Gen X Asleep at the Wheel on Retirement Planning

Expecting to have an estimated $661,013 saved by retirement age, Gen X has the largest retirement savings gap of any generation. According to a new report from Schroder Investment Management, that’s about half the money they’ll need to survive.

Even worse — only 45 percent of the yet-to-retire forgotten generation (ages 43-58) have done any planning for their golden years… at all.

Storing enough money away for retirement is not getting any easier. According to new research, incubating a sufficient nest egg to generate income in retirement appears most challenging for middle-aged workers.

The savings gap — the difference between what they feel they need to retire and expected total savings – is significantly larger for Gen X than the expected shortfalls facing millennials and baby boomers.

Unsurprisingly, the generation is decidedly pessimistic about their post-work prospects.

61 percent of non-retired Gen Xers report they have no confidence they will achieve their dream retirement. Roughly half of millennials and baby boomers feel the same way.

Yet there is much a struggling middle-aged worker can do. Advisors share insights on how this generation can turn things around so they keep their shine in their golden years.

Stuck in the Middle

Gen X is something of an enigma. This cohort, born between 1965 and 1980, gets little of the media limelight enjoyed by baby boomers and millennials, the two larger generations from either side of them.

Sometimes also referred to as the “lost generation,” Gen X seems to have fallen asleep at the wheel on their retirement journey.

According to the National Institute on Retirement Security, the typical Gen X household has a mere $40,000 in retirement savings in private accounts. The burdens of life circumstances may be at play.

“Generation X is in a unique position, often termed as the ‘sandwich generation,’ as they face the dual financial burden of supporting aging parents and funding their children’s education,” says Bryan Jordan, CFP, Founder of Censifi. “Coupled with the economic instability they have experienced, including the dot-com bubble burst and the 2008 financial crisis, their earnings and savings opportunities have been significantly impacted.”

Other advisors specializing in helping clients enjoy life after retirement see this cohort as going through a tough time. Still, they believe that things will eventually turn around for them.

“They feel stretched,” says Mike Hunsberger, owner of Next Mission Financial Planning. “It’s difficult at their current ages (43-58) to see the path forward … yet once the kids are gone, and they are in the typical highest earning years (55-65), I think many will be able to catch up.”

For those in their 40s and 50s who need to catch up, financial advisors suggest they maximize contributions to tax-advantaged accounts, like Roth IRAs and Health Savings Accounts (HSAs). Leveraging employer-matched programs in a 401(k) is worthwhile and highly beneficial.

Forecasting Futures

Everyone retires at different stages, but they also die at different ages. Budgeting for post-work life requires anticipating the time of death.

Retirees running out of money due to extended life span — known as longevity risk — is one of the essential unknown factors in financial planning.

“We just don’t know how long they’ll be around … so we make our best guesses and talk about what levers they could pull down the road if needed,” says Stephanie McCullough, Founder and Financial Planner at Sofia Financial. “Maybe they want to stay in their home but could downsize if necessary. Coming up with your list of options before a crisis can really reduce the panic if your finances start to look green around the gills!”

While everyone wants to live longer, few want it at profound financial cost or physical discomfort.

“I encourage clients to consider current lifestyle expenses and project into the future, accounting for inflation…, says Jordan. “Retirement calculators can be helpful, but it’s also important to have a dynamic plan that can be adjusted as circumstances change. Considering health care costs and potential long-term care needs is also vital. Clients should aim for a mix of fixed income and growth-oriented investments to manage longevity risk.”

Cash Happy

Gen X are a cash-happy bunch. Schroders also found that Gen Xers, on average, put almost a third of their retirement portfolio in cash.

Bank balances in savings accounts typically generate little to no interest. While keeping adequate cash reserves for an emergency is prudent, keeping too much dry powder on the sidelines can stunt the growth of one’s portfolio.

“This is money that, until recently, was not earning any interest,” points out JD Pritchett, Wealth Advisor at North Ridge Wealth Advisors. “Having that much money on the sidelines can significantly reduce your portfolio’s long-term growth potential. I understand having an aversion to losing money, yet one thing that commonly goes unnoticed by folks is that you can lose money to inflation by holding too much cash.”

Pritchett says that cash hoarding is a common issue.

“If you feel as though you are having trouble saving for retirement, it might be time to find a professional to help you plan.”

Every generation faces unique challenges on the road to retirement. With dual caregiver responsibilities, a shrinking social safety net, and economic uncertainty, Gen X faces a notably steeper climb.

However, there is still time to turn things around for those far behind in retirement readiness. By saving more, investing in appreciating assets, and engaging the services of a highly rated financial advisor, more Gen X workers can lay the groundwork for a secure, enjoyable retirement.