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Generation X: Retirement Is Looming

Generation X: Retirement Is Looming

Al Waller: Our retirement landscape is evolving due to population aging, increases in longevity, employer benefit trends, and looming reforms to Social Security. It is shifting so rapidly that many of the underlying assumptions about retirement differ across generations in the workforce.

Welcome back to ClearPath – Your Roadmap to Health & WealthSM. I’m your host, Al Waller. Joining me is Catherine Collinson, founding CEO and president of Transamerica Institute® and its Transamerica Center for Retirement Studies®. In this third episode of a 4-part series about the retirement outlook of four generations currently in the workforce, Catherine will be sharing survey findings about Generation X from her team’s new research report Post-Pandemic Realities: The Retirement Outlook of Four Generations.

Before we get started, I want to remind our listeners that we would love to hear from you and get to know what topics you’d like to hear about. Please drop us a line at [email protected].

Catherine, let’s jump right in. Who are Generation X? What are their retirement prospects?

Catherine Collinson: Generation X was born between 1965 and 1980. They entered the workforce in the 1980s and 1990s just as defined benefit plans were starting to vanish from the retirement landscape. 401(k)s were just becoming available, but relatively few workers had access and saved in them. At the time, 401(k)s were relatively primitive with few investment options, limited investment education and guidance, and printed quarterly statements sent via U.S. mail.

Al Waller: That seems like a very long time ago. The retirement landscape has indeed evolved – and the whole world has changed, I might add. Where does Generation X stand today?

Catherine Collinson: The oldest members of Generation X are now in their late-50s and the youngest are in their early 40s, and they are juggling competing financial priorities. Soon, the oldest Gen Xers will start turning 60. Although they still have more time in the workforce, I think it’s fair to say that retirement is looming on the horizon. For some, it could be less than a decade away.

Al Waller: That’s hard to believe. It seems like yesterday that Gen X was coming of age and learning how Reality Bites. Now, some Gen Xers are CEOs of major companies revolutionizing how we live, work, and interact with the universe.

Going back to competing priorities, what are Gen X’s current financial priorities?

Catherine Collinson: Two-thirds of Gen X workers indicate saving for retirement is a financial priority (66%). Almost as many – 65% – cite paying off one or more types of debt as a priority. Other frequently cited priorities are building emergency savings (42%) and supporting their children (34%).

Al Waller: It seems like good news that Gen X workers are prioritizing retirement savings, but with their competing priorities, how well are they actually doing?

Catherine Collinson: I’m very concerned that many may be falling short. Fewer than one in four “strongly agree” they are building a large enough retirement nest egg (24%). Only 17% of Generation X workers are very confident they will be able to fully retire with a comfortable lifestyle.

Al Waller: Wow. That is alarming. What is driving this?

Catherine Collinson: Consider this … Almost three in four Gen X workers are expecting retirement income come from 401(k)s, 403(b)s, and IRAs (72%). However, they have saved $82,000 (estimated median) in total household retirement accounts – which may not go too far in a retirement that could last 20 or 30 or more years.

Four in five Gen X workers are saving for retirement in a 401(k) or similar plan and/or outside the workplace (81%). They began saving at age 30 (median). Among those currently participating in a 401(k) or similar plan, they are contributing 10 percent (median) of their annual pay – but it may not be enough at this point in time.

I’d also like to add that Gen X workers are also vulnerable due to a lack of emergency savings – they’ve saved just $5,000 (median) to cover unexpected financial setbacks. A consequence is that almost one in five have dipped into their retirement savings by taking a hardship withdrawal or early withdrawal (19%) – often due to a lack of emergency savings.

Al Waller: Looking beyond 401(k)s, what are some other sources of retirement income that they might be expecting?

Catherine Collinson: Almost three in four are expecting income from Social Security (73%). With the estimated depletion of the Social Security Trust Funds in the early to mid-2030s, around the time when Gen X workers are reaching retirement age, it is no wonder that 80% are concerned that Social Security will not be there for them when they are ready to retire.

For our listeners, I want to underscore that Social Security is not going bankrupt. Let me explain. Social Security is what's called a “pay-as-you-go” retirement system in which today's workers are paying for today's retirees. During times when there is more money being paid out to retirees than is coming in from workers, to cover the gap, there is a special reserve of excess funds called the Social Security Old Age and Survivors Insurance Trust Fund, which can help fill those gaps. The challenge right now is that it is projected to be depleted by 2033 in large part due to population aging. If Congress does not implement reforms to address the shortfall, it would only be able to pay 77% of scheduled benefits.

Al Waller: I’m starting to understand their lack of confidence. One more thought – what about company-funded pensions?

