Gen Xers will start turning 60 this year, in 2025. Generation X, sually defined as people born between 1965 and 1980, are a diverse group, all hailing from different backgrounds and with different levels of income. However, they all tend to run into the same few problems when it comes to retirement income. Here are some things to keep in mind if you’re a member of Gen X and are about to retire, so that you don’t make the mistakes other people in your generation often do.
Budgeting Realistically
A budget is even more important when you’re retired than when you’re working, but a lot of older Gen Xers have trouble with it.* Gen Xers who are getting ready to retire need to be ready to make tough choices. For the past 40 years, you’ve been making money by getting paid, but now your savings and retirement accounts will be some of your only sources of income. You might not have thought about whether or not you will have enough money to retire. If many Gen Xers looked at how much they spend, they would see that their retirement income strategy can’t support their current lifestyle.
You Can Withdraw Retirement Funds Starting 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. Since pensions are getting harder to find, Generation X is likely to rely on workplace retirement accounts like 401(k)s to fund their retirement. You can take money out of one of these accounts without being charged a fee once you turn 59 1/2 years old. But it can be hard to figure out when to start distributions and how much to take out at a time. You could run out of money if you take out too much too soon. One way to find the best way to figure out a withdrawal strategy, in our opinion, would be to talk to an experienced financial professional.
Taxes Could Go Up in Retirement
We generally assume people who are retired have lower incomes because they are no longer working and, therefore, pay less in taxes. Gen X, however, might not agree with this perception. Tax-deferred traditional 401(k) and IRA accounts are where a lot of Gen X workers have put their money away. You can get a tax break for putting money into these accounts, but when you take money out, you have to pay regular income tax. And that might not be the best option for a lot of people. For example, they may instead want to think about using life insurance as a tax-free way to make money. Yes, you can do that. Get in touch with us to find out more.
Should You Wait to Start Social Security Benefits?
Generation X widows and widowers who have not remarried may be able to get Social Security survivor benefits at age 60. Most people in this generation, though, can’t start taking monthly Social Security payment until they turn 62. Many people choose to start getting benefits at age 62, but this has some problems. If you start Social Security early, your monthly benefits could be reduced, permanently.
People who were born after 1960 can fully retire at age 67. In other words, you will get all of your Social Security retirement benefits at that age, with no cuts. But it gets better. For every year after that, you get an extra 8%, and that lasts until you turn 70. So, if you can, waiting until you turn 70 years old to start getting Social Security benefits has major benefits. When you can and should start taking benefits depends on you and your situation, though.
Medicare Won’t Cover All Health Care Costs
Gen X doesn’t reach full retirement age until 67, but they can start Medicare at age 65. This government healthcare program covers a lot of things, but it does have some limits. People who get Medicare usually have to pay a deductible, copay, and coinsurance. Also, some services are not included in the program, depending on which Medicare part you have. Medicare doesn’t cover permanent long-term care costs, like nursing homes, assisted living, or memory care facilities. To cover these things, people need separate coverage, like long-term care insurance or life insurance with a long-term care rider.
Investment Strategies
Members of Generation X might not be as scared of the stock market as others. The stock market is where a lot of their generation’s wealth was made. So, they might choose to leave their savings there for retirement. If you do it right, investing in the market isn’t always a bad idea. But you don’t know what the bad years will bring. You also don’t have as much time; if there’s a market drop, you can’t afford to wait for your savings to increase again and make back the loss. So, you should keep at least some of your money in “safe money” accounts at all times, and if you do decide to invest, be sure to do your research first.
Estate Plans Are a Priority Now
A lot of Gen Xers don’t update their wills and estate plans as they get older. But as you approach retirement, it may be time to consider whether your early plans still reflect what you want. Besides that, you might have new heirs, like a new spouse, kids, or grandchildren. Along with updating your will, make sure that all of your accounts have up-to-date beneficiary and transfer-on-death designations. That way, when the time comes, your money and other belongings will be sent exactly to the person you chose.
*Source: U.S. News