Median savings for Gen Xers are low, says one report. But there’s still time to compensate.
Many members of Gen X are in an interesting place right now. Some might be juggling caring for kids in middle school while tending to aging parents. Others might be trying to help their kids choose a college, pay for college, or figure out what to do with their lives after college.
But Gen Xers need to be thinking about their retirement. While it’s not exactly around the corner, it’s also not that far away — especially for older Gen Xers in their mid- to late-50s.
Unfortunately, recent data from Natixis reveals that Gen Xers are largely behind on retirement savings. The average worker aged 43 to 57 has a median retirement savings balance of $81,000.
That’s not so terrible if you’re a younger Gen Xer with another 20 to 25 years in the workforce ahead of you. But if you’re older, you should try your best to get into catch-up mode.
Don’t set yourself up for a stressful retirement
It’s important to enter retirement with a robust amount of savings. While you may be in line for benefits from Social Security, there are talks of those benefits being cut in a little more than a decade from now.
Even without benefit cuts, you can only count on Social Security to replace about 40% of your pre-retirement income if you earn an average wage. Most retirees need more replacement income than that to manage their bills without worry.
That’s why $81,000 in savings clearly won’t cut it for most people. If you withdraw from that balance at a rate of 4% a year (which is a fairly aggressive rate these days), it amounts to just $3,240 of annual income — not a whole lot.
As such, if you’re looking at a balance in that vicinity, push yourself to rethink your spending and start boosting your retirement-plan contributions. The good news is that if you’re still a good 10 years away from retirement or more, you can afford to invest somewhat aggressively.
Let’s say you’re starting out with $81,000, you’re 57 years old, and you manage to sock away $500 a month for your retirement plan for the next 10 years. If your investments generate an average annual 8% return, which is a bit below the stock market’s average, you’ll end up with a balance of about $262,000. Withdraw from that at 4% a year, and you at least get almost $10,500 of annual income.
Of course, things look brighter if you’re on the younger end of the Gen X spectrum. If you have $81,000 in savings and pad that with $500 monthly contributions for the next 24 years, you’ll end up with about $914,000, assuming that same 8% return. That gives you about $36,500 of retirement income each year out of your savings at a 4% withdrawal rate.
All told, Gen Xers still have time to build savings. If your IRA or 401(k) balance could use a boost, make that a priority. Your retirement depends on it.
