pay on credit card bills every month. This will free up cash to save.
  10. If you can’t reduce your debt load on your own, then go through credit counseling to identify a solution that will eliminate your debt as quickly as possible so you can get on the right track.

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