Catherine Collinson: Al, that's a great question – earlier we discussed the shifting retirement landscape and the vanishing of defined benefit pension plans around the time that Gen Xers were entering the workforce. So, it may not be surprising that just 21% of Gen X workers are expecting a company-funded pension plan as a source of retirement income.

However, there is another source of retirement income that quite a few workers are expecting. Any idea what that may be?

Al Waller: Home equity? An inheritance?

Catherine Collinson: Those are excellent guesses, but fewer than one in five Gen X workers are expecting them (17% home equity, 12% inheritance) as a source of retirement income. So those were not the answer that I was looking for.

Are you ready for this? Here’s the answer I was looking for … Working … Almost one-third of Gen X workers are expecting income from continued work in retirement (32%).

Al Waller: That’s a high percentage, but it makes a lot of sense for those who haven’t saved enough. Bigger picture, what is Gen X’s vision of retirement?

Catherine Collinson: Many Gen X workers envision working beyond traditional retirement age. Forty percent expect to retire at age 70 or older or do not plan to retire. This is a good solution because it can help them bridge savings gaps by affording them more time to bring in income and grow their savings. However, it’s super important they have a backup plan if forced into retirement sooner than expected, which is sometimes the case.

Al Waller: That makes a lot of sense – and I’ll underscore the importance of a backup plan. I’ve known a number of people who found themselves retiring earlier than planned due to health or employment issues. Catherine, what words of wisdom and tips can you offer our Gen X listeners?

Catherine Collinson: I’ll start by reinforcing the positives. Most Gen X workers are prioritizing and saving for retirement. Keep up the good work.

Retirement is a light in the distance that is growing closer and brighter, and there are action steps you can take to strengthen your situation. There is no time like the present for you to build your savings and develop long-term financial plans.

In that spirit, I’ll offer these three specific tips based on our survey findings:

  • Create a retirement strategy. Only 24% of Gen X workers have a financial strategy for retirement in the form of a written plan. In creating a plan, be sure to set goals, identify sources of income and estimate expected everyday expenses as well as extraordinary expenses. Don’t forget to factor potential investment returns and inflation. Also, create a backup plan if forced into retirement sooner than expected. Fewer than three in 10 Gen X workers indicate they have one (28%). If you need help, seek assistance from your employer’s retirement plan provider, a financial services organization, or a professional financial advisor.
  • Learn About Catch-Up Contributions. Individuals aged 50 and older can make additional contributions to 401(k) or similar plans or IRAs above and beyond the standard IRS limits. Health Savings Accounts – or HSAs – allow catch-up contributions for individuals aged 55 and older.
  • Safeguard your health and employability. When asked what steps they are taking to help ensure they can work as long as they want and need, relatively few Gen X workers are sufficiently proactive given what is at stake. Fewer than six in 10 are focused on staying healthy so they can continue working (57%) and even fewer indicate they are focused on performing well at their current job (53%) or keeping their job skills up to date (52%). Especially in today’s rapidly changing world, it’s important to keep up or risk getting left behind.

Al Waller: Thank you, Catherine, for your perspectives and insights on this topic. Where can people go to learn more?

Catherine Collinson: If you’re interested in reading the report that we’ve been discussing, Post-Pandemic Realities: The Retirement Outlook of Four Generations, please visit our website at www.transamericainstitute.org.

Al Waller: Listeners, check out the other episodes in this four-part series about how different generations in the workforce are preparing for retirement. We also discuss Generation Z, Millennials, and Baby Boomers.

Until our next episode, stay safe, be well, and thanks for listening.

ClearPath – Your Roadmap to Health & Wealth is brought to you by Transamerica Institute, a nonprofit private foundation dedicated to identifying, researching, and educating the public about retirement security and the intersections of health and financial well-being.

You can find our weekly podcast on WYPR’s website and mobile app, wherever you get your podcasts, and at transamericainstitute.org/podcast.

ClearPath – Your Roadmap to Health & Wealth is produced by Transamerica Institute with assistance from WYPR.

The information provided here is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical, or financial advice or guidance.

Al Waller is a long-time Baltimore native and employment expert with a 30-year career in leading and advising locally and globally based corporations on matters including: Talent Acquisition and Retention, Employee Relations, Training and Development.
Catherine Collinson is the founding president and CEO of nonprofit Transamerica Institute and its Transamerica Center for Retirement Studies, and she is a champion for Americans who are at risk of not achieving a financially secure retirement. With two decades of retirement industry-related experience, Catherine is a nationally recognized voice on workforce, aging, and retirement trends. She was named a 2018 Influencer in Aging by PBS’ Next Avenue. In 2016, she was honored with a Hero Award from Women’s Institute for a Secure Retirement (WISER) for her tireless efforts in helping improve retirement security among women.