Every generation sees its fair share of struggles, and Gen X is no exception. This cohort, known for being highly independent, exceedingly resourceful and more than a little cynical, is nearing retirement age in, overall, not the best of shape, financially. As a whole, Gen Xers are loaded down with debt (much of it affiliated with student loans and credit cards) and not financially prepared to hang up their working hats.
The Fear of Outliving Their Savings
The biggest retirement fear Gen X faces is that of outliving their savings in retirement. “According to the Transamerica Center for Retirement Studies, the top fear of Generation X with respect to retirement is ‘outliving my savings and investments,’” said Robert R. Johnson, PhD, CFA, CAIA, professor of finance, Heider College of Business, Creighton University.
This is a valid fear. The average Gen X household has $150,000 in retirement savings, according to a 2023 study from the National Institute on Retirement Security (NIRS). A far cry from the approximate $1.5 million estimated to be what is needed for a comfortable retirement.
Fortunately, there are steps Gen X can take now to tackle this fear and ensure they have enough to live on in retirement.
“One way to overcome this fear is to annuitize some of your retirement savings,” Johnson said. “Annuities too often get a bad rap. They can provide guaranteed income and peace of mind to the retiree. Having an annuity cover your basic living expenses is a terrific cornerstone to a retirement income plan
“In particular, a longevity annuity is a stream of payments that starts when an individual reaches a certain age, say 85,” Johnson said, “If you have a longevity annuity, you have a secure source of income late in your life at a reasonable cost.”
The Fear That Social Security Will Be Reduced or Wiped Out
The Transamerica survey that Johnson pointed to found that the second greatest fear among Gen X is the fear that “Social Security will be reduced or cease to exist in the future,” with 49% of survey respondents citing this as one of their greatest fears about retirement. This is another valid fear. As it stands, Social Security is expected to be able to pay in full and on time only until 2035. The only way to tackle this fear is to do what pretty much every financial expert recommends: have enough savings so that you don’t have to worry about the solvency of this government-backed program.
“While I find myself disagreeing with Dave Ramsey on many counts, I agree with him 100% on planning so that Social Security benefits can be considered the ‘dessert’ of your retirement spending,” Johnson said. “One certainly wants to err on the side of accumulating more wealth than less when it comes to your retirement nest egg.” All of us, not just Gen X, must acclimate to the idea that Social Security isn’t enough. Even if the program weren’t insolvent and could pay in full and on time forever, Social Security was not engineered to replace the income you made in your working years; it’s a supplement.
“I believe there is a misconception among many Americans that Social Security will provide for their retirement,” Johnson said. “They are in denial about how the standard of living that Social Security will provide them. One of the more interesting findings of a recent Gallup poll is that people plan to retire at age 66 and are actually forced to retire early at age 62 due to a plethora of reasons, primarily health considerations — their own and those of their loved ones. The option to continue working may not be there.”
The Fear of Continued Inflation
Gen Xers are worried about what could happen if inflation continues to rise once they retire. This too is a valid concern, which is why diversified investments that hedge against inflation are so important.
“Diversification as a strategy is key as many asset classes have historically performed very well during periods of high inflation,” said Niki Glen, a Northwestern Mutual wealth management advisor. “A well-constructed financial plan should have the tools in place to remain adaptable and navigate rising inflation or other challenges that may arise during retirement.
Doing what you can to solve for these worries now will help you to enjoy your retirement years.
