Finance
September 17, 2019
link to facebook link to twitter
More Stories
Signs of elder abuse Unrealized loss and gain What they are; why they matter. Diversification, patience and consistency Retirement planning weak spots; they are all too common Smart financial moves in your 20s, 30s, 40s and 50s Adjusting your portfolio as you age When is Social Security income taxable? Debunking a few retirement myths Retirees, check your withholding Underappreciated options for building retirement savings Social Security gets its big boost No, that is not the I.R.S. calling Tax scams and schemes A retirement fact sheet Ways to ease college costs Preparing to retire single Could assumptions harm your retirement strategy? Bad money habits to break Have you budgeted for retirement? Saving your elderly parents from financial fraud Mutual Funds vs. ETFs; similarities and differences. Long-term investing truths: Key lessons for retirement savers Where will your retirement money come from? Retiring in the next 5 years? Money tips for newlyweds Retirement and adult children The different types of IRAs Annuities for retirement income Annuities for retirement income What prospective annuity holders should consider Build your rainy day fund Details people should know about Medicare Five retirement concerns too often overlooked Investing means tolerating some risk Your diversified portfolio vs. S&P 500 Making a charitable gift from your IRA Tax considerations for retirees Smart moves for new parents When you retire without enough ABLE accounts for disabled When a family member dies An executor checklist The retirement we imagine, the retirement we live Steps to catchup if you are behind on your retirement savings? Your financial co-pilot Yes, young growing families can save and invest Why don’t all affluent people become wealthy? Beneficial moves for every age Keep calm, stay on plan Retirement plans for individuals & businesses College funding options Turn your intent into a commitment, set goals as you save and invest Managing money well as a couple Tax efficiency in retirement Set goals as you save and invest A retirement gender gap for women What should you keep? Catching up on retirement saving The retirement mind game

Is Gen X preparing adequately for retirement

By: Ken Weise
February 1, 2019

Future financial needs may be underestimated.

If you were born during 1965-80, you belong to “Generation X.” Ten or twenty years ago, you may have thought of retirement as an event in the lives of your parents or grandparents; within the next 10-15 years, you will probably be thinking about how your own retirement will unfold. 

According to the most recent annual retirement survey from the Transamerica Center for Retirement Studies, the average Gen Xer has saved only about $72,000 for retirement. Hypothetically, how much would that $72,000 grow in a tax-deferred account returning 6 percent over 15 years, assuming ongoing monthly contributions of $500? According to the compound interest calculator at Investor.gov, the answer is $312,208. Across 20 years, the projection is $451,627. 

Should any Gen Xer retire with less than $500,000? Today, people are urged to save $1 million (or more) for retirement; $1 million is being widely promoted as the new benchmark, especially for those retiring in an area with high costs of living. While a saver aged 38-53 may or may not be able to reach that goal by age 65, striving for it has definite merit.

Many Gen Xers are staring at two retirement planning shortfalls. Our hypothetical Gen Xer directs $500 a month into a retirement account. This might be optimistic: The average Gen Xer contributes 8 percent of their pay to retirement plans. For someone earning $60,000, that means just $400 a month. A typical Gen X should consider increasing their salary contribution percentage or simply contribute the maximum to retirement accounts, if income or good fortune allows. 

How many Gen Xers have Health Savings Accounts (HSAs)? These accounts set aside a distinct pool of money for medical needs. Unlike Flexible Spending Accounts (FSAs), HSAs do not have to be drawn down each year. Assets in an HSA grow with taxes deferred, and if a distribution from the HSA is used to pay qualified health care expenses, that money comes out of the account, tax free. HSAs go hand-in-hand with high-deductible health plans (HDHPs), which have lower premiums than typical health plans. A taxpayer with a family can contribute up to $7,000 to an HSA in 2019. (The limit is $8,000 if that taxpayer will be 55 or older at any time next year.) HSA contributions also reduce taxable income. 

Fidelity Investments projects that the average couple will pay $280,000 in health care expenses after age 65. A particular retiree household may pay more or less, but no one can deny that the costs of health care late in life can be significant. An HSA provides a dedicated, tax-advantaged way to address those expenses early.

Retirement is less than 25 years away for most of the members of Generation X. For some, it is less than a decade away. Is this generation prepared for the financial realities of life after work? Traditional pensions are largely gone and Social Security could change in the decades to come. At midlife, Gen Xers must dedicate themselves to sufficiently funding their retirements and squarely facing the financial challenges ahead.               

Ken Weise, an LPL Financial Advisor, provided this article. He can be reached at 707-584-6690. Securities offered through LPL Financial. Member FINRA/SIPC. The opinions of this material are for information purposes only.