Retirement is emerging as a looming nightmare for the oldest members of Generation X. Despite making up one-fifth of the population, and this generation is silently grappling with the largest wealth gap of any cohort, as revealed in the Schroders 2023 U.S. Retirement Survey.
The Retirement Crisis Facing Gen X
As Gen Xers, over 65 million strong and born between 1965 and 1980, edge towards their seventh decade, a problem is quickly emerging.
Shortfall in Retirement Savings
Despite being close to retirement age, with some in their last decade of work, many are ill-prepared for a comfortable retirement.
$1.1 Million Shortfall
According to the Schroders 2023 U.S. Retirement Survey, most Gen Xers fall well short of the $1.1 million minimum need for retirement, with research from the National Institute on Retirement Security (NIRS) indicating the typical Gen X household only has $40,000 saved.
Most expect to retire shy of the minimum figure, with around $660,000 saved.
Lack of Confidence in Retirement
Compared to both millennials and boomers, this group is less confident in their ability to live comfortably in retirement, with the vast majority believing they won’t be able to.
Fidelity’s Alarming Figures
Fidelity Investments reports an average saving of $153,300 per Gen X household, significantly less than the $1.1 million minimum.
Top Earners vs. Strugglers
Retirement savings are concentrated among the top Gen X earners, with the top 25% boasting an average of a quarter million dollars, while the bottom struggles with savings of just $200 – many are struggling to amass even a modest nest egg.
Low Financial Security
This financial insecurity is unique to Gen X, with Northwestern Mutual’s 2023 Planning & Progress Study revealing that they are the only generation where a majority doubt they’ll be financially ready for retirement.
They also express significantly lower levels of financial security compared to other generations.
Unique Challenges
While underfunding retirement is a common challenge for every generation, Gen X is unique in being the first to rely heavily on 401(k) plans instead of pensions, placing a greater burden on individual savings.
Pension Deficiency
Deb Boyden, head of U.S. defined contribution at Schroders, emphasizes that with only a small fraction of Gen Xers enjoying the security of a pension, the rest face the daunting task of self-funding their retirement amidst economic uncertainty and rising living costs.
Healthcare and Debt Burden
Gen X also had to deal with greater healthcare expenses and an increase in student loan debt compared to previous generations.
Given their expected longer lifespan than baby boomers, they will probably require much greater savings.
Grim Retirement Outlook
These challenges paint a grim picture of retirement prospects for many in Gen X, with Dan Doonan, executive director of the NIRS, warning that “the American dream of retirement is going to be a nightmare for too many Gen Xers.”
Homeownership as a Silver Lining
While the outlook looks bleak, there is some positive news. Over 70% of Gen Xers own their homes – a huge potential source of wealth accumulation in their retirement years.
Decades Left to Plan
Plus, on average, Gen Xers have decades left until they have to retire, so there is still time to come up with a retirement plan, whether it involves an investment strategy, an inheritance, or taking advantage of interest rates.
It’s not unusual for people to begin saving for retirement in their forties or even fifties.
Low Workplace Plan Participation
Unfortunately, the road to financial security is riddled with obstacles. The NIRS indicates that only around 50% of Gen Xers have signed up to their workplace retirement plan.
Cost of Living Crisis
Improving this statistic may prove tricky, considering the cost of living crisis and an ever-increasing financial burden on Gen Xers as they age.
Social Security Insufficiency
Without workplace retirement plans, it will be tricky for many Gen Xers to accumulate enough money to retire and retain a good standard of living.
Saving is a process that requires time, and relying solely on Social Security benefits isn’t a good idea in retirement – compared to retirement plans, they won’t bring in enough money.
Elder Poverty Risk
The looming retirement crisis facing Generation X demands urgent attention and action. Many Gen Xers are at risk of elder poverty, which will place extra strain on their families for financial support.
Wealth Gap Concerns
To overcome the growing wealth gap, immediate action is required. A generation that once dreamed of stability and financial security may never be able to realize the promise of a safe and comfortable retirement without quick action.
A Forgotten Generation
If this isn’t done, the forgotten generation could be doomed to a future filled with uncertainty and financial troubles.
Hope Amid Challenges
Despite the dire circumstances, there is hope, as Gen Xers can work toward a more secure retirement with careful preparation and a proactive savings strategy. The path ahead may be difficult, but it is not unsurmountable.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.