When you’re in your mid-50s, retirement is just around the corner and the freedom that comes with leaving your job is tantalizingly close. Unfortunately, rather than looking forward to a life of leisure, many Gen Xers in this stage of life are not confident they’ll be able to retire on time.
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They’re right to be concerned, as a recent survey from Prudential Financial shows median retirement savings among 55-year-olds is less than $50,000. That’s not enough to live on, so it’s not surprising Prudential also reported around two-thirds of this group are worried about outliving their savings.
“Fifty-five-year-old Americans are far less financially secure than older generations,” said the press release. “These challenges are exacerbated by calculations that Social Security’s trust funds will be depleted as this generation reaches retirement age in 2035 — making this the first modern generation to confront retirement without full Social Security support, and in most cases without a defined benefit pension plan.”
The survey also found a trend it called the “Rise of the Silver Squatters” — nearly a quarter (24%) of 55-year-olds expect to need financial support from family in retirement — twice as many as 65- and 75-year-olds (12%). One in five (21%) also expects to need housing support, compared to 12% of 65-year-olds and 9% of 75-year-olds.
The good news is, 55 isn’t 85. Future retirees can still correct the course if they act fast and take just three simple steps.
Get serious about saving
Gen Xers have had a rough road, so it’s no surprise they’re staring down savings shortfalls. For one thing, they started investing late at the average of 32, according to Charles Schwab’s Modern Wealth Survey. A later start means less time for compound growth to work.
Their working years were also rocked by the dot-com bubble, the 2008 financial crisis, COVID-19, and post-pandemic inflation, which 41% of GenXers say is killing their retirement dreams, according to a Natixis Global Survey.
While these obstacles may explain low savings rates, they don’t change the reality that a retirement nest egg isn’t optional.
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If you’ve started your 10-year countdown, you have no choice but to get serious, make a budget prioritizing savings, and automate the savings process. To do that, you can use the calculators on Investor.gov to set a savings goal. A popular rule of thumb says you should have a nest egg equal to 10 times your final salary when you retire. Budget around that number, making changes as required. This could mean drastic shifts, like switching to a cheaper vehicle or picking up a side hustle.
Once the numbers work, set up automatic contributions to a 401(k) or IRA to ensure the amount you need is invested before you get paid so saving is no longer optional but happens automatically every month before you do anything else.
Catch up with catch-up contributions
Uncle Sam has your back when it comes to catching up on retirement savings as Americans 50 and over are eligible to make catch-up contributions. These are extra tax-advantaged contributions to 401(k) and IRA retirement plans.
In 2024, the 401(k) contribution limit is $23,000 and the IRA contribution limit is $7,000. However, those 50 and over can make extra catch-up contributions of $7,500 to their 401(k) and $1,000 to their IRA. Aim to get as close as possible to maxing out these accounts — especially a 401(k) if your employer offers matching contributions.
Investing $30,500 annually in a 401(k) over a decade would leave you with almost half-a-million dollars without even adding in matching funds, assuming a 10% return. That provides a whole lot more financial security than an account with $50,000 or less.
Of course not everyone can max out these accounts, but working to get as close as you can will make all the difference.
Choose the right investments
Finally, choose a mix of investments that allows you to avoid excess risk while still earning reasonable returns. A good rule of thumb is to subtract your age from 110 to determine the percentage of your portfolio to put into equities. A 55-year-old should have at least 55% of their portfolio in the market under this rule.
Be careful about the investments you select, though, because if you’re already behind on retirement savings, you can’t afford to let high fees eat away at your returns. Broadly diversified, low-cost index funds, like those tracking the performance of the S&P 500, are a good bet to help you earn consistent returns over a long period.
Following these steps can help you overcome any savings shortfall so a decade from now, you won’t be wondering if leaving the workforce is something that can ever happen for you.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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