Retirement can feel far off for much of your working career. Then, usually in your late 40s or early to mid-50s, reality hits. You must start to seriously prepare or risk missing your retirement goals.
Generation Xers — those born between 1964 and 1978 — have started to feel the pressure to prepare for retirement. They are realizing that retirement is getting closer and they may not be ready for it, according to the 2023 Annual Retirement Study* from Allianz Life Insurance Company of North America.
Just 25% of Gen Xers said in 2023 that they have plenty of time to save money for retirement later. This is down from 43% in 2021.
What’s more, Gen Xers’ confidence in their ability to financially support all the things they want to do going forward is the lowest among generations. While 86% of Baby Boomers and 76% of Millennials are confident they will be able to financially support all the things they want to do going forward, just 69% of Gen Xers said the same.
The good news is that Gen X still has time. Yes, the clock is running. Nevertheless, you can do work now to move toward your retirement goals. Here are ways Gen Xers can mitigate risks and set themselves up for a secure financial future.
1. Pay down debt
Many people set a goal to be debt-free prior to retirement. That means paying off student loans, car loans and especially high-interest credit cards. This includes even so-called good debt, like a mortgage. The idea is to owe as little as possible in retirement.
Gen Xers in general have more debt than Boomers did at their age. So, this goal may feel more difficult to reach. You may have to be realistic about the amount of debt you have.
Some people choose to downsize their home and lifestyle to help pay off debt before leaving the workforce. Prioritizing paying off debt will reduce your expenses in retirement — hopefully making more room in your budget for all the things you would like to do.
Paying off those loans will mean that you could focus more on saving and investing for retirement. Many people reach their highest earning years in their 40s and 50s and can really prioritize long-term financial goals like retirement.
Along with the goal to pay down debt, it is also wise to avoid going into debt during the end of your working career. You should think twice before making a major purchase that often comes with debt, like buying a vacation home.
2. Examine risk in your portfolio
As you approach retirement, it is wise to reduce risk in your portfolio. This is because you have less time to recover from losses during times of market volatility, and you will need to start using your portfolio to generate retirement income soon.
Often, reducing risk in your portfolio means rethinking investments. While holding stocks is a strong long-term growth strategy, it is time to consider other options to mitigate risk.
This often means moving some of your money from stocks into bonds, CDs, annuities and other financial products that are less volatile. If you are worried about continuing to grow your savings and accumulate more money for retirement, exchange-traded funds (ETFs) or a fixed index annuity may be considered. Those products allow for earnings potential while mitigating risk of loss.
You will want to think through risks that could derail your retirement strategy, like inflation and a negative sequence of returns — experiencing a down market early in your retirement or just before retirement (this is sometimes called the fragile decade). The idea is to build contingencies for those risks into your strategy. A financial professional can help guide how to manage risk in your portfolio as you age.
3. Put any extra money toward retirement
The majority of Gen Xers (64%) worry they won’t have enough saved for retirement. This is up from 55% in 2021. For Gen Xers, this is the time to put as much as you can away for retirement. (Read more about how to do this in my article It’s Not Too Late to Save for Retirement: Five Ways to Step It Up.)
Not having enough savings for retirement is a serious risk for your financial future. In the worst case, you could run out of money — a major fear for most Americans. Unless you have already retired, it’s never really too late to save and plan for retirement.
Gen Xers who are over age 50 can start making extra contributions to tax-advantaged retirement accounts. These are called catch-up contributions. While younger workers are limited to contributing up to $22,500 to their 401(k)s and $6,500 to their IRAs in 2023, Americans age 50 and up can contribute up to $30,000 in a 401(k) and up to $7,500 in an IRA. The SECURE 2.0 Act increased these catch-up contributions even more.
Taking advantage of these catch-up contributions to tax-advantaged accounts can help save money on your current tax bill, too. It is wise to take advantage of tax breaks, including deductions for saving for retirement and heath savings accounts (HSAs). Also look to diversify future retirement options and maximize employer match contributions with Roth employer retirement plans whenever possible.
4. Meet with a financial professional to write a retirement plan
A financial professional will be able to help turn your ideas about retirement into an actionable plan.
You will need to start thinking through what your ideal retirement looks like. What do you want to do in retirement? Where will you live? Many lifestyle considerations will influence your retirement strategy. You want to know what your goals are so you can do your best to achieve them.
Guidance from a financial professional could be especially useful for Gen Xers who are the least likely to have an understanding of the mechanics of preparing for retirement among the generations. For example, 54% of Gen Xers have no idea or cannot approximate how much total money they will need to save for retirement. Just 40% of Boomers and 47% of Millennials said the same.
Starting with examining your current financial picture, a financial professional will help determine how much you will need in retirement income and create a strategy for how you will achieve it. A financial professional can work with you to set a potential retirement date and explore options of how and when you might start claiming your Social Security benefits.
Your written retirement plan, created the help of a financial professional, will serve as your guide moving forward into your financial future. It will include risk-mitigation strategies, maximizing income through tax-efficient withdrawals and contingencies for secure retirement goals.
Gen Xers are in crunch time, and not having a retirement strategy is too risky. By doing work now, you can set yourself up for a successful retirement.
*Allianz Life conducted an online survey, the 2023 Allianz Annual Retirement Study, in February and March 2023 with a nationally representative sample of 1,000 individuals age 25+ in the contiguous U.S. with an annual household income of $50k+ (single) / $75k+ (married/partnered) OR investable assets of $150k.
This content is for general educational purposes only. It is not, however, intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America, its affiliated companies, and their representatives and employees do not give fiduciary, tax or legal advice or advice related to social security or Medicare. Clients are encouraged to consult their tax advisor or attorney or Social Security Administration (SSA) office for their particular situation.
Financial planning services may be offered only by financial professionals who are properly registered under the Investment Advisers Act of 1940 and are available at an additional cost. Allianz does not offer financial planning services.
Kelly LaVigne is vice president of advanced markets for Allianz Life Insurance Co., where he is responsible for the development of programs that assist financial professionals in serving clients with retirement, estate planning and tax-related strategies.
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