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Gen X retirement could use some help. In a world awash with retirement planning advice, Gen Xers are the least likely of all generations to map out a plan to fund their lifestyle once they stop working. In fact, half (48%) of Gen Xers, or Americans between the ages of 44 and 59, say they have not done any retirement planning, according to the recently released Schroders 2024 U.S. Retirement Survey. This lack of planning exceeds the 41% of Millennials and Baby Boomers who say they lack a retirement savings game plan.
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As a result, retirement readiness is a major worry for Gen Xers, a generation that came of age during the 401(k) revolution and the phase-out of employer-paid traditional pensions. Just a small sliver (14%) of Gen Xers believe they have enough money saved for their Golden Years. On average, Gen Xers think they’ll need $1.07 million to retire but expect to accumulate just $603,000 by the time they retire, which leaves a savings gap of nearly $467,000, according to the Schroders’ survey. It’s no surprise, then, that more than half (54%) are concerned or very concerned about outliving their assets in retirement. As a result, 60% of Gen X aren’t confident in their ability to achieve their dream retirement.
So, what’s a Gen Xer to do? How can they fill the savings gap? What can they do to get their retirement savings back on track? Below, we outline the seven Xs and Os of a winning retirement savings strategy for Gen Xers who need to play catch up.
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1. Get something down in writing
Most people can plan a vacation or the purchase of a new car. So, why not get a plan in place to bulk up your 401(k) or IRA?
There’s no good reason not to. And there’s no better time to get started on attaining a long-term goal like a comfortable retirement than the present. Building wealth, of course, doesn’t happen overnight.
Saving for retirement is like running a marathon, says David Johnson, a certified financial planner and senior partner at Signature Estate & Investment Advisors. “You don’t just wake up one day, lace up your running shoes, and go run 26.2 miles,” said Johnson. “It’s all in the preparation.”
Building a retirement nest egg is all about setting goals. And then working towards those goals consistently.
Johnson says Gen Xers should start by creating a written retirement plan. It doesn’t have to be elaborate; focus on the basics, like income needs and savings targets.
“The plan must clearly define what your monthly income needs are going to be in retirement and then break your savings goals into bite-sized chunks, basically monthly or annual savings targets, to get to your goal,” said Johnson.
Having a plan in writing is a way to hold yourself accountable. It also makes it easier to benchmark progress, whether you’re working with a financial planner or a do-it-yourselfer.
2. Keep any savings gap in perspective
Sure, accumulating $1.07 million is a tall order for Gen Xers. But closing the retirement savings gap sometimes isn’t as tall an order as many believe. Many Gen Xers have time on their side and are in their prime earning years at work.
Those are two big plusses working in their favor.
“Sure, one million dollars sounds like a huge number, but oftentimes people aren’t as far off of their savings goals as they think they are,” said Johnson.
For example, Gen Xers who need to play catch-up are entering the years of their lives when they start to gain a savings edge. Most are moving into or are at their peak earning years at work. Many are no longer spending thousands of dollars a year on childcare, youth sports or saving for a home down payment. Many older Gen Xers might be done paying for their kids’ college. In short, there are fewer outlays for children, which frees up cash for other purposes.
“(Many) Gen Xers have the perfect opportunity to repurpose money that was being spent in other areas and that they can start to funnel that money into their own retirement savings,” said Johnson. “They can really quickly bridge that (savings) gap.”
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So, what monthly savings would it take for a 44-year-old and 50-year-old Gen Xers to make up the average retirement savings shortfall of roughly $467,000, according to the Schroder’s survey? A 44-year-old retiring at age 65 would need to save $950 a month and earn 6% per year for 21 years to close the gap. If a Gen Xer waits until age 50 to close the gap, they’ll have to sock away $1,600 a month at the same 6% return to close the savings gap in 15 years.
“So, with some lifestyle changes and some expense savings, they’re going to be there,” said Johnson.
3. Boost savings to grow wealth faster
The more you can save, the better chance you have of reaching your savings target. “The biggest thing for most people is they’re underfunding their workplace retirement plans, and only putting in enough to get the company match, thinking that’s adequate,” said Jamie Cox, a financial advisor at Harris Financial Group.
Towards that end, challenge yourself to free up enough cash to max out your workplace retirement account, and for those over 50, take advantage of the catch-up contributions that you’re eligible for. For 401(k)s, regular contribution limits for 2024 are $23,000, with a bump to $23,500 in 2025. Catch-up contributions for those 50 or older is $7,500 this year and in 2025. Those aged 60 to 63 starting in 2025 will have a “super catch-up” contribution limit of $11,250, meaning they can save $34,750 in a tax-deferred 401(k). IRA contributions of $7,000 and $1,000 for catch-up deposits in 2024 will remain the same in 2025.
4. Put your money to work in growth assets, like stocks
Gen Xers surveyed by Schroders had 35% of their retirement money sitting in cash. “That’s crazy,” said Cox. And while cash has yielded plump 5% yields in recent years, cash typically does not offer enough growth to meet longer-term retirement needs. What holding too much cash does, according to Cox, is it makes it harder for your money to outgrow inflation. “You’re not letting the market do any of the work for you,” he said.
Investing in a diversified portfolio of stocks and bonds will deliver a bigger annual return over time and make it easier for Gen Xers to build their account balance up to where it needs to be. Even investing in less-volatile dividend-paying stocks can help you reach your goals. “If you keep putting money into savings accounts, you’re never going to reach your goals,” said Johnson.
5. Build more after-tax income with Roth retirement vehicles
Traditional 401(k)s, which provide an upfront tax deduction, are taxed as ordinary income in retirement. In contrast, Roth IRAs and Roth 401(k)s, which are funded with already taxed dollars, can be withdrawn tax-free in retirement. That bigger after-tax haul is why Cox says contributing to a Roth IRA can boost an income stream in retirement. “One of the ways you can close any savings gap is to have tax-free retirement income,” said Cox. And if your funds are stuck in a traditional 401(k), many employers now offer Roths, meaning you could convert a traditional 401(k) to a Roth 401(k). Or, in some circumstances, it might make sense to roll over a 401(k) into a Roth 401(k).
6. Put your savings on autopilot
If you don’t have the discipline to save a set amount of money each month, then put your portfolio on autopilot with regularly scheduled deductions from your paycheck. This way you’ll pay yourself first and jumpstart the wealth-building process. Take advantage of the auto-escalation features in your 401(k) which guarantees that you will save a larger percentage of your paycheck each year and move closer to maxing out your plan.
7. Talk to a planner about the best strategy for claiming Social Security
Gen Xers with a savings shortfall should discuss with a financial advisor the most optimal strategy for when to claim Social Security. Let an advisor run the numbers to see if it makes more financial sense to take benefits early (and get a lower benefit) or if it’s better to wait till age 70 to take advantage of the 8% per year increase in your benefit.
“If planning and saving don’t become higher priorities, Gen X could become the lost-retirement generation,” said Deb Boyden, head of U.S. defined contribution at Schroders.
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