Generation X will begin turning 60 this year, in 2025. Generation X is usually defined as the group born between 1965 and 1980, and come from a variety of economic backgrounds. However, they all confront a few common difficulties when it comes to saving up for retirement. If you are a member of Generation X who is about to retire, here are a few things to keep in mind to avoid making mistakes typical of your generation.
Budgeting Is Crucial
A budget is even more vital in retirement than it is while you’re working, but many older Generation X members struggle with making one. As members of Generation X prepare to retire, they must be ready to make difficult decisions. You’ve been collecting paychecks for the past 40 years, but soon, your savings and retirement accounts will be some of your only sources of income. You may not have thought about whether you will have enough money to last you the rest of your life, especially while maintaining your current lifestyle. Many Generation X members could be shocked to discover they haven’t saved enough to support their retirement spending.
Retirement Funds Can Be Withdrawn at Age 59 1/2
With pensions becoming increasingly scarce, Generation X is projected to rely mostly on corporate retirement funds like 401(k)s to support themselves in retirement. When you reach the age of 59 1/2, you may take funds from one of these accounts without penalty. However, deciding when to begin distributions and how much to withdraw is challenging. If you take too much too soon, you may run out of money to spend in retirement. Working with an experienced financial services professional is one approach to determining the appropriate withdrawal strategy.
Taxes Could Go Up in Retirement
Logic would follow that retirees have lesser incomes and, as a result, pay reduced taxes after leaving work. And this is what most people believe. However, this may not apply to everyone. Many Generation X employees have saved in tax-deferred traditional 401(k) and IRA plans. These accounts offer a tax break for contributing, but withdrawals are subject to standard income taxes. This means you’ll have to pay taxes on that money during retirement. So, is it better to pay taxes now or later? It depends on your situation and priorities.
If you believe taxes could go up in the future, you might want to think about using life insurance as a source of tax-free income, which you might not have even known was something you could do. Contact us to learn more about this option.
When to Start Social Security
Unmarried widows and widowers may be eligible to receive Social Security survivor benefits at the age of 60. However, for the rest of us, 62 is the earliest age to receive a monthly Social Security payout. While claiming benefits at age 62 is a popular choice, there are a few disadvantages to this. Starting Social Security this early may result in a permanent loss of up to one-third of your monthly payout. Those born in 1960 or after reach the full retirement age of 67. What this means is, you will receive your full Social Security retirement payments without any decreases, starting at that age. However, it goes further; you earn an 8% boost for each year you wait after that, with a ceiling at age 70. So, if possible, deferring Social Security benefits until you reach the age of 70 may be the right choice for you. The best time to start payments depends on your individual situation, however.
Medicare Won’t Cover All Health Care Costs
Gen X does not reach full retirement age until 67. However, you can start Medicare at age 65. This government healthcare program provides broad coverage but has restrictions. Medicare enrollees are often required to pay a deductible, copayment, and coinsurance. Furthermore, the program excludes certain services. Most notably, Medicare does not pay for continuous long-term care costs, such as those spent in assisted living, memory care, or nursing facilities. Individuals must have separate coverage, such as a long-term care insurance policy or life insurance with a long-term care rider, to cover these expenses.
Investment Strategies
Generation X participants may be less doubtful of the stock market than others. Their generation gained much of its wealth from the stock market, after all. As a result, they may choose to leave their retirement funds there. When done right, investing in the stock market for retirement is not always a bad idea. But you have less time on your side; you can’t just wait for your money to recover from a loss when that money is your main source of income. So, it’s best to maintain at least some of your money in “safe money” options, and when you do invest, do your research and do so carefully.
Estate Planning Is a Priority Now
As they get older, many Gen Xers fail to update their estate planning documents. As Generation X prepares for retirement, assess whether your early goals still reflect your tastes. You may also have new assets or new heirs, such as a new spouse, children, or grandchildren. In addition to amending your will, check that any beneficiary and transfer-on-death designations on individual accounts are up to date. That way, when the time comes, your money and other belongings will be handed off directly to the person you chose.
*Source: U.S. News