Gen Xers are now in their 40s and 50s and account for about a fifth of the US population. As the next generation in line to retire behind the Baby Boomers, their experience may be a cautionary tale for those coming up behind them.
A recent report from the National Institute on Retirement Security suggests that many Gen Xers simply aren’t building enough savings to maintain their standard of living when they retire.
“The data pretty clearly indicates that the system we have in place now will not provide adequate income for many workers,” said Tyler Bond, NIRS research director and coauthor of “The Forgotten Generation: Generation X Approaches Retirement.”
The system Bond refers to is the mostly do-it-yourself model of saving for retirement that came of age when Gen Xers did. They were the first generation to enter the labor market after the shift from employer-run defined benefit pension plans to 401(k)-style defined contribution accounts.
While the oldest Gen X adults are more likely than younger ones to have at least some pension income to supplement their own savings and Social Security benefits in retirement, most will not.
Specifically, only 14% of working Gen X adults are in a defined benefit pension plan, according to the NIRS report, which analyzed 2020 data from the federal Survey of Income and Program Participation.
As for savings in workplace retirement plans and IRAs, “the bottom half of [Gen X] earners have only a few thousand dollars saved,” authors of the NIRS report wrote. And the median amount that Gen X households have in retirement savings — meaning half have less, half have more — is just $40,000.
Income is the biggest determining factor
Income is the single biggest factor in determining who has built savings and who has not. “Retirement savings for Generation X is highly concentrated among the highest earners,” the report notes.
Nevertheless, the average Gen X retirement savings balance (nearly $130,000 for individuals and $243,000 for households) suggests that many higher earners may not be saving enough, if those savings are intended to be one’s main source of income in retirement. That is a likely scenario for many, since most people won’t have a pension, and Social Security benefits for high earners (whose career-average earnings range roughly between $100,000 and $150,000 in Social Security’s model) is intended to replace only between a quarter to a third of one’s income if one retires at “full” retirement age — which is 67 for Gen Xers.
Keep in mind, too, that Social Security benefits for some might ultimately be reduced since lawmakers have yet to address the program’s long-term solvency. Current projections suggest that if no action is taken, Social Security will only be able to pay 80% of promised benefits by 2034, which is when Gen Xers will have begun retiring.
Stark racial and ethnic differences
While higher earners across all groups do better than lower earners, looking specifically through the lens of race and ethnicity among employed Gen Xers, Black and Hispanic workers have the lowest savings accumulations and are the least likely to have access to and participate in employer-sponsored retirement plans.
The average retirement account balance is $53,456 for Black workers and $42,335 for Hispanic workers; while their medians are $1 and zero, respectively, according to the report. By contrast, the averages are $165,917 for White workers and $189,764 for Asian workers, and their medians are $26,900 and $30,000, respectively.
Many are far off recommended marks
Across the board, however, “most Gen Xers, regardless of race, gender, marital status or income, are failing to meet retirement savings targets,” the report notes.
Setting benchmark targets can be tricky since each person’s circumstance is different and may change over the years for better or worse. But one broad recommendation suggests that by age 45, one should have saved two to four times one’s household income; three to six times by age 50 and four-and-a-half to eight times by 55.
How much any individual should have saved by retirement depends on many factors — including what age they retire, their marital status, where and how they plan to live, whether they will have a steady monthly paycheck from a pension, how much they can expect from Social Security and how much may come from other potential income sources in retirement, such as part-time work or a rental property.
Ways to improve your situation
If you are a Gen Xer concerned that you won’t have enough in retirement, there are some things you can do today, along with some benefits available now and coming online in a few years, that may help.
Assess where you stand: Figure out what likely sources of income and income-producing assets will be available to you in retirement. For instance, you can request a benefits estimate here to determine what Social Security may pay you based on your earnings to date. Your 401(k) provider, such as Fidelity, Vanguard or T Rowe Price, likely has calculators online to help you assess if you’re on track to have adequate savings in retirement.
Determine what changes you can make: Whether it is saving more, planning to retire later and/or postpone taking your Social Security benefits to age 70 to get a larger monthly check, now is a good time to figure what levers you can pull to improve your financial situation in the future.
If you can afford it, you may get helpful guidance, too, from a fee-only certified financial planner or a financial adviser who has a stated fiduciary responsibility to serve your interests only and who is not paid a commission to put clients’ money in specific investment products. Or check to see if your employer has an employee assistance program (EAP) that offers free or subsidized financial coaching.
Stay informed about new programs and benefits: Nineteen states and counting have introduced new programs to make saving easier for workers and the self-employed who don’t have access to a workplace retirement plan. Most take the form of an auto IRA contribution model, which provides an easy, tax-advantaged way to save and invest for retirement through automatic deductions from their paycheck. The rules differ by state, but some allow employers to make contributions to their employees’ accounts.
Two recently enacted federal laws, meanwhile, are intended to help working adults save more and get access to workplace retirement plans. They are the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and SECURE 2.0, which was enacted last year.
One provision that may be especially helpful to Gen Xers who work part-time — many of whom are women — is a requirement that employers must grant a part-time worker access to the company retirement plan if that employee worked at least 500 hours per year for two consecutive years.
Also, changes to an existing Saver’s Credit may help lower income Gen Xers. “The Saver’s Credit will become a Saver’s Match beginning in 2027 and, significantly, it will become refundable, meaning a tax filer will not have to have a tax liability in order to claim the match,” the NIRS report notes. “The Saver’s Match will equal 50 percent of a tax filer’s retirement plan contribution, up to a maximum match of $2,000, and the match will be deposited directly into the filer’s retirement plan account.”
