Not too late for Gen Xers to save for retirement
Gen X workers are on a collision course with retirement, but they still have time to take action to get back on track. That's the conclusion of a recent report released by the nonprofit Transamerica Center for Retirement Studies (TCRS), which defines Gen X as those born between 1965 and 1978, making them currently about age 36 to 49.
The study found that 85 percent of Gen X workers think their generation will have a harder time than their parents achieving retirement security. Gen X got hit hard by the recession. According to the survey, 12 percent were laid off, 25 percent had their wages or hours reduced, and 4 percent lost their homes.
As a result, just 24 percent say saving for retirement is a top financial priority for them, while 48 percent are more focused on meeting current needs such as paying off debt and covering basic living expenses.
Eighty-three percent of the Gen X workers surveyed think Social Security won't be there for them when they're ready to retire. While that's understandable given all the media hype around projections that Social Security's trust fund will be exhausted by 2033, the fact is the trust fund could run completely dry and they'd still receive about three-fourths of their promised Social Security benefits.
And if politicians can find the courage to implement some combination of modest tax increases or benefit reductions, Gen X workers would receive more than three-fourths of their benefits.
Social Security is the most popular federal government program, and no politician would think of scrapping it altogether. As long as we have democracy, we'll have Social Security in some form, although it's inevitable that the program will change in some way. For example, there's a good chance the normal retirement age of 67 will be pushed back a year or two for Gen X workers to help restore the funding balance.
Still, the best way for Gen X workers to secure their retirement is to keep their job skills up to date, save enough money, take care of their health and resist the temptation to take loans or early distributions from their retirement accounts. That's a tall order for many, but that's what it will take to retirement with adequate resources.
The TCRS survey reported that 84 percent of Gen X workers who are offered a retirement plan at work participate. For those workers, the median contribution rate was 7 percent of pay. This isn't too far from savings guidelines recently suggested by the Boston College Center for Retirement Research.
According to that analyses, a person starting to save at age 35 should save 6 percent of pay if they wanted to retire at age 70. If they waited to start saving until age 45, they should save 10 percent of pay if they want to retire at age 70. Of course, if you want to retire before age 70, you'll need to bump up your savings amounts significantly, to 15 percent of pay or more.
Twenty-seven percent of Gen X workers reported taking a loan or early withdrawal from a retirement account. These are danger areas: An early withdrawal certainly reduces the money that's available for retirement. A loan won't damage your retirement chances too much if you repay it.
The problem is, if you change jobs, you'll need to repay the balance remaining on the loan immediately. When they can't do that, many people default on their loans and incur taxes and early payment penalties. That's why it's best to avoid loans altogether.
Thirty-four percent of Gen X workers said they'd have to reduce their standard of living in retirement. But that may be a realistic way to make ends meet in retirement because many retirees have reported they reduced their standard of living yet they're still satisfied with their lives.
More than half (54 percent) of Gen X workers plan to work beyond age 65 or never retire, and many of those hope to work part-time in retirement. While this will help them improve their retirement circumstances, they'll need to focus on keeping their job skills sharp and maintain their health so they're able to work in retirement.
According to Catherine Collinson, president of TCRS, "Gen Xers' alarm clock is sounding. They cannot afford to hit the snooze button any longer. It's never too late to start saving -- or to begin saving even more for retirement." Good advice!
