5 Money Traps That Will Keep Gen X From a Rich Retirement
Known as the forgotten generation because it gets lost between the culturally significant baby boomers and millennials, Generation X is nearing retirement — and many are facing stiff headwinds late in the game.
The oldest Gen Xers turn 58 this year, which means they’re less than five years away from Social Security eligibility — and the generation that oversaw the transition from the analog to digital eras is not optimistic about their prospects.
The New York Life Wealth Watch 2023 report found that “Gen Xers are feeling the crunch more than other groups, reporting having a lower average amount of savings and feeling less financially confident than other demographic cohorts.”
Their instincts are mostly accurate.
Fighting Compound Interest Instead of Earning It
Many in this demographic borrowed their way into a problematic retirement landscape.
“Unfortunately, one of the financial traps that will hurt Gen X’s retirement prospects is excess debt,” said Jake Hill, CEO of DebtHammer.
The New York Life study found that Gen X holds more credit card debt than any other generation — an average of $7,004 each.
That might not sound like a lot considering the size of a healthy nest egg, but thanks to compound interest and the tendency for incomes to taper off with age, it’s a ticking time bomb.
“This extra debt negatively impacts their retirement outlook in two ways,” Hill said. “In the short term, it limits their ability to maximize their retirement savings. In the long term, any unpaid debts will inflate their post-retirement budget, making it more difficult for Gen X to retire on time or fund an acceptable quality of life.”
Neglecting Your Nest Egg
A new research report from the National Institute on Retirement Security (NIRS) paints a bleak picture of Gen X’s preparedness. The average Gen X individual has about $130,000 saved for retirement. The demographic’s average household has just over $243,000.
That’s insufficient for most ages within the generation — certainly for the oldest — but even those tepid numbers paint an unrealistically rosy picture.
The more representative median Gen X individual has just $10,000 saved for retirement, and the median household has only $40,000 — enough for about $100-$150 per month in retirement income.
The reason for the vast gulf between the mean and the median is the 40% of the demographic that has absolutely nothing saved for retirement, which drags down the average like an anchor.
Passing on Tax-Deferred Saving and Employer Matches
Gen X was the first generation to enter the labor force after employers transitioned to defined contribution accounts like 401(k) plans.
“While the generation before them could rely on pension plans, most Gen Xers have had to depend on themselves for retirement savings,” said Laura Sterling of Georgia’s Own Credit Union, the second-largest credit union in Georgia. “Pensions are a thing of the past.”
While pensions provided millions of retirees with real security, the modern 401(k) employer match is a powerful tax-advantaged tool for growing wealth — but only if you max out the company contribution.
“Many Gen Xers have not put aside enough in their 401(k)s,” Sterling said. “Furthermore, many have not contributed at all to their 401(k), or they started late and are behind on their retirement savings goals.”
The NIRS report shows that only a little more than half of Gen X — 55% — participates in an employer-sponsored retirement plan.
Delaying Homeownership for Too Long
The NIRS report found that Gen X homeownership rates increase significantly with age — 61% of 51- to 55-year-olds own a home compared to just 26% of 40- to 45-year-olds.
On its face, it might seem like the older set is doing better, but the average among them owes $104,611 on their mortgages. That’s only slightly less than the $123,175 average among the youngest set, even though their homeownership rate is less than half that of the oldest.
In short, those who delayed homeownership owe nearly as much on their loans but have far less time to pay them off.
. “But when you purchase a home at age 50, that means you’ll be paying on it until you’re 80. When your retirement income is less than your full-time employment income, keeping up with the mortgage payments can be nearly impossible. Staying in a lower-cost house that you bought when you were 30 is one of the best ways to ensure you’ll lower your monthly expenses by the time you retire.”
The Trap of Unavoidable Biological Realities
One of the greatest hindrances to a rich retirement for Gen X comes not from personal finance or lifestyle choices, but from having no choice in supporting dependents on both financial ends.
“Many in Gen X have unique challenges, like simultaneously caring for their children and aging parents, which is why they’re also known as the sandwich generation,” said Laura Adams, MBA, an award-winning personal finance author and expert with Finder. “Those financial responsibilities can make it challenging to save for retirement adequately.”
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