According to a Schroders survey, nearly half of Gen X Americans haven’t done any retirement planning, with many stating they are almost two-thirds of the way to their $1.1 million retirement savings goal.
Yahoo Finance’s Kerry Hannon details this trend and ways Americans can get started on their retirement savings.
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Video Transcript
– A comfortable retirement seems to be a long shot for some. Generation X say they will need around 1.1 million to retire but are only on track to save around 661,000. That’s according to a new survey from Schroders. And they aren’t the only ones. Yahoo! Finance’s Kerry Hannon joins us with the details. Kerry, why are we like this?
KERRY HANNON: Oh, my goodness. You just want to say sigh, right? The issue of this big gap is it’s concerning. It really is because the oldest Gen Xers are about 10 years out from retirement. So the door is starting– or traditional retirement. You know me. I like saying people could keep working longer and longer. That’s a good thing. But the fact is what’s happening here is, number one, they’re not planning for retirement. Like, nearly half of them say that they haven’t even started to actually plan for retirement.
This is not good. Studies repeatedly show that, when people pay attention to planning, they actually save more. The second piece that’s happening is a lot of it, they say, when they ask them what percentage they had in cash of the retirement funds they do have, 30% was in cash equivalents. And so this is something– this is not good for the long term when you’re talking about growth in a retirement savings plan. Even the S&P 500 Index Fund is what you need with even a 10% pop over an average of 20 years.
But they need to be getting a little more aggressive. So they say, why are you in cash so much? Well, they are in cash, Gen Xers are saying, because they’re afraid of losing their money. And they actually don’t know where to invest. And this is a problem of financial literacy. And we hammer on this all the time. The fact that they haven’t– they don’t understand where they should be investing. So this is an issue that’s facing a lot of Americans. Now that this generation in particular is the first one to have 401(k)s as their primary retirement vehicle.
And it is up to them to figure out how to invest it. So it can be a bit daunting. So that’s one problem. Gen Xers also are feeling a lot of stress. They’re carrying a lot of debt. They often have aging parents and children they’re supporting, which makes coming up with the money, scraping it together to put into retirement accounts even more difficult. So these are just a couple of stumbling blocks this generation is facing.
Now the good news is, starting in next year, in 2024, there are some changes in the retirement atmosphere in the world of retirement, thanks to some new laws that are going to be helpful, we hope, over the long term. Employers are now going to be able to make it easier for people to set up emergency funds kind of attached to their retirement plans. It’s also– there’s a vehicle that’s going to make it easier to tap into your retirement savings accounts on a moderate way, $1,000 or so, to help people not have to pay the penalty, the 10% of taking it out before 59.5.
This is good news because it keeps people from raiding their retirement accounts. And this might be an opportunity to get in and even they can have a payment plan to return it so they may not even pay tax on that. And another thing is people have laid over education funds from their 529 plans that weren’t used. They’re now going to be able to roll those into a Roth IRA, which is really a great thing.
There are some lots of limitations around here. So you’ll have to check up on the laws. But the final thing is the new legislation– the new laws going into effect in January are going to make it easier for employers to start starter 401(k) plans. So for small companies that don’t have employer provided plans for their workers, hopefully, this is giving an easier way for them to get set up a plan for their employers. And I got to say, Rochelle, 50% of Americans do not have employer provided retirement plans. And if you don’t have that kind of planned, it’s super hard to get started saving on your own.
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