Every two years, Fidelity releases its Retirement Savings Assessment, a deep analysis of Americans’ readiness for retirement. Overall, the 2020 report showed that Americans have improved their retirement readiness. As a whole, Americans are ready to replace 83% of the income they will need in retirement. That’s up from 62% in 2006.1
However, there was one group that hadn’t made positive progress. It’s Generation X. It’s easy to forget about Generation X amid the ongoing social media war between Baby Boomers and Millennials. While Generation X isn’t as sizable as those groups, it is still sizable with 66 million members between the ages of 39 and 54.2
According to the Fidelity assessment, Generation X’s readiness has actually declined in recent years. Generation X had a readiness score of 80, down from 83 in 2016. They were the only generation to decline in readiness.2
There are a few possible reasons for Generation X’s decline in readiness. One is that they lag other groups in savings rates. Generation X saves an average of 8% of annual income, while Boomers and Millennials save 10%. Generation X also more mortgage debt and personal debt than other generations.2
The good news is Generation X still has time to catch up. Even the oldest members of Gen X have a decade or more until retirement. Below are a few steps you can take to get back on track:
Increase your contributions.
The simplest way to boost your retirement savings is to increase your contributions to your 401(k) and IRA. In 2020, you can contribute up to $19,500 to a 401(k) and up to $6,000 to an iRA.3
However, if you are 50 or older, you can contribute even more. Starting at age 50, you can make something called a “catch-up contribution,” which is simply an extra amount of money you can put in a qualified account each year. In 2020, you can contribute up to an additional $6,500 to a 401(k) and an additional $1,000 to an IRA.3
Even if you can’t contribute the maximum, it’s still helpful to increase your contributions. Try increasing by a small amount every year or even every six months. If you gradually increase your contributions over time, it may not put as much pressure on your budget.
Create a health care strategy.
Saving more for retirement is always helpful, but you can also improve your retirement readiness by reducing future costs. One of the biggest costs you’ll face in retirement could be health care.
Fidelity estimates that the average 65-year-old couple will spend $285,000 out-of-pocket in retirement.4 That figure includes a wide range of costs, like deductibles, premiums, and expenses not covered by Medicare.
You can prepare for health care costs by putting away money today. One effective way to do so is with a health savings account (HSA). You can make tax-deductible contributions to an HSA and then allocate the funds according to your needs and goals. All growth is tax-deferred, and withdrawals for medical expenses are tax-free.
You can also protect yourself against excessive health care costs by investing in your health today. Stay active. Watch your diet. Get annual physicals and other preventive services. The healthier you are, the less care you’ll need, which will reduce your out-of-pocket costs.
Protect your income.
For many people, the point of saving for retirement is to create income in the future. Yes, you will likely have income from Social Security and possibly a defined benefit pension. But if you’re like many Americans, you’ll have to generate much of your retirement income from your retirement savings.
How do you determine how much income to take each year? What if you live longer than expected and run out of money? What if you spend too much in the early years of retirement and don’t have enough left for the later years? What if the market suffers a downturn and threatens your retirement income?
One way to minimize these risks is to establish guaranteed streams of lifetime income. You can use retirement income vehicles like an annuity to create additional sources of lifetime income, which could potentially help reduce risk and uncertainty in retirement. A financial professional can help you determine if this is a good strategy for your needs.
Ready to take back control of your retirement? Let’s talk about it. Contact us today at First Fidelity Group. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
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