Is Generation X Truly Ready For Retirement?

New research by the Society of Actuaries Research Institute finds that Gen Xers do not appear to be as well prepared as older generations for retirement.

In the report, Gen Xers are classified as individuals born between 1965 and 1980 and were between the ages of 40 and 56 when the survey was fielded last year.

According to the SOA Research Institute, the report examines how Gen Xers are unique in their financial status and planning behaviors and in how they more closely resemble millennials than older generations when it comes to financial planning, security, and retirement readiness.

Gen Xers are in a different situation than the group before them, facing high student loan debt, less access to defined benefit plans, and with many looking ahead without much savings for retirement.

In addition, the Gen Xers surveyed indicated negative feelings about their financial status and reported a lack of financial security that is more similar to Millennials. And even though Gen Xers are generally doing better than millennials, they are also closer to retirement, which makes higher financial insecurity more concerning.

And, the SOA Research Institute noted, Gen Xers are less likely to have defined-benefit pension coverage than older generations.

Why Gen X?

The research was focused on Gen X because it is the next generation cohort quickly approaching retirement ages and eligibility, according to Anna Rappaport, past president of the Society of Actuaries.

As Rappaport explained, “Generation X stands out as the first generation in the U.S. that will primarily need to be self-dependent on insuring their own retirement security in that our study shows that only 33% of this generation is covered by traditional defined benefit pension plans. And we also know that self-funding of retirement means individuals must start saving early and must save consistently throughout their career to be able to accumulate an adequate retirement fund.”

At the start of their careers, Rappaport pointed out, Gen X's ability to start to save for retirement was materially impacted by the "Great Recession”, the 2008 financial and economic crisis and market crash.

And now, in the latter part of their careers, COVID-19 has impacted them dramatically, with 39% reporting a somewhat or significant negative impact of COVID-19: pay decreases (15%), hours decreased (13%), laid off (9%), and furloughed (7%).

“So we felt it was important to highlight the actions, feelings and sense of security for retirement preparedness of this generation,” Rappaport said.

Why So Many Gen Xers Feel Unprepared

There are many reasons Gen Xers feel they are not prepared for retirement, Rappaport explained. First, the interruptions of jobs and savings disciplines caused by COVID-19, and with fewer having jobs with defined benefit pension plans, a large segment of this generation has a real challenge to accumulate sufficient retirement funds to obtain and enjoy retirement security similar to older generations.

In addition, the survey shows that 35% of Generation X report that debts are complicating their ability to manage their finances, compared to 20% or less for Boomers, said Rappaport.

And of all the generations surveyed about financial-planning feelings, Gen Xers were the least optimistic (36%), feeling in control (26%), and satisfied (26%), and similar to the millennials, 22% reported feeling depressed, Rappaport added.

“More often than not, Generation X more resembled the millennials who are much earlier in their careers, as opposed to a generation approaching retirement,” she said.

So what can financial planners and advisors do to help Gen Xers become better prepared for retirement? First, they need to understand clients’ current retirement-savings levels and their ability to save for the future, help them understand and set realistic targets for a secure retirement, set a specific goal, and then quantify the level of savings needed to achieve that goal, Rappaport said.

In addition, advisors can help their clients understand the advantage of participating in employer-qualified plans that may include employer matching contributions, added Rappaport.

Many clients, in addition to their need to understand their future savings requirements and opportunities, may need to understand, adopt and practice solid financial-wellness strategies, manage and reduce debt, avoid high-cost debt, reduce expenses, and the need to increase savings. Financial advisors are always extremely important and helpful to provide financial, investment, and retirement-literacy education, Rappaport said.

“Setting realistic budget goals, such as how much Gen X can financially help their parents and children, versus support their own retirement, should be part of the financial advisor and financial-wellness services,” she added.

Data presented in this report were gathered from an online survey last year of 2,017 individuals, including millennials, Gen Xers, late boomers and the younger generation of the silent generation.

Ayo Mseka has more than 30 years of experience reporting on the financial-services industry. She formerly served as Editor-In-Chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].