For Gen X, a ‘dream retirement’ is a long shot

It’s a conundrum of dreams vs. reality. Generation X — born between 1965 and 1980 — say they will need on average $1.1 million in savings to retire comfortably, according to a new survey from investment manager Schroders. Sadly, they already figure they will fall far short of that elusive number. The amount they expect to have saved – $661,000 – barely meets half of their goal. Perhaps that’s little surprise given that almost half (45%) of the Gen Xers surveyed confessed to not having done any retirement planning. “It’s a cliché because it is true, if you’re failing to plan, you’re planning to fail,” Deb Boyden, Schroders’s head of US defined contribution, told Yahoo Finance. “The size of the retirement savings gap facing Gen X is concerning, as they are the first generation to rely on 401k plans instead of pensions and the next in line to retire,” Boyden added.

Gen X trailing other generations

That savings gap – $451,170 – is far wider than the expected shortfalls facing millennials and non-retired baby boomers, which clock in at $403,626 and $291,496, respectively. To be fair, the findings are discouraging for all generations. About four in ten millennials (43%) and 30% of baby boomers say they, too, have kicked planning for their golden years down the road. Little surprise then that 6 in 10 (61%) Gen Xers are not confident in their ability to achieve “a dream retirement” compared to 49% of millennials and 53% of baby boomers, Schroder reports.

‘Zero’ savings

Gen X is under the klieg lights these days. A slew of research reports published this year have drawn attention to the alarming state of their retirement savings, and, consequently, their future financial precarity. These warnings are not to be taken lightly given that the oldest Gen Xers are less than a decade away from the hypothetical retirement age of 65. Just over half of Generation X have little to nothing socked away for retirement, according to research by Prudential Financial. Thirty-five percent of the 65 million US Gen Xers have less than $10,000 saved, and 18% have zero savings. The typical Gen X household has only $40,000 in retirement savings – and those savings are concentrated among top earners–according to the findings published by the nonprofit National Institute on Retirement Security (NIRS). Also, Blacks and Hispanics have considerably lower savings and access to employer-provided retirement plans as compared to Whites. The nub of the NIRS research: The median account balance for an individual in Gen X is only $10,000, which means half of Gen Xers have less than that amount saved for retirement. One in four Gen Xers don’t have a retirement savings account, per these findings, which is even worse than the Prudential folks discovered.

Seeking comfort in cash

An added cause for concern tucked into Schroders’s research: Gen Xers, who are saving, have loaded up roughly a third of their retirement accounts with cash. Sure, annual percentage yields on some money market accounts are around 5% right now, which is not bad. But consider this: The S&P 500 Index is up a hair over 23% this year and over the past two decades balances out to an annual return of 10.5% give or take a percentage. Two-thirds (63%) of Gen X workers are clinging to cash because they’re fearful of losing their money, and a quarter (24%) are doing so because they don’t understand how best to invest their savings, Boyden added. That lack of confidence and financial literacy are inextricably tied together. A recent report by Goldman Sachs Asset Management and Syntoniq, a behavioral finance research firm, links people with high financial literacy to having a better chance of meeting their retirement savings needs than those without that knowledge. Those with high financial literacy report that they routinely scrutinize their retirement savings, have emergency savings, and aren’t freewheeling spenders.

Big Social Security mistake

Another red flag in Schroders’s data: only a wee 11% of non-retired Gen Xers say they will wait until 70 to receive their maximum Social Security benefit payments. Pushing back starting Social Security benefits until age 70 lets you earn delayed retirement credits. Those amount to about an 8% increase in your benefit for each year until you hit 70 when the credits stop accruing. Not everyone has the ability ultimately to do this due to health issues, or they need the money to make ends meet. But for those who do have other sources of income, claiming later tops filing earlier. Meanwhile, almost half (47%) of Gen Xers fear Social Security may run out of money, as compared to millennials (44%) and baby boomers (38%).

‘Crunch time”

There are signals that Gen Xers are, in fact, aware that the window to accumulate savings is sliding toward an expiration date, and they’re open-eyed about the reality that they’re in a pinch right now. This generation is the most likely to say they are more stressed (46%) about their finances than they were last year, compared to one in four (39%) of millennials and about three in 10 (33%) of baby boomers, according to the latest study from Allianz Life Insurance Company of North America published last week. “Gen Xers are hitting crunch time for retirement preparation,” Kelly LaVigne, vice president of Consumer Insights at Allianz Life, told Yahoo Finance. “So, it makes sense that they were the most likely to say that they are more stressed at the end of 2023 than they were at the end of last year.” One thing that might be holding them back is debt. Nearly 40% of Gen Xers say debt is the underlying cause of their stress, according to the Allianz research. Also troubling, a fraction of Gen X workers have taken a step that has costly ramifications: 15% withdrew money from their retirement savings to make ends meet in the past year, compared to 4% of baby boomers, according to the study. For starters, a withdrawal from your 401(k) account is typically taxed as ordinary income. Also, you’ll pay a 10% early withdrawal penalty before age 59½, unless you meet one of the IRS exceptions. The news is not all bleak. A fifth of Gen Xers said they know that one way they can improve their finances next year is to increase their retirement savings, according to Allianz’s research. And about the same cohort (18%) said that building up an emergency fund would be one way to reduce their angst – theoretically that could put the kibosh on retirement account raids. But will they? “The time for Gen Xers to take action to improve their retirement readiness is now,” Boyden said. “They’re at the doorstep of retiring, but fortunately, even the oldest Gen Xers have some time before reaching their full retirement age to develop a retirement plan and increase their savings rate before it’s too late.”