Gen X: Retirement Ready or Reality Check?
The group of people from the MTV generation, known as Gen X (born between 1960 and 1980), is close to retiring. However, a significant portion expresses a lack of readiness for this milestone.
A recent survey shows that Gen X has the least confidence in retirement compared to other age groups in the workforce.
If you find yourself resonating with this sentiment, fret not. There's ample opportunity to take proactive steps towards readiness and shape your retirement on your terms.
Remember, there's no one-size-fits-all approach to retirement planning. By learning about all of your choices, you can make smart decisions that fit your situation. This will help you feel more confident as you plan for retirement.
Here are five actionable steps to kickstart your preparation:
Gain clarity on your yearly expenditures
Learning to spend less than you earn and understanding your spending habits are key to saving money effectively. If the prospect of scrutinizing every purchase seems overwhelming, fear not.
Many easy-to-use websites can help you budget and track your finances, making it a more enjoyable process. These platforms enable you to categorize each expense meticulously, offering a comprehensive overview of your financial outflows. Armed with this insight, you can readily identify areas for potential adjustments in your spending habits.
Why it matters: Understanding your current expenditure is paramount for retirement planning. The sum you aim to save for your post-retirement life correlates directly with your estimated retirement expenses.
Build a safety net with a minimum of $1,000 for emergencies
Unforeseen emergencies and unexpected costs have the potential to disrupt your monthly or yearly financial plans. Establishing a dedicated savings account specifically for such unforeseen circumstances can serve as a lifeline during times of need. If you haven't already established an emergency fund, consider initiating one with a minimum of $1,000. Keep adding money to this fund until you have enough to cover 3 to 6 months of necessary expenses.
Prioritize the repayment of high-interest debt
While credit cards offer convenience and perks, settling credit card balances can present a formidable challenge. It often entails a prolonged period and significant financial expenditure. Instead of planning for the future, people get stuck paying for things they bought in the past. Hence, it becomes imperative to approach debt repayment with a sense of urgency.
If you have many loans and credit card debts, consider using the snowball or avalanche method to pay them off. The snowball method starts with small debts, while the avalanche method focuses on debts with high interest rates. Both approaches can yield favorable outcomes.
Harness tax-advantaged accounts and prioritize growth-oriented investments
Tax-advantaged accounts provide a platform for growth with tax benefits, either through tax deferral or tax-free earnings. Retirement savings options include workplace plans such as 401(k)s and IRAs. Health savings accounts (HSAs) are also common and can be used for retirement and healthcare expenses.
If you're unsure about the best account for you, contact a financial advisor. Alternatively, you can answer two quick questions to determine the right account for your needs.
Your savings rate, expressed as a percentage of income saved, holds pivotal importance. To calculate your savings rate, add up the amount you save annually, including any contributions from your employer. Then, divide this total by your yearly income to determine the percentage you save. Even a modest increase of 1% in this rate can yield substantial benefits.
Additionally, prioritizing investments with growth potential is paramount. Historically, stocks and other growth-oriented assets have delivered favorable returns, accelerating wealth accumulation and potentially expediting the achievement of your financial objectives.
Is your Savings on Track to Provide the Income You Need
Make sure your savings can pay for your expenses, plus any expected income from pensions or Social Security benefits. When planning for retirement, aim to spend about 80% of your pre-retirement income each year. This is known as your retirement income replacement ratio. For instance, if your current annual income is $90,000, anticipate an expenditure of approximately $72,000 per year in retirement.
Bottom Line
Start planning for retirement early, no matter your age. It's a journey that can begin at any time, whether you're young or old.
For many in Generation X, retirement may seem distant, with 15 to 20 years ahead, while for others, it looms closer. Even with plenty of time ahead, it's important to think about how to maintain your financial security in retirement.
As the oldest Generation X members turn 60, it's a good time to make retirement plans. Irrespective of your current position, there's ample opportunity to safeguard your financial future and retire on your terms.
Sources:
https://www.fidelity.com/learning-center/personal-finance/gen-x-retirement-guide
Disclosures:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
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