Gen X Facing Retirement Crisis Now

Gen Xers are facing a crisis decades in the making.  Retirement.  Many of their parents retired with pensions and/or years of 401k savings and investments in real estate.  Congress passed the law that started 401k programs in 1978, 40 years ago.  Private employers jumped on the opportunity to dump the expensive defined benefit plans.  These defined plans supported the Greatest Generation and some Baby boomers in their retirement years. 

Unless a GenXer works for a government agency or union where pensions are the norm they will be left with only 401k or IRA options if that. Almost all GenXers will have to supplement Social Security income with a 401k, IRA, inheritance, income from the sale of their property or ?  If you are a Gender and thought that Social Security was going to take care of you when you decide to leave the traffic and 8 to 5 job, you need to reconsider.

Let’s do some math.  Assume that you retired today at age 66 and earned the maximum of $2,900 (very few reach this amount at age 66) and your spouse earned $1,800 per month (average 2022 payment).   The spouse however may actually have a lower payout if the spouse stayed home and raised the kids.  Regardless, the total monthly income today in this example from Social Security at age 66 would be about $4,700. (check your forecasted payment at https://ssa.gov  set up an account so you can visit often)

The following is an exercise to determine how close the Social Security payment of $4,700 would come to paying the bills if you retired today:

You may have equity in your home but that will do you no good as long as you live in the home.  Assume that you have a mortgage payment including insurance and taxes of $3,000 per month.  Utilities, home owner association payment, gardener and maintenance on the house is $500 per month.  If you are not paying for sports on cable, you cable bill and cell phone bills will be about $250.00 per month or more.  If you sign up and use Medicare, you will pay at least $300 or more per month for two with supplemental care.

Dont’ forget your Social Security Benefits and 401k are taxable

The total of expenses in this example is already at $4,050 leaving $650 per month.  And this amount is pre-tax as 85% of your Social Security payments are taxed by the U.S. Government.  Some state’s also tax Social Security benefits. There are many more costs that have not been listed above.  It is entirely possible that after Christmas gifts, gas for the car, auto insurance, registration, food, clothing, college debt etc.  It’s difficult to determine what these expenses would be however it seems that the Social Security benefit alone will not cover everything.

Some GenXers will be supporting others e.g. adult children with or without medical issues.  Property taxes and insurance on your existing residence will continue to go up perhaps outpacing Social Security adjustments.

 One of GenXers believe they will not retire

According to a USA Today January 11, 2018 study, more than one third of Gen Xers believe that they will not be able to retire.  It should be clear to anyone reading this that government workers and those with a well-planned strategy started in their early years will get through the roughly 20+ years of retirement without becoming a burden on your children or the public.

Here is some quick financial advice.  Start a 401k plan.  Put at least enough in to receive 100% of the employers match if there is one, then start a Roth IRA.  Put as much as you can in the Roth IRA up to the maximum for your age which is $5,500 per year until you turn 55 then you can put in $6,500 per year.  If you have done both of these and have more to put in, go back to the 401k to get the benefit of tax deferral and put is as much as you can (maximum 401k contribution is $18,500 for those under 55).

Saving is part of the solution to being prepared for retirement.  One key element is to invest the funds you are saving wisely.  Most of us are not experts at financial management.  Take the same approach you would with having a tooth pulled.  You have a loose tooth.  You can tie a string on it and then on the door knob and slam the door or you can see a dentist, an expert.  Why not see an expert who gets paid to know how best to invest money.  Consider meeting with a financial advisor.  If you are part of the one third of GenXers who believe that you will not be able to retire, you need to see a financial advisor, things may not be as dire as you believe.

Franklin Roosevelt once said “there is nothing to fear but fear itself”.  It’s the unknown.  Well take your life into your hands and discover the unknown.  Dispel the fear and set a plan to retire comfortably.   Now that you are ready to move forward select a financial advisor.

There are two basic kinds of financial advisors.  The ones that sell something e.g. insurance and/or stocks and bonds and those who charge by the hour or other method based upon the work they do.  Be sure to ask how they earn their money working for you.  Remember the Bernie Madoff’s and many other schemes that have left people broke.  This is not to say that there are not honorable people out there but some who sell products e.g. insurance sometimes pretend to be advisors and will steer you to their primary instrument, an insurance policy regardless of what they call it.

On the bright side, as a GenXer, you have time to create a plan and work that plan to insure your future is bright.  Many of you waited to have children and it is not uncommon for GenXers to have teenagers well in to your 50’s.  You still need to find a way to save for retirement.  

Do not automatically expect to pay for your childs college education.  Perhaps they want to attend a trade school or go into the military.  There are plenty of options than attending an Ivy League school and getting into a lifelong debt.  Be extremely careful about signing for college debt when you are in your 50’s or later.  Your loving child may not be able to pay and your retirement savings will take a big hit.

The most important advice that I can give to GenXers is to start planning now.  Frankly you should have been planning years before but starting now will help and you should have enough time before you leave the day job to insure your future.  Stop putting it off.

Check out our retirement planning tool, click here