Next to retire are Gen Xers. Few have saved enough

In their 40s and 50s, Gen Xers comprise about 20% of the US population. As the next group to retire after the Baby Boomers, their story may serve as a warning to those who will come after them.

A new report from the National Institute on Retirement Security suggests that many Gen Xers need to save more to keep their standard of living when they retire.

Tyler Bond, research director at NIRS and co-author of "The Forgotten Generation: Generation X Approaches Retirement," said that the numbers show pretty clearly that our system will not give enough money to many workers.

Bond is talking about how most people save for retirement these days, mostly on their own. This way of saving came of age when Gen Xers did. They were the first people to go to work after employers switched from defined benefit pension plans to described contribution accounts like 401(k)s.

Even though the oldest people in Gen X are more likely than the younger ones to have at least some pension income to add to their savings and Social Security benefits when they retire, most of them won't.

The NIRS study, which looked at 2020 data from the Federal Survey of Income and Program Participation, found that only 14% of working people in Gen X are in a defined benefit pension plan.

"The bottom half of [Gen X] earners have only a few thousand dollars saved" in workplace retirement plans and IRAs, the authors of the NIRS study said. And the median amount that Gen X families have saved for retirement is only $40,000, meaning half have less and half have more.

The most essential issue is income.

The main thing determining who has saved money and who has not is their income. The study says that most of Generation X's retirement savings come from the highest earners.

Still, the average Gen X retirement savings balance (nearly $130,000 for individuals and $243,000 for households) shows that many higher earners may need to save more if they want their savings to be their primary source of income in retirement. Most people will not have a pension, and Social Security benefits for high earners (whose average career earnings are between $100,000 and $150,000, according to Social Security's model) are meant to replace only a quarter to a third of their income if they retire at "full" retirement age, which for Gen Xers is 67.

Also, remember that some people's Social Security benefits could be cut in the long run because politicians have yet to deal with the program's long-term solvency. If nothing changes, Social Security will only be able to pay 80% of promised payments by 2034, when Gen Xers will have started to retire.

There are significant differences in race and culture.

All groups with higher incomes do better than those with lower incomes, but regarding race and ethnicity among employed Gen Xers, Black and Hispanic workers have the most negligible savings and are the least likely to access and participate in employer-sponsored retirement plans.

The study says that the average amount in a Black worker's retirement account is $53,456, while the average amount in a Hispanic worker's budget is $42,335, and the median amount for each group is $1 and $0, respectively. On the other hand, the average wage for a White worker is $165,917, the average salary for an Asian worker is $189,764, and the middle compensation for each group is $26,900 and $30,000, respectively.

Many need to be at least the recommended marks.

"However, most Gen Xers are not saving enough for retirement, regardless of race, gender, marital status, or income," the study says.

Setting standard goals can be challenging because everyone's situation is different and can change for better or worse. But one general rule says that by age 45, you should have saved two to four times your family income, three to six times by age 50, and four-and-a-half to eight times by age 55.

How much a person should have saved by the time they retire depends on a lot of things, like when they plan to retire, if they are married, where and how they plan to live, if they will get a steady monthly paycheck from a pension, how much they can expect from Social Security, and how much they could get from part-time work or a rental property.

Ways to make things better

If you are a member of Generation X and worry that you will not have enough money when you retire, there are things you can do now and perks you can get now or in a few years that may help.

Consider where you are: Find out what possible sources of income and assets can bring in money you will have when you retire. For example, you can ask for an estimate of your benefits here to determine how much Social Security might pay you based on what you have earned. Your 401(k) provider, like Fidelity, Vanguard, or T Rowe Price, has online tools to help you determine if you are on track to have enough money saved for retirement.

Figure out what you can change: Now is an excellent time to figure out what you can do to improve your financial situation in the future. For example, you could save more, plan to retire later, or wait to take your Social Security payments until age 70 to get a bigger monthly check.

You might also get good advice from a fee-only certified financial planner or a financial adviser whose job is to look out for your best interests and who does not get paid to put clients' money into certain investment products. Or, see if your company has an employee assistance program (EAP) that gives free or low-cost financial coaching.

Stay up-to-date on new perks and programs: Nineteen states and counting have made it easier for workers and self-employed people who do not have a job retirement plan to save money. Most come in the form of regular IRA contributions, which make saving and investing for retirement easy and tax-efficient by taking money out of their paychecks. Rules vary from state to state, but employers can sometimes put money into their workers' accounts.

On the other hand, two new federal rules are meant to help working adults save more and get access to workplace retirement plans. They are the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and SECURE 2.0, which was passed into law last year.

One rule that may help Gen Xers who work part-time, many of whom are women, is that businesses must give part-time workers access to the company retirement plan if they have worked at least 500 hours per year for two years.

Changes to a current Saver's Credit could also help Gen Xers with lower incomes. The NIRS study says, "The Saver's Credit will become a Saver's Match in 2027, and it will become refundable." This means that a tax filer will not have to owe money to the government to get the match. "The Saver's Match will equal 50 per cent of a tax filer's retirement plan contribution, up to a maximum of $2,000. The match will be deposited directly into the tax filer's retirement plan account."