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Gen Xers: Are You Financially Ready for Retirement?

It is no secret that Generation X is considered a lost generation, a step-child of sorts, highlighted by the fact that we are the first generation to grow up with a lesser standard of living than our parents. Although we are overshadowed by the population and impact of the Baby Boomers and the entrepreneurship of the tech-savvy Millennials, we do possess our own identity, as eloquently highlighted in a recent Forbes article titled “The Undetected Influence of Generation X.” 

Contrary to popular belief, we are a resilient bunch. Gen X took the brunt of the Great Recession head on, absorbing the worst that economic cycle had to offer, and we continue to recover. We're leading the era of transition away from the safety of pensions to the uncertainty of 401(k)s and IRAs  As trailblazers in this area, however, we aren’t using these retirement accounts to their fullest potential and may ultimately trail-blaze our way to being ill-prepared for retirement.  

Today, the average amount Gen X has saved for retirement is only $75,000-$80,000. The current age range of my generation is 35-50, so with Social Security projected to become defunct right as the oldest of the generation reaches the full retirement age of 67, it’s not a pretty picture. It is very realistic that there will be, at best, significantly less Social Security than there is now for current retirees, or maybe none at all, as Gen X peaks in retirement. This sobering reality places the sole focus on making sure we are funding our retirement appropriately and sufficiently. Here are some tips that will help make attaining retirement more realistic:

1. Employ a Financial Advisor

One area that can improve the game plan of reaching sufficient retirement savings is utilizing a financial advisor. Currently, the majority of Gen Xers are not utilizing financial advisors at all. This means we are missing out on resources and strategies that may be a crucial opportunity and possibly the difference in whether our retirement goal is reached over the next 20 years or so. (For related reading, see: How to Find a Financial Advisor/Planner.)

2. The Importance of IRAs

The vast majority of employees use the 401(k) plans provided by their employer as their primary source of retirement saving. That is perfectly fine and  even recommended, but for a generation that is behind like Gen X, using traditional and Roth IRAs in addition to the 401(k) would be a big help as well. IRAs allow up to $5,500 to be contributed per year ($6,500 at age 50), so that is an additional $110,000-$130,000 of contributions over 20 years. That means even if the average return was only 4%, in 20 years one would have around $200,000. Using a financial advisor to put together a good portfolio in an IRA, especially a Roth where the withdrawals from that $200,000 would be tax-free, is very important to that retirement goal. 

3. The 401(k)

Statistically, the average amount being invested into a 401(k) is about 6-7% of one’s income. It is a great idea to increase those contributions as merit increases and bonuses are earned so more money is comfortably being allocated to that retirement fund. Also, try not to raid the 401(k). Many Gen Xers take loans from their 401(k)s, or even worse, early withdrawals, which incur taxation and 10% penalties (the loans do not incur either). However, even without the taxes and penalty, the money being withdrawn is losing compounding power because it is not staying invested. So avoiding withdrawals is ideal, if possible. (For related reading, see: Top 10 Mistakes to Avoid on Your 401(k).)

4. Retirement vs. College

Many parents want so badly to fund their child’s college, but since most don’t have enough income to satisfy both, some parents will decide to fund college at the expense of their own retirement. If you find yourself in this predicament, my advice is to give your retirement funding priority. There are other ways to fund college. There are academic and athletic scholarships, grants based on income, and student loans. Don’t sacrifice retirement planning for college; there are many different ways to fund college, but only one way to fund retirement...your money. There are no scholarships for excellence in retirement! (For related reading, see: Best Savings Priority: Retirement vs. College Fund.)

5. How Much is Needed to Retire

Many Gen Xers aren’t prepared for retirement because we aren’t sure how much will be needed. A good idea is to use retirement calculators frequently. Consider whether you will still have a mortgage in retirement, whether you plan to travel frequently, and most importantly, healthcare costs.  Once one turns 50, it’s recommended that you start looking into long-term care plans that will help take the bite out of some potential future healthcare costs. If these things aren't considered during retirement funding and planning, then chances are the retirement goal will be insufficiently met.

The generation that grew up watching Different Strokes is now starting to approach age 50, so following these tips and taking advantage of the remaining time you have to earn, save and grow your money can help you reach a good retirement. The time is now to take action and make sure you are doing everything in your power to work toward the retirement you deserve. 

Relying on Social Security probably won’t deliver, so if you are not contributing to a 401(k) or IRA, start today. If you are contributing, try to contribute more if possible.

(For more from this author, see: Save More Money to Reduce Financial Stress.)