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It is generally acknowledged that Gen Xers are hugely disadvantaged when it comes to retirement security. Gen Xers entered the workforce just as companies began to abandon traditional pension plans for 401(k)s, which shift the burden of saving and investing from the employer to the employee. And while baby boomers still stand to collect their full Social Security benefits, Gen Xers are retiring just as the program’s trust fund is forecast to run dry—around 2033, according to the latest report. That could cut their payout by about a third.
And yet Gen Xers have one big advantage over boomers: time. Not only do they have more working years left to save in those 401(k)s, but their investments have longer to grow tax-deferred. According to projections from the Employee Benefit Research Institute, both Gen Xers and Baby Boomers face significant deficits in the amount of money that they need to retire comfortably, but the more years workers keep contributing to a 401(k), the more those shortfalls decrease.
For example, a Gen Xer assumed to have stopped saving in a 401(k) faces a current shortfall of $78,297, while one with at least 20 years of continued contributions could find the average shortfall at retirement reduced to only $16,782. (EBRI’s retirement savings shortfalls are discounted back to a present value of retirement deficits at age 65.)
Other research suggests Gen Xers are fully aware of the challenges they face and are taking steps to overcome them. In a recent survey by PNC Financial Services, 65% of Gen X respondents said that they believed that they were solely responsible for their own retirement with no expectation of Social Security, employer pension or inheritance, while only 45% of boomers believed that they were solely responsible.
The PNC survey polled more than more than 1000 “successful savers”—those ages 35 to 44 had a total of $50,000 in financial assets, or at least $100,000 if age 45 or older. Compared to boomers, Gen Xers have more aggressive portfolios, are more heavily invested in stocks, and worry more that their savings may not hold out for as long as they live.
Even the financial crisis seems to have affected the two generations differently. When asked the ways in which their thoughts about retirement planning have changed over the last six years, 51% of Gen Xers said that they planned to save more to reach their goals, compared to only 37% of Boomers. And in what’s the most encouraging finding I’ve yet seen about Gen X, 28% said that they have increased the amount that they typically save and invest since the recession, as opposed to 22% of baby boomers.
In other words, the financial crisis seemed to have served as something as a wake-up call for Gen Xers. In the face of future hardship, some are actually adjusting their behaviors instead of burying their heads in the sand. Despite the odds stacked against them, Gen Xers just might get pushed into habits of thrift and rise to meet the financial challenges ahead. The good news: time is on their side.