Sometimes referred to as the financial “middle child,” Generation X faces specific financial challenges when planning for retirement. For example, they are carrying a lot of debt while falling behind in home ownership. Additionally, many are underinsured and underprepared for retirement, according to Cynthia Meyer in an article for Forbes. Wedged between Boomers and Millennials, this group was impacted by several financial blips including recessions at the both the beginning and middle of their careers. Now, this group is tasked with starting, and sometimes catching up, with their planning for retirement. Below are several factors that will help Gen Xers answer the question, “Do you know when to retire?”
As a group, Gen X is just starting to focus on retirement. For some, it may seem a little early. However, financial experts are hinting that many are actually falling behind. If you were born between 1965 and 1984, these points will help you understand your readiness for retirement.
To begin, the Department of Labor recommends planning for 70-90% of your preretirement income to maintain your standard of living throughout those non-working years. Additionally, CNN Money points out that you should only withdraw 4% of your retirement funds each year to avoid running out of money. Also, you can’t always count on working to a late age because 46% of retirees in 2016 retired earlier than expected. In fact, CBS News reports that older workers often find themselves using retirement resources early, such as:
Therefore, it’s important to conduct a realistic review of your retirement to generate a plan. Tools like the Retirement Calculator at Nerdwallet allow you to set some benchmarks.
While the amount needed to retire includes several variables, a financial advisor can help you get a more accurate figure. The most important step, which many neglect, is actually calculating that figure. In fact, The Department of Labor reports that less than half of Americans have calculated the amount they need to save for retirement.
According to our post, there are several key expenses to consider:
By mapping out your ideal retired life, you’ll be able to most accurately calculate the money you’ll need on a monthly basis. Then, you can more easily draft a plan for when you should retire.
The average American spends about 20 years in retirement, according to the Department of Labor. Similarly, the IRS notes that retirement can actually last for 30 years or more. When picking the right time to retire, you should begin by understanding all of your retirement benefits. This complex process starts with a visit to the Social Security Administration’s website. They outline several steps:
Using these resources, you can start to understand the best age to retire. For example, Social Security may start at age 62 but, you will be penalized for claiming early. Also, Social Security benefits are calculated based on your top 35 years of earnings and retiring early may create a reduction in your benefits. Additionally, the earlier you retire, the more years of retirement you’ll need to fund. Therefore, the Society for Human Resource Management (SHRM) proposes that nearly three out of four pre-retirees plan to work part time or flexible work after their official retirement.
If you find that you are behind in your savings plan, Forbes gives several steps to catch up:
While you may not be able to retire when you had hoped, creating a plan may help you make up some of that lost financial readiness. So, if you haven’t already begun, now is the time to put your plan into action.
You can make an impact on your retirement readiness today by creating, and sticking to, your plan now. According to our post, there are several steps to start planning now. These include:
At Bank of the James, we offer many tools to help you start planning now for retirement. Check out our Budget Calculator to organize your spending and start saving.
Below are some resources that you can use to determine your financial readiness. Additionally, you may better determine what benefits you can expect for retirement.