Generation X will begin turning 60 this year, in 2025. There’s a wide range of people in Generation X; typically defined as those born between 1965 and 1980, Gen X includes people with varying financial statuses. However, they all tend to face the same few retirement income pitfalls. If you’re a member of Generation X who’s retiring soon, here are a few things to remember to avoid falling into common mistakes for your generation.
Budgeting Is Crucial
A budget is even more important in retirement than it is while working, but many older Generation X members struggle with it.* As Gen X members prepare to retire, they must be prepared to make difficult decisions. You’ve been receiving paychecks for the past 40 years, but now, your savings and retirement accounts will be some of your only sources of income. You may not have considered whether you will have enough money to last through retirement. Many members of Gen X, if they were to check their spending habits, would find that their retirement income strategy cannot support their current lifestyle.
Retirement Funds Can Be Withdrawn at Age 59 1/2
With pensions becoming increasingly scarce, Generation X is likely to rely primarily on workplace retirement accounts such as 401(k)s for retirement funding. Once you reach the age of 59 1/2, you can withdraw funds from one of these accounts without penalty. However, determining when to start distributions and how much to withdraw can be difficult. If you take too much too soon, you risk running out of money to spend in retirement. Working with an experienced financial professional is one way to figure out the best withdrawal strategy.
Taxes Can Go Up in Retirement
Conventional wisdom holds that retirees have lower incomes, and therefore, pay lower taxes, after leaving the workforce. However, this may not be true for Generation X. Many Gen X workers have saved in tax-deferred traditional 401(k) and IRA accounts. These accounts provide a contribution tax deduction, but withdrawals are subject to regular income tax. They may want to consider options like utilizing life insurance as a source of tax-free income–yes, that’s something you can do. Reach out to us to learn more.
Social Security Can Begin at Age 62
Unmarried widows and widowers in Generation X may be eligible to claim Social Security survivor benefits at age 60. However, for most of this generation, 62 is the earliest age to receive a monthly Social Security payment.
While claiming benefits at age 62 is a common choice, there are some drawbacks. Starting Social Security early could result in a permanent reduction of up to one-third of your monthly benefit.
Those born in 1960 or later have a full retirement age of 67. This means you will receive your full Social Security retirement benefits at that age with no reduction. But, it goes further; you receive an 8% increase for every year you wait beyond that, capping out at age 70. So, if possible, it may suit your strategy to wait until age 70 to start collecting Social Security benefits.
Medicare Won’t Cover All Health Care Costs
Although Gen X does not reach full retirement age until 67, they can start Medicare at 65. This government healthcare program offers comprehensive coverage but has limitations. Medicare beneficiaries are typically required to pay a deductible, copay, and coinsurance. Furthermore, the program excludes certain services. Most notably, Medicare does not cover ongoing long-term care costs, such as those incurred in assisted living, memory care, or nursing homes. Individuals must have separate coverage, such as a long-term care insurance policy or life insurance with a long-term care rider, to cover those things.
Investment Strategies
Generation X members may not be as afraid of the stock market as others. Their generation accumulated much of its wealth through the stock market. As a result, they may decide to leave their retirement savings there. Investing in the market is not necessarily a mistake if done correctly. But you don’t know when those bad years will come. And you have less time; you can’t just wait around for your savings to recover from a loss. So, it’s best to keep at least some of your money in “safe money” accounts, and for the money that you do invest, do your research and do so carefully.
Estate Plans Are a Priority Now
Gen Xers frequently fail to update their estate planning documents as they age. As Generation X prepares for retirement, it’s time to reconsider whether your early plans still reflect your preferences. You could also have new assets or heirs, like a new spouse, children, or grandchildren. In addition to updating your will, ensure all beneficiary and transfer-on-death designations on individual accounts are up to date. That way, when the time comes, your money and belongings will be delivered exactly to the person you intended.
*Source: U.S. News
