Generation X faces a bleak retirement prospect

Generation X faces a bleak retirement prospect

It’s a dismal retirement outlook for Generation X workers — those now between the ages of 41 and 56.

Many of the Baby Boomers, who may have had childhoods with less of a grip on parents’ hands than millennials and baby boomers, need some serious parenting, according to a new report. a report Published by the National Institute for Retirement Security (NIRS).

NIRS checked Gen X’s readiness to retire, and it’s not pretty.

The typical Gen X family has just $40,000 in retirement savings—and that savings is concentrated among the highest earners—according to findings published by the nonpartisan organization. Also, blacks and Hispanics have significantly less savings and access to employer-provided retirement plans than whites.

Welcome to “The New Retirement”

“Generation X represents the leading edge of new retirement in America,” Tyler Bond, co-author of the report and director of NIRS Research, told Yahoo Finance. “As the first generation to mostly enter the workforce after moving away from defined private sector pensions, most Gen Xers will not have the secure retirement income that pensions provided to many in previous generations.”

National Institute for Retirement Security

National Institute for Retirement Security

The report, which defines Generation X as those born between 1965 and 1980, about 64 million Americans, or roughly 20% of the US population, is based on research data from a survey of income and participation in programs (curse), which provides information on income, employment, household composition, and participation in government programs.

The poor outlook for Generation X has been announced in a handful of recent reports this year, including findings from Transamerica’s 23rd annual retirement. reconnaissance About one in three General Xers do not have any financial strategy for retirement.

“The landscape of retirement has changed dramatically for this generation, and they are at risk of falling through the cracks,” said Kathryn Collinson, executive director of the Transamerica Institute and Transamerica Retirement Center.

Zero retirement savings

The troubling gist of the NIRS research: The average account balance for a Gen X person is just $10,000, which means half of Gen Xers have less than that amount saved for retirement. One in four Gen Xers does not have a retirement savings account at all. For Black Gen Xers, the average retirement account balance is $1 and the other half have nothing at all. Not even two-thirds of the Hispanic generation have started calculating retirement savings.

National Institute for Retirement Security

National Institute for Retirement Security

There is a noticeable gender gap as well. Average retirement savings is $13,000 for single Gen X men and $6,000 for Gen X women. (This may be because Gen X women are more likely to work part-time.) Married men and women tend to have higher savings levels.

Read more: Best high-yield savings account rates for July 2023

Why is Gen X lagging behind?

One factor: 401(k)s were coming online when Gen X entered the workforce—and relatively few workers were able to access them. Only 14% of Gen Xers have a traditional employer pension plan, and only about half (55%) have access to an employer provided retirement plan in their job as a 401(k).

This is the overall problem.

When workers can’t access an employer-sponsored plan, they usually don’t start their own retirement accounts. Only 5% of workers take the steps to open a retirement savings account if one is not provided by their employer, according to Angela M. Antonelli, executive director of the Center for Retirement Initiatives at Georgetown University. If a worker has access to an employer-sponsored plan, participation jumps to 72%.

(Photo: Getty Creative)

(Photo: Getty Creative)

Access to saving in a retirement plan at work is usually reserved for full-time employees. And the NIRS report found that 12% of General Xers work part-time. Among Gen X men, 7% worked part-time. For Generation X women, this number was more than twice as high, nearly two in 10 (18%).

The truth is, it’s easier to save when you have an employer-provided retirement account. Workers with an IRA or Keogh account had an average balance of $148,920 and the average balance was $44,100. For those with 401(k), 403(b) and other employer-sponsored plans, the median balance was $173,553 and the median balance was $50,000. “These are better than the overall numbers, but hardly encouraging for a generation rapidly approaching retirement age,” Bond said.

Not surprisingly, Gen X workers who are high earners keep to themselves. The top quartile of Generation X workers with incomes of $76,789 and above have about $250,000 in savings on average, while the bottom half — those with incomes of $43,921 or less — lose almost nothing.

When looking at the average, Gen X families with incomes of $24,096 or less have only $200 saved for retirement. Those with incomes between $24,097 and $43,920: $4,290.

New policy initiatives may help

Is there a hope?

If Gen Xers start saving now, they can make up for lost time. Most Gen Xers are in the prime of their earning years, and the younger generation have a couple of decades to work with.

Some new policy changes will likely make it easier for many part-time workers. A new provision in the Secure 2.0 legislation, which will take effect in 2025, requires that 401(k) or 403(b) plans allow a long-term part-time employee to participate in the plan, if that employee works at least 500 hours a year for two years. two consecutive.

Meanwhile, an increasing number of states have passed laws in recent years to help remove this retirement savings dilemma. The new legislation appears to be driving a boost in employers choosing to offer a 401(k) plan rather than participate in their state’s program, according to the National Bureau of Economic Research (NBER).

To date, 19 states have enacted retirement programs for private workers. Fifteen of these states are automatic IRA programs. They require most private employers who do not sponsor their own savings plan to enroll workers in a state-facilitated individual retirement account at a predetermined savings rate—usually 3% to 5% of earnings—and automatically deducted from their paycheck.

Given the number of Gen Xers who don’t currently participate in a retirement plan, increasing access to savings plans would likely be a big boost. But it’s just the beginning.

Then there is the pesky shadow of Social Security. The NIRS researchers concluded that many Gen Xers aren’t confident that Social Security will be available to them when they need it. They either think that Social Security will go bankrupt before they are eligible to claim benefits, or that benefits will be cut.

“There are looming retirement challenges facing Generation X, and there is an urgent need to strengthen the country’s retirement structure for these workers and the generations that will follow,” Bond added.

Kerry Hannon is a senior correspondent and columnist for Yahoo Finance. She is a workplace futurist, career and retirement strategist, and author of 14 books, including “In Control at 50+: How to Succeed in the New World of Work » and “Don’t get old till you’re rich.” Follow her on Twitter @employee.

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