Many Gen Xers Fear They Can't Afford Retirement

This month marks the oldest members of Generation X to hit 59 1/2, the earliest age at which employees can begin taking early withdrawals from their accounts without incurring penalties. However, a recent Natixis poll found that many Gen Xers are not at all ready for their elderly years, with over half believing it would require a "miracle" for them to be able to retire.

People born in the years 1965 to 1980, or Gen X, are the first group of American workers to have grown up with 401(k) plans as their main source of retirement income after companies generally abandoned traditional pensions in the 1980s. However, the 401(k) places a heavy burden on participants to determine how much to save, how to invest, and how to take their money in retirement. This do-it-yourself strategy has been criticized as being inadequate by renowned retirement expert Teresa Ghilarducci.

As a result, Gen Xers are mostly responsible for making their own retirement plans. According to investment bank Natixis, many of them are dreadfully unprepared, both in terms of the quantity of assets they have saved and their understanding of important financial facts. Gen X households save an average of just $150,000 for retirement, a significant amount less than the $1.5 million that Americans believe they would need to live well in retirement.

As the bigger baby boomer and millennial generations garner more attention, Gen X "is the Jan Brady of generations," according to Dave Goodsell, executive director of the Natixis Center for Investor Insight. "They were the kids left alone after school, and they are kind of on their own in retirement too."

According to the report, over half of Gen Xers fear they won't have enough money to retire, even if they manage to save $1 million. Additionally, nearly 25% worry that they may have to work after retirement due to a lack of money.

The National Institute on Retirement Security discovered earlier this year that the average Gen X household with a private retirement plan has $40,000 in savings. These findings, together with other recent research, indicate that Gen X is in terrible health when it comes to retirement. According to the report, almost 40% of the group hasn't saved any money for retirement.

Gen X Retirement Expectations and Financial Realities

That doesn't stop Gen Xers from daydreaming about retirement, though; according to study respondents who told Natixis they expect to retire on average at age 60. Additionally, they anticipate that their retirement would continue for just 20 years, which is less than what many retirees really do.

These aspirations could sound contradictory, particularly considering that they won't have enough money saved for retirement to support them in their later years. However, Goodsell attributed the divergent perspectives on retirement-half of Gen Xers desire to quit working at age 60 and the other half believe they need a miracle to retire-to "wishful thinking."

According to the Natixis research, Gen X also has some irrational expectations for their projected investment performance. Specifically, the group believes that their retirement assets will provide long-term returns of 13.1% over inflation. That implies an investment return of 16.4%, which is much higher than the S&P 500's average yearly return of around 10%, given the current inflation rate of roughly 3.3%.

According to the research, just around 2% of Gen Xers were aware of important bond investment concepts, such as how rising interest rates affect bond values.

In contrast, about 4 out of 10 Gen Xers are realistically concerned that they won't be able to work as long as they would like, according to Goodsell.

According to a 2018 Urban Institute research, which followed workers from their early 50s to at least age 65, the majority of them were forced to leave their jobs before they reached retirement age. Of these, 28% quit after being laid off, and 9% left due to ill health. Of these, just 19% claimed to have retired freely.

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