EagleTribune.com, North Andover, MA

November 1, 2013

Retirement challenges for Generation X

Financially Speaking
John Spoto

---- — Americans are living and working longer than ever before. The result is a current workforce comprised of multiple generations, each at different points in the career life cycle working side by side.

At one end of the spectrum are the millennials, the first group to come of age in the new millennium, now in their 20s and early 30s and typically in the formative stage of their careers

At the other end are the baby boomers, now in their 50s and 60s who are planning or have already begun their exit from the workforce. Situated squarely in the middle is the cohort most commonly known as Generation X, the roughly 50 million people born from 1965 through 1980 now in their mid-30s to late 40s and, in many cases, firmly established in their careers.

Because this 30- and 40-something group is poised to move from a supporting role to top leadership positions in every area of commerce and government, they have begun to attract serious attention. Policy experts have analyzed this cohort to determine the most compelling issues affecting them and how they are addressing those challenges.

Although the popular literature likes to portray sharp “personality” differences between Gen Xers and baby boomers, recent research paints a more nuanced picture. Employees across the two groups exhibited more similarities than differences, and the differences that did exist were attributed more to situational factors, such as age, family responsibilities and financial commitments, rather than generational distinctions.

The factors that play important roles in achieving success and happiness in life, such as the importance of interpersonal relationships, high career aspirations, work ethic and social, moral and family values were remarkably similar across generations.

One area, however, where there is a clear attitudinal difference between cohorts was that of retirement readiness.

Despite the fact that the economy has stabilized since the 2008 financial crisis, according to a 2012 Pew Research study, concerns about retirement finances have increased markedly since 2009 in every generation, with the most dramatic change occurring in the 35 to 44 age group.

The proportion of this group that worried about affording retirement more than doubled from 20 percent in 2009 to almost 50 percent in 2012, making this the most pessimistic of all current working cohorts.

The study suggests that this group was hit hardest by the 2008 recession as it saw home values plummet along with whatever small balances had been accumulated in savings and investments.

Although retirement may be decades away, the concerns are well-founded. Only 40 percent have even tried to figure out how much they needed to save; only one-third have saved at least $100,000; and fewer yet have any formal plan to help achieve a secure retirement.

While this general lack of planning is worrisome, an encouraging aspect that emerges from the research is that members of this group recognizes the risks they face as they approach retirement and the need to stave off those risks by saving more. The real challenge is translating this awareness into action.

How much an individual or couple needs to save each year to prepare for retirement depends upon several factors, including the amount of current retirement savings, other expected sources of retirement income (e.g. Social Security, employer pension, rental income, etc.), the number of years until retirement and desired lifestyle.

Two of the most important variables an investor can use to build wealth is the age at which the savings program begins and the savings rate. Therefore, for those with 25 or more years until retirement, time is a powerful lever to help build their nest egg. For those in their 30s and 40s who have not yet accumulated a substantial retirement account, there are some general guidelines to follow.

For people in their 30s and 40s it would be wise to begin saving at least one-third of their gross (pre-tax) income annually. If they delay saving until their 40s, the annual required savings jumps to over one-half of gross income, which is an almost impossible feat in most cases.

Most people don’t need a survey to tell them what they already know. They need to spend less, save more or work longer to achieve the kind of retirement lifestyle and security they want. What they also need, however, is to convert that knowledge into action. It may not be easy, but it is doable and worth it.

John Spoto is the founder of Sentry Financial Planning in Andover and Danvers. For more information, call 978-475-2533 or visit www.sentryfinancialplanning.com.

This article is for general information purposes only and is not intended to provide specific advice on individual financial, tax, or legal matters. Please consult the appropriate professional concerning your specific situation before making any decisions.