Gen X Retirement Guide
Today’s webinar is specifically designed to help Generation Xers, plan and prepare to reach their retirement goals. However, much of the information you will learn today applies to all generations, whether you are Gen X, Millennial, Baby Boomer, or even Gen Z.
Now let’s get geared up to achieve your retirement goals – today you’ll learn:
- What challenges face Gen Xers and how to overcome them
- How to use different retirement accounts and resources to your advantage
- Ways to start saving, even if you’re burdened by debt
- Tips for catching up on retirement savings, specifically if you’re over age 50
- What you can expect as you head towards retirement
While most Americans don’t think of retirement in their 20’s, it’s the best age to start planning. The earlier you start saving the more time your money has to grow.
So, who is Gen X? Gen X is anyone born between 1965 and 1980 and are now between the ages of 38 and 53.
Most people aim to retire around age 67, when their Social Security benefits start so that means Gen Xers are now somewhere between 15-30 years away from retirement. If you haven’t started saving yet, then now is the time to get retirement-ready.
Is Gen x ready for retirement? Most experts say no. According to a CNBC report from March, only 8% of Gen Xers have saved enough to be on track for retirement.
ARGI financial group says workplace retirement savings aren’t where they need to be. They reported on a study by Transamerica Center for Retirement Studies that says the average Gen X worker started participating in a workplace retirement program at age 27 and their median savings are only $69,000.
ARGI also asked Gen X how much they think they need for retirement. The median guess was $500,000, But with a 4% annual withdrawal, that comes out to $20,000 per year. That’s not nearly enough to live comfortably in most places.
A TD Ameritrade survey published this year in USA Today found:
- 43% of Gen X workers say they know they’re behind on retirement savings
- Almost half -49% – worry they’ll run out of money once they stop working
- And 37% say they don’t think they’ll be able to retire at all
- 17% aren’t saving or investing at all
- Only one third believe they’ll be very secure during retirement
As CNBC notes, Gen X is the first generation with no employer pensions. The Social Security administration reports that Social Security benefits are on track to be depleted by 2034. So, if that comes to fruition, Gen X will be the first generation that’s largely on their own for taking care of themselves in retirement.
Gen Xers face several other challenges heading into retirement. As Americans face record high student loan debt and credit card debt, Gen X has more debt than anyone.
The average Gen X household has $231,774 of debt according to a report in USA today, with the most average non-mortgage debt of any generation at $30,334.
Many Gen Xers are still paying off student loan debt, and many lost homes in the 2008 mortgage crisis.
There’s also the challenge of being a sandwich generation, where Gen X households are taking care of children – often into adulthood – and their parents. Gen Xer’s children are taking longer to achieve financial independence, and many are moving back home. At the same time, many Gen X households have also taken in aging parents who aren’t able to live independently. As a result, Gen X can’t save for their own retirement, because they’re financially burdened taking care of everyone.
So what’s the solution? No matter which end of Generation X you’re on, you need to start saving! The AARP reports that nearly one quarter of Gen Xers believe that they can’t start saving for retirement until they pay off their credit cards.
Gen Xers need to:
- Bring financial balance to their life by Budgeting correctly
- Find solutions to pay off debt
- Understand tools that can help them save effectively and to their advantage
A critical step to becoming retirement-ready is understanding the value of a 401(k).
401(k)s and other employer-based retirement programs are designed to help you save. The contributions you make are tax-free – i.e. the money is taken out of your paycheck before taxes. And, most employers offer match programs, where they match a percentage of every dollar you contribute up to a certain percentage of your annual salary. A common match is 50 cents for every dollar contributed up to 6% of your salary. That’s free money for your retirement!
Bear in mind that you aren’t taxed on contributions, but you are taxed on withdrawals. Regular withdrawals after age 59½ are taxed as regular income.
Early withdrawals come with tax penalties. Also, there’s a limit to how much you can contribute to a 401(k) each year. For 2018, that limit is $18,500.
If you don’t have a 401(k) or access to one, then an IRA is a necessity. There are two types of IRA – Traditional and Roth. With a traditional IRA you must start making withdrawals at age 70½, but a Roth IRA has no required starting age for disbursements. Both types of IRAs also have a maximum yearly contribution.
All retirement accounts use mutual funds to invest the money you contribute so it can grow. Luckily, many advisors offer an initial consultation for free, and can tell you what funds are being used to invest your money.
So, how do you choose the right financial advisor? First, make sure to choose a financial advisor that’s fiduciary. A fiduciary is someone who prudently takes care of money or assets for another person. Also, check brokerage fees and other fees charged by the advisor.
Education is key and essential even with an advisor, educate yourself about retirement accounts, mutual funds and other investments so you can ask the right questions when you speak with your advisor. It is essential for you to create a spending plan and find money for retirement. Even if you spend everything you make and live paycheck-to-paycheck, there are still ways you can find savings: For example, your tax refund.
No0w let’s talk about solutions for paying off debt that are efficient.
- If you carry credit card balances every month, you’re throwing money away on interest charges. So you need to reduce or eliminate those charges so you can pay off your debt.
- If your credit score isn’t great or you have too much debt to repay with a loan, speak with a credit counseling agency to see if you qualify for a debt management program
- If you’re at the younger end of Gen X – your late 30s – then you should have the amount equivalent to one year of your gross annual salary saved
- By 45, you should have 3 times your annual salary saved
- At the older end of Gen X – age 50 plus – should have five times your annual salary saved
- By 65, the goal is to have eight times your annual salary saved
So, what do you do if you’re behind and saving? First, take a deep breath there are ways to catch up.
- Balance your budget
- Pay off all existing credit card debt and divert that money to saving for retirement
- Student loans – whether they’re yours, PLUS loans for your children or a combination of both – look into student loan consolidation
If you’re under age 50 and behind:
- Up your 401(k) contributions to get as close as possible to the max contribution
- Start a Roth IRA and get as close as possible to that max contribution
- Consider other investments that offer a combination of low steady growth and larger, higher risk growth
If you’re over 50, there’s more opportunity to save:
- Maximum contribution limits on 401(k) plans and IRA accounts increase after age 50 because you’re allowed extra contributions
- The catch-up 401(k) contribution is $6,000, meaning you can contribute up to $24,500
- The maximum contribution for traditional and Roth IRAs is $6,500 in 2018
What can you expect and plan for as you get closer to retirement? At age 50, you can join AARP
- At 59½ start making withdrawals from retirement accounts without penalties
- At 62, you can get Social Security, if it is still around, but payments can be permanently reduced by starting this early!
- Qualify for full Medicare at age 65
When you hit 67:
- You can start getting your full Social Security benefits, again if it still exists, but you can put it off even longer.
- At age 70½ you must start making withdrawals from 401(k) and Traditional IRAs – there is no requirement for a Roth IRA
Things to remember during retirement:
- Keep debt as low as possible
- Make a budget once you retire
- Take time to research Medicare
A final Note: If high interest rate credit card debt is draining the money that you should be saving for retirement, speak one-on-one with a Consolidated Credit certified counselors to find the right solution for your unique financial situation. Thanks.