The first generation reliant predominantly on the 401(k) for retirement is starting to turn 60 this year – and most say they are not optimistic about post-work life.
Those in Generation X, or people born between 1965 and 1980, started their careers amid the swing from traditional pensions to defined contribution plans. That was long before automatic enrollment and the debut of more sophisticated funds that handled asset allocation.
Nearly 70 percent of people across generations say that they don’t think they’ll have enough savings by the time they plan to retire, according to a recent survey of 10,000 people published by the Transamerica Center for Retirement Studies.
That in itself isn’t an indictment of the 401(k) system, which has grown up to become the default saving and investing option for most private-sector workers. But the coming years will be a kind of test in how well it helped prepare a generation for retirement.
In the ’80s and ’90s, participation rates in 401(k)s were lower than they are today, said Catherine Collinson, CEO and president of Transamerica Institute and its center for retirement studies.
“More than four in five workers say they’re saving, and it appears they’re doing their best effort, in my view,” Collinson said. Many people have access to employer-sponsored retirement plans, and among those who participate, the median contribution rate is 10 percent, she said.
“But we also see some financial fragility because they’re juggling competing financial priorities,” she said. “Societally, we’re now starting to realize how difficult it can be for people.”
Competing priorities include building emergency savings, paying for education, housing, and other factors. Compounding problems for Gen X is that many are in a sandwich stage of life, often having to care for aging parents and supporting children. Sudden expenses, coupled with a lack of emergency savings, can lead people to cash out their 401(k)s.
“People are feeling the squeeze, and something’s got to give. Hopefully it will not be their future retirement,” Collinson said.
Almost 80 percent of people who responded to Transamerica’s survey said that members of their generation will have a harder time reaching financial security compared with the parents’ generation. Over 70 percent said they worry about the future of Social Security, the trusts of which are on track to be depleted by 2035 or sooner.
Further, 43 percent said they fear AI could make their jobs obsolete.
The findings mesh with numerous reports showing that people generally feel unprepared financially for retirement. A survey report late last year from Schroders found 14 percent of Gen Xers saying they think they have saved enough to retire, with that group aiming for over $1 million to retire comfortably but expecting to accrue just over $600,000. While 27 percent of Gen Xers work with financial advisors, that rate was higher among baby boomers (37 percent) and millennials (31 percent), Schroders found.
While it’s not uncommon for people nearing retirement age to have financial worries, people often make it work. Some make life changes that help them reduce expenses, and others find that they may not spend as much as they thought they would.
But that also might just be the beginning of the story.
“With the aging of the boomer population and with Gen x maybe coming up short in terms of their retirement savings, how are we going to address this when they reach older age?” Collinson said.
The looming problem is long-term care, the costs of which may be too high for many retirees. While a fallback option is relying on family members such as adult children to provide care, that can financially stress caregivers, especially if they have to take time out of the workforce, Collinson said.
“Now is the critical time for adult children to be saving” and focused on planning for their own retirement, she said.
Beyond that, advances in medicine and technology could further increase life expectancies, a trend that workers seem to be aware of. One in five people say they are planning to live to at least 100, Transamerica found. Living longer could also mean working longer.
“Workers are already thinking in terms of living longer lives and rethinking what it means to retire,” Collinson said. “They view it as a transition from fulltime employment to eventual fulltime retirement. … They’re not looking at it as a hard stop in the way that prior generations have looked at it.”
Already, about 40 percent of fulltime workers say they have a side hustle, she said. That might not only help them prepare financially for retirement but also provide an offramp from fulltime work.
“People are finding ways to bring in outside income, and hopefully that can better their financial situation,” Collinson said.
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