If you are Generation X, you are facing some unique circumstances.
Members of Generation X, who are still feeling the impact of the Great Recession, are facing some real challenges in saving for their retirement, according to TheBalance.com in “Retirement Milestones to Hit for the Gen X Years.”
According to a 2018 survey from AmeriTrade, 43% of Gen Xers say they’re behind on retirement savings and a just 33% of people 39 to 53 years old are confident about being financially secure when they retire. That generation is also feeling the double-crunch of paying off their own college loans, while trying to save for their own children’s college education.
Getting past these obstacles is possible, as is getting retirement savings on track. However, you’ll need a plan.
Among the milestones to aim for, if you’re a Gen Xer:
Set a Target. You’ll want to know what you are aiming for in retirement and that means knowing about how much money you’ll need to accumulate. Consider what kind of a lifestyle you’ll want. Does retirement look like a lot of luxury travel or are you open to the idea of seeing the world from an Elder Hostel? What kind of housing will you want to live in and what kind of car will you want to drive? Will your children be self-supporting by the time you retire, or will you be first sending them off to college? All these questions will be important to figuring out what kind of a nest egg you’ll need.
Does Your Employer Offer a 401(k) Plan? This could be your greatest tool for retirement savings. You can save for retirement on a tax-deferred basis, while you are entering your peak earning years. If you’re really lucky, you work for a company that matches contributions, so your retirement savings will grow even faster.
If you haven’t already started using this employee benefit, start now. Are you saving enough to qualify for the full employer match? You should do what you can to bring your savings level up to that point. If you are already getting the match, can you increase your own contribution?
If you can’t make an adjustment now, consider making a small increase to your savings, like 1% to 2% every year. If the gradual increase grows along with your paychecks, you won’t notice the difference.
Look into Other Tax Advantaged Accounts. As you move into your late 30s and early 40s, your earnings are most likely growing, so you need to look past your employers’ plans. Consider a traditional IRA (Individual Retirement Account) or a Roth, depending on your income level. If you qualify for a Roth IRA, the money is 100% tax-free when you withdraw it. The traditional IRA is taxable in retirement. However, you have the benefit of a tax deduction on your contributions.
Don’t Overlook the Health Savings Account. The HSA is not a retirement account. However, it can be useful in funding retirement costs. HSAs are designed to be used to save for qualified medical expenses. Contributions to these accounts are tax-free, if they are used for health care but you can also tap into one of these accounts for other reasons. Withdrawals from an HSA are penalty-free after age 65. However, you will have to pay regular income tax on the money. If your employer offers a matching contribution to an HSA, there’s no reason not to fully fund one of these accounts.
An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and can help meet the challenges of your generation.
Resource: TheBalance.com (June 4, 2018) “Retirement Milestones to Hit for the Gen X Years”