Will Student Loan Debt Force Gen X To Depend on Dubious Social Security?
Written by
Vance Cariaga
Edited by
Daria Uhlig
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Generation X will never be accused of having great timing. Defined as those born between 1965 and 1980, many Gen Xers reached college age just as tuitions began to skyrocket, leading to a surge in student loan debt. Gen Xers then entered the working world as 401(k)s began to replace traditional pensions. Now the oldest Gen X members are approaching retirement age as Social Security faces a major funding shortfall.
These dynamics could create major financial challenges for Gen Xers in retirement. As of the 2023 first quarter, Gen Xers held about a quarter of the nation’s outstanding $1.6 trillion in student loan debt, The New York Times reported, citing data from TransUnion. The average Gen X debt was about $49,000 per borrower.
That debt will soon have to be paid off again. Payments on federal student loans will resume in October following a pause that began in March 2020, during the early days of the COVID-19 pandemic.
Because of high student loan debt, many Gen Xers were not able to contribute as much to their 401(k)s as they ideally would have. A report from the National Institute on Retirement Security (NIRS) found that the typical Gen X household has only $40,000 in retirement savings. The median account balance for a Gen X individual is only $10,000.
One problem is that without company pensions provided solely by employers, Gen Xers must rely mostly on their own retirement contributions to build up a nest egg — and those contributions were severely impacted by college loans.
“It puts more of the burden of saving for retirement on them,” Tyler Bond, director of research at the National Institute on Retirement Security, told the NYT. “When you’re thinking about the impact of student loan debt on retirement savings, this is where this intersection starts.”
According to an annual study conducted by Northwestern Mutual, more than half of Gen Xers (55%) don’t expect to be financially prepared for retirement. That’s the highest percentage of any age cohort.
Without adequate retirement savings, a lot of Gen Xers might be heavily dependent on Social Security just as the program is in danger of being scaled back. The Social Security Old Age and Survivors Insurance (OASI) Trust Fund is expected to run out of money within the next decade. When that happens, the program will be solely reliant on payroll taxes for funding — and those taxes only cover about 77% of current benefits.
As the NYT reported, the combination of inadequate retirement savings and uncertain Social Security benefits might push Gen Xers to work longer.
“Retirement is theoretical, until it’s not,” Christian Mitchell, chief customer officer at Northwestern Mutual, told the NYT. “What likely exacerbates it here is all the economic turmoil we’ve had over the past few years.”
The reality for Gen Xers still paying down student debt is that many will have to re-evaluate previous notions about when they might retire and how they need to prepare for life after leaving the workforce.
“Gen X faces one of the most complex landscapes for retirement readiness in decades, including the decline of defined benefit pension plans which supported prior generations’ retirement, as well as significant uncertainty about the economy and long-term Social Security benefits,” Prudential vice chair Rob Falzon stated in a recent press release. “This data underscores how important it is for Gen X to adopt a new set of retirement strategies designed to protect and grow their savings, and, when possible, translate their assets into reliable sources of future income.”
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