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Will Generation X be ready for retirement?

Despite hurdles, there is hope.

It’s probably fair to say that most of us are concerned about retirement. It doesn’t matter how successful we’ve been, or how much money we’ve set aside, there are just too many unknowns ahead—health care, Social Security, inflation, taxes—to have 100% confidence in our financial future.

According to the Pew Charitable Trust, however, there’s one demographic group that may be more concerned than all the others. In their report, “Retirement Security Across Generations” Pew Researchers measured the impact the Great Recession had on various generations, and determined that members of Generation X—people born between 1966 and 1975—were the least likely to maintain their quality of life in retirement.

The good news is there’s still plenty of time for Gen-Xers to overcome their retirement challenges. Even if you are among the oldest members of your generation, you still have 15-20 working years ahead of you. But before we provide some solutions, let’s take a look at the depth of the problem.

As the chart below indicates, Pew Researchers looked at the ability of each generation to replace their pre-retirement income and found that Gen-Xers are coming up short. While many financial experts recommend a replacement rate of 75-80%, the report indicates that Gen-Xers will have enough retirement assets—including Social Security benefits—to replace just 50-58% of their current salaries and income.1

Timing is everything.

There are many reasons why Generation X is at risk, and much of it comes down to timing. Through no fault of their own, Gen-Xers were disproportionally impacted by the recession, losing 27% of their home equity and 45% of their total net worth. As the following chart shows, these percentages are much greater than any other demographic group identified in the report.2

Debt and declining pensions take their toll.

To make matters worse, Gen-Xers are also less likely than any of the other groups to have a pension. Without this important safety net, many will have to rely heavily on their own retirement assets and personal savings. What’s more, Gen-Xers are hurtling toward retirement with a median debt of $80,000—twice the amount of older baby boomers and $20,000 more than the next most indebted group.3

What you do today, can make a big difference tomorrow.

While the challenges Gen-Xers face are significant, here are five ways to help you meet your retirement goals:

Bank every raise: One of the easiest ways to set aside more money for retirement is to pretend you never get a raise. Instead, just sock the extra money away where you think it will do the most good. Over a 20-year period, it can really add up.

Pay off debt: While your debt may seem manageable right now, imagine the impact it could have on your lifestyle when you are retired and living on a fixed income. To keep that from happening, start by whittling down debts with the highest balances—typically a mortgage or student loan—or by paying off those with the highest interest rates. Depending on your rate, every dollar of debt you pay off now could free up another 3–4 dollars in retirement.

Prepare for longevity: As a member of Generation X, there’s a good chance you could live another 30, 40—possibly even 50 years. That’s why it’s so important to make sure your retirement nest egg is built to last. One way to go about it is to use a portion of your assets to purchase a Lifetime Income Annuity. Since these products are guaranteed to deliver a steady stream of income for the rest of your life,4 you never have to worry about outliving your assets.

Pursue greater returns: While the market may not have been kind to you during the recession, it has proven to be a solid, long-term performer—growing an average of 9.3% a year since 1928.5 Of course, past performance is no guarantee of future results, and stocks have been volatile in the past. With interest rates on federally insured CDs and other fixed instruments near historic lows, you may need to accept a bit more risk in order to meet your retirement goals.

Get ready to catch up: Once you reach age 50, you will be able to set aside more money for retirement thanks to several ‘catch-up’ provisions available on IRAs and 401(k)s. Barring any changes in the tax code, you will be eligible to contribute an extra $1,000 to a Roth or Traditional IRA, $2,500 to a SIMPLE 401(k)/IRA, and $5,500 to a 401(k). Imagine the difference that could make over time.

A New York Life agent would be happy to sit down and discuss your retirement income goals in a free, no obligation meeting. Click here to find an agent near you.

1 “Retirement Security Across Generations,” The PEW Charitable Trust, May 16, 2013, Figure 11.
2 “Gen-X to be worse off than Boomers in retirement, study finds,” CNNMoney, May 17, 2013.
3 “Retirement Security Across Generations,” The PEW Charitable Trust, May 16, 2013, Figure 4.
4 Guarantees are subject to the claims-paying ability of the issuing company.
5 “Stocks Remain the Best Long-Term Bet,” Yahoo Finance, October 30, 2013.