Much of the research on
retirement readiness has focused on baby boomers, who are turning 65 at a rate
of 10,000 a day and seem woefully ill-prepared as a group. In a new
multigenerational survey by Northwestern Mutual, Gen X respondents
reported the highest levels of financial insecurity of the four generations.
Their number one concern: having enough savings to retire comfortably.
Two-thirds said they expect to have to work past traditional retirement age out
of necessity, and 18 percent believe they'll "never retire."
Gen X, which includes those born
between 1965 and 1980, is the first generation to experience the shift from
traditional pension plans to 401(k)s and individual retirement plans. And
they'll hit retirement age just as the Social Security program's trust fund is
projected to run dry, around 2033. Not surprisingly, a whopping 80 percent of
Gen Xers in the Northwestern Mutual study said they don't expect Social
Security to take care of their needs.
Having the discipline and
foresight to set money aside throughout your career is challenging enough; but
with longer lifespans and growing health care expenses, even estimating how
much you'll need to fund your retirement can be a challenge. In the
Northwestern Mutual survey, 34 percent of Gen Xers said they have no idea how
much income they need to retire. There are general benchmarks to guide them,
but most savers are falling short. The Center for Retirement Research at
Boston College, for example, estimates that in order to maintain their
lifestyle in retirement, households need about 70 percent of pre-retirement
income on average.
Under current laws, Social
Security can replace about 36 percent of retirees' final inflation-adjusted
earnings. In order to make up the difference, the center estimates savers need
to set aside about 15 percent of their pay over the course of 30 years to
retire comfortably. But only 12 percent of Gen Xers are putting more than
15 percent of their income into savings, according to a Bank rate survey released
in April. Nearly 4 in 10 were putting aside 5 percent or less of their incomes.
For them, it could be
particularly challenging to catch up. The Center for Retirement Research estimates that
those who start saving at 45 and hope to retire at 65 will need to save a
whopping 27 percent of their income each year. That drops to 10 percent,
though, if they can put off retirement until they're 70.
That may be more realistic for
many Gen Xers, as they're often facing more immediate financial needs.
Many are not just taking care of themselves but children, and sometimes aging
parents, as well. And they tend to carry more debt than other generations—in
particular, student loan balances. Those in their 30s and 40s have the highest average
student loan debt among borrowers, according to the Federal Reserve.
Indeed, another recent survey by
the New York chapter of AARP found that Gen Xers are even more nervous than
their predecessors about funding their retirements. More than 6 in 10 said
they're somewhat or very anxious about having enough money to live comfortably
once they retire, and a quarter said they weren't confident they would ever be
able to retire.
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