As baby boomers start to settle into retirement, the next generation approaching that threshold is Generation X, and they are not ready for it, according to research released this week from Prudential.
While younger generations are saving early and working with financial advisors to put together a financial plan, the Latchkey Generation fear they do not have enough to live off in retirement.
The Newark, N.J.-based Prudential interviewed 2,000 people ages 43 to 58 and found that 46% do not believe they will have enough money saved for a comfortable retirement. That is not an unjustified fear, as the study found that 35% have less than $10,000 saved and 18% have nothing.
This lack of preparedness means that Gen Xers have to think about retirement differently than other generations. Of the 2,000 people surveyed, only 1,717 respondents were working, and of those, almost half, or 47%, said they will most likely retire later than expected and 40% will continue to work part-time after their retirement.
Complicating Generation X’s plans are their fears about the current economy: 68% of those working worry about reaching their savings goals because of inflation. And 72% said they can’t make decisions beyond day-to-day concerns given the current economic environment.
It is important for Generation X to meet with an advisor to discuss their future, said Barbara Pietrangelo, a financial planner with Prudential, adding that advisors looking to capture this market should educate clients about how to properly plan for their retirement.
“For Gen Xers, it’s an important thing to sit down and get a plan together and then set some goals and then, most importantly, take action and review those goals regularly,” she said.
Many of the respondents were not expecting to move once they retire—65% said they would remain in one city or town after leaving work while only 15% said they would split their time between two locations.
Generation Xers have lived a different lifestyle than other generations and have been bombarded with lots of retirement information. The abundance of data has caused many to become paralyzed with indecision, Pietrangelo said.
“Generation X has information overload. Unless we sit down and have some kind of financial plan going, it’s easy to get overwhelmed.”
And unlike generations before them, the pension plan is declining as a viable option. Only 20% of Generation Xers said they would be using a pension as a source of retirement income.
While a growing number of this cohort are not relying on a pension to fund their retirement, many are still expecting Social Security to help them—despite fears that the fund will be depleted by 2033. More than half, or 58%, said they would rely on Social Security as a primary source of income during retirement.
But Gen X anxieties about retirement income offer an opportunity for advisors—to teach their clients about income-generating options they can use in retirement.
“Gen Xers are contemplating significantly different approaches than prior generations to achieve retirement security,” said Dylan Tyson, president of Prudential Retirement Strategies, in a release. “Together, we must find ways to incorporate the fundamental best practices of traditional pensions into today’s defined contribution-based retirement system.”
Another factor that complicates matters for Generation X is their career history. Previous generations not only had traditional pensions, but tended to remain in the same job throughout their careers, which Gen Xers are less likely to do.
“They’re changing jobs more frequently than maybe baby boomers were and also self-employed ... or having nontraditional jobs that don’t have the benefits,” Pietrangelo said. “I don’t think they realize how easy it might be to set up … a simple 401(k) or an IRA for themselves.”
Since many Gen Xers change jobs, they also open multiple 401(k) plans. If they fail to properly track those accounts, they might not be effectively using the money in those products.
“Some people just forgot that they have that money because it’s online,” Pietrangelo said. “People get bogged down with all the email that they just plain forget it.”