Gen X: Plan Your Retirement Like Social Security Will Fail

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Once upon a time, Gen X was the angsty generation, fueled by caffeine and wrapped in flannel. Much has changed over the past several decades: Now, a cohort that grew up on grunge is thinking about retirement. Just as their music and fashion weren’t their parents’ or grandparents’ styles, their retirement plans shouldn’t mirror early generations either — especially since Social Security may not provide the same level of benefits.

Concerns about the long-term future of Social Security — or potential decreases in benefits — are prompting many Gen Xers to build retirement plans that don’t rely as heavily on it as previous generations did. Instead of making Social Security the cornerstone of their strategies, they’re exploring other avenues for retirement savings. 

They’re wise to do so. GOBankingRates investigated why Gen X should plan as if Social Security may be diminished — and what they can do instead. 

Don’t Expect Social Security To Stay the Same 

While earlier generations may have relied on Social Security as a primary source of retirement income, Matthew Calme, CFP, wealth advisor and partner at HCM Wealth Advisors and CPAs, is clear: It was never designed to be a sole source of income for retirees. 

Although Gen Xers were never meant to use Social Security as their main income stream, Calme is also concerned that the program may not exist in the same form by the time they retire. He describes a “never-ending threat” to the funds backing Social Security, which could be depleted over time.

“Two leading factors that are playing into the depletion of Social Security are inflation and [the ratio of] active participants paying into versus retirees drawing from the system,” he said. “Both have already been impacting and straining the system.” 

Financial advisors should encourage clients to develop a well-rounded retirement strategy — one that includes multiple income streams such as workplace retirement accounts, investment income, rental properties, or even part-time work. 

“You don’t need all of these for a stable retirement,” Calme said, “but each can provide added safety to ensure your lifestyle does not need to change in the event Social Security becomes insolvent.”

Take a Consistent Approach to Other Retirement Accounts 

Fortunately, Social Security is far from the only source of income for retirees. Many workplaces offer retirement accounts such as 401(k)s — and better yet, some employers match contributions up to a certain level. 

Taking advantage of those matching 401(k) contributions is a great first step for Gen Xers — or anyone — who wants to grow their retirement nest egg. According to Mindy Yu, CIMA®, senior director of investing at Betterment at Work, individuals should also contribute to IRAs and health savings accounts (HSAs) when possible. 

In addition to contributing enough to capture your employer match, Yu recommends steadily increasing contributions over time. 

“Aim for consistent contributions over time — time in the market is one of the most powerful drivers of growth,” she said. 

Diversification Is Key to Retirement Success 

As more Gen Xers confront the reality that Social Security might not be available — at least not in the same way it was for their elders — they’ll need to get creative with retirement income. That’s where diversification comes in. 

For Tom Buckingham, chief growth officer at Nassau Financial Group, smart diversification in retirement planning goes beyond picking a range of financial products. 

“It’s about building a mix of income sources that work together to provide guaranteed lifetime income, help reduce risk, and offer predictability, so that your money lasts as long as you do,” he said. 

Buckingham encourages Gen Xers to start saving early through employer-sponsored plans and IRAs while exploring options like annuities. He views annuities as a reliable source of supplemental income that can help offset inflation, longevity risk and unexpected expenses. 

“Annuities also offer powerful, tax-deferred growth potential to help individuals catch up or get a head start on growing their nest eggs, while helping protect the principal from market losses,” he said. “Building a comprehensive retirement plan is about balancing what you have, what you’ll need, and what you can count on.” 

There are other ways to diversify income as well. Gen Xers who anticipate wanting to remain in the workforce can pursue part-time jobs or start side businesses. Investing in real estate — either as a landlord or through a real estate investment trust (REIT) — can also provide stable income in retirement. 

Have a Solid Investment Strategy 

To strengthen their retirement savings without depending on Social Security, Gen Xers also need a solid investment strategy. Joseph Camberato, CEO of National Business Capital, recommends refining that strategy with the help of a financial planner. 

“It’s so important to have a good mix of high-quality publicly traded companies — or even just focus on low-cost index funds that also pay dividends — because that’s a great way to create other types of cash flow while your capital appreciates over time,” he said. 

Working with a financial advisor can help Gen Xers make informed decisions now while equipping them with the tools to build a secure future — even if Social Security isn’t part of it. 

“You’ve got to take control and build your own retirement plan if you want real security,” Camberato said. 

Bottom Line 

Generation X may be among the first to face retirement without the safety net of robust Social Security benefits. But with smart planning, consistent investing and income diversification, Gen Xers can still achieve a financially secure and fulfilling retirement — regardless of what the future holds for Social Security.

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