As the oldest members of Generation X reach the milestone age of 59 1/2 this month, they become eligible to withdraw retirement assets without penalty. However, many Gen Xers are far from financially prepared for their golden years. A new study by Natixis reveals that almost half of this cohort believes it would take a “miracle” for them to retire comfortably.
Generation X, born between 1965 and 1980, is the first generation to primarily rely on 401(k) plans for retirement savings, following a shift away from traditional pensions in the 1980s. Unlike pensions, 401(k) plans place the responsibility on individuals to determine how much to save, how to invest, and how to manage withdrawals in retirement. This DIY approach, described by retirement expert Teresa Ghilarducci as flimsy, has left many Gen Xers ill-prepared.
According to Natixis, the average retirement savings for Gen X households is around $150,000, significantly less than the $1.5 million that most Americans believe is necessary for a comfortable retirement. This shortfall highlights a broader issue of inadequate financial literacy and planning within this generation.
Dave Goodsell, executive director of the Natixis Centre for Investor Insight, likens Gen X to Jan Brady, the often-overlooked middle child of the Brady Bunch. The larger baby boomer and millennial generations often leave Gen X to navigate retirement planning on their own.
Goodsell notes that about 1 in 5 Gen Xers worry that even with $1 million saved, they won’t be able to afford to retire. Additionally, a quarter of the cohort fears they may need to return to work after retiring due to insufficient savings.
Other studies confirm the bleak outlook for Gen X retirement savings. The National Institute on Retirement Security found that the typical Gen X household with a private retirement plan has only $40,000 saved. Alarmingly, about 40% of Gen Xers have not saved anything for retirement.
Despite these grim statistics, many Gen Xers remain optimistic about their retirement. Survey respondents told Natixis they plan to retire at age 60 and expect their retirement to last about 20 years, which is shorter than the average retirement duration experienced by many.
Goodsell attributes the conflicting retirement expectations to “wishful thinking.” He observes that nearly half of the surveyed Gen Xers have stopped thinking about retirement altogether, a sign of stress and financial denial. This head-in-the-sand approach, Goodsell warns, is not a viable strategy.
Gen X also has unrealistic expectations about investment returns, anticipating long-term returns of 13.1% above inflation. Given today’s inflation rate of around 3.3%, this implies a total return of 16.4%—far exceeding the historical average annual return of roughly 10% for the S&P 500. Moreover, only about 2% of Gen Xers understand key aspects of investing in bonds, such as the impact of higher interest rates on bond prices.
Goodsell advises Gen Xers to educate themselves and set realistic investment goals. He acknowledges that some retirement factors are beyond an individual’s control, contributing to anxiety. Research supports the concern of about 40% of Gen Xers that they won’t be able to work as long as they wish.
A 2018 Urban Institute study found that most workers had to retire earlier than planned due to layoffs or health issues, with only 19% retiring voluntarily.
Generation X faces significant challenges in preparing for retirement, with many relying on hope rather than strategic planning. As they reach the age of penalty-free withdrawals, it’s crucial for Gen Xers to confront their financial realities, improve their financial literacy, and develop practical retirement strategies. Without these steps, the “Jan Brady” generation risks being unprepared for their golden years, leaving many to depend on a “miracle” for a comfortable retirement.
