Most of the baby boomers are already there. So how’s the retirement going for them? And what about the Generation X group? They are planning their retirement. What are their finances like and what should they do?
How retirement has traditionally been financed
Many financial advisors previously recommended the three-legged stool approach when planning your retirement: social security, pensions, and personal savings. Pensions have since been replaced by 401 (k) plans and personal retirement accounts (IRAs).
But the basic theory of how to finance retirement is still intact. The only question mark in the minds of many pre-retirees is Social Security. Will social security be available in the next 10 years when these early retirees need it? Will the traditional three-legged stool hold up?
Who is dependent on social security?
In 2022, over 47 million Americans will receive Social Security retirement benefits. This boils down to $ 80 billion in benefits. It is a significant source of income for many retired Americans. But for many it is not the only source of income.
For 37% of retired men and 42% of retired women, more than half of their income comes from social security. The rest comes from pension funds, savings or work.
But even if they have other sources, social security is a significant part of their livelihood.
Others are even more dependent on social security. For example, 12% of men and 15% of women rely on social security for 90% or more of their income.
Today’s early retirees and retirees face challenges in terms of financial security. But who are these retirees and what are they doing to prepare?
Generation X: today’s early retirees
This cohort, born between 1965 and 1985, is between forty and fifty years old and is thinking about retirement. This is a resilient generation. They were key kids and MTV survivors. Parents and children are also surviving.
Generation X is often referred to as the “sandwich generation” because it is between baby boomers and millennials. And as a result, Gen X often finds itself caring for both parents and elderly children.
With high debt and current expenses, retirement planning is a cause for concern for many in Generation X. 59% of Generation X were worried that they would not be able to have a financially secure retirement, according to a survey by the National Institute on Retirement Security.
Generation X is a financially savvy group, according to an Investopedia survey. Almost 80% of these pre-retirees have intermediate or advanced knowledge of finance. And they expect Social Security and 401 (k) s to be their main sources of retirement income.
But with adult children returning home, parents moving in, high inflation and stock market volatility, these early retirees seem a little more pessimistic than current retirees.
Most Retired Baby Boomers Comfy
Born between 1946 and 1964, baby boomers dominated the workforce for decades. But as they have aged, they are now dominating retirement. Many baby boomers have been enjoying retirement for several years.
Current retirees are optimistic. While 64% of early retirees are concerned about stock market volatility, only about 49% of current retirees are concerned, according to a Kiplinger survey.
About 70% of the survey said they expect to live comfortably on their income. 66% said they wouldn’t run out of money.
But in the same poll, fewer than 55 percent of early retirees thought they wouldn’t run out of money.
Part of the discrepancy may be planning, but retirement age is also a factor.
The retirement age is a factor
The retirement age is increasing. Americans stay in the world of work longer. In 1992, for example, the average retirement age for men was 62; in 2021 he was 65 years old. The retirement age of women has also increased. Fifty-nine was the average age of women in 1992, but it rose to 62 in 2021. COVID-19 broke the trend slightly in 2021. Workers took the opportunity to retire a little earlier to avoid closure.
Despite the disruption of COVID-19, Americans are working longer, and it’s partly due to financial problems.
Social Security’s average monthly retirement allowance is $ 1,672.76. This doesn’t go far when you consider that the average monthly mortgage in the United States is $ 1,100. So there isn’t much left for living expenses, not to mention the subtleties of life.
Americans are working longer to continue paying in 401 (k) plans and save more money. Many start receiving benefits, but continue to work. They have to supplement their social security benefits.
Social Security and Medicare Profitability
Early retirees and retirees have something in common, though, and that’s their concern about the viability of Social Security and Medicare.
In a Kiplinger survey, 79% of early retirees were concerned about the financial strength of social security, while 69% of retirees were concerned.
Medicare hasn’t fared much better, with 68% of pre-retirees doubting its financial strength and 62% of retirees doubting it.
Pre-retirees and retirees financial plan
Social Security is just one leg in the stool. Those who feel more optimistic about retirement have 401 (k) plans and savings. But sometimes that plan fails, resulting in people working longer.
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