Counterpoint: Why Generation X Shouldn't Panic About Retirement


Generation XOne of the biggest fears people have about retiring is that they won't have enough money to last their entire lives. Yet as members of Generation X grow into middle age and start thinking more seriously about their retirement plans, the warnings they're hearing about how far behind they are may make the situation sound more dire than it actually is.

A just-released survey from Fidelity Investments describes the challenges that people in the roughly 35- to 50-year-old age bracket face right now.

The survey found that American workers could see their incomes drop by 28% after they retire, potentially leaving them unable to pay all of their projected living expenses. And a more in-depth study of Gen X households showed a big potential shortfall in income compared to the amounts that those surveyed said they'd need for monthly retirement income.

Ignore Those Alarm Bells for Now

As fellow Motley Fool contributor Chuck Saletta writes in his article on this subject, these numbers hopefully will raise awareness among Gen X workers that they need to plan more actively for their retirement years by increasing the amount they save and choosing investments with higher returns.

But before you decide that you'll have to take more extreme measures like delaying your retirement or taking part-time work as a semi-retiree, I have some good news: The amount of income you'll need as a retiree is probably lower than you think.

Reality Check, Please!

The two big variables that go into your retirement planning are how much money you'll have coming in versus how much you plan to spend.

Typically, workers recognize that they won't need as much as their full current income once they retire, but they'd prefer to take in something close to that amount. For instance, in the Fidelity survey, the typical Gen X household earns about $6,200 per month before taxes, and they guessed that they'd need $4,900 for monthly expenses during retirement -- about 80%.

That 80% figure is consistent with the projections that many financial advisers suggest as a baseline for doing retirement planning. But it doesn't reflect reality, at least, not when you compare it to actual retiree behavior.

The Bureau of Labor Statistics puts out a Consumer Expenditure Survey every year that monitors what people in various age groups spend their money on. The most recent survey found that when you compare the spending patterns of people in the 35-54 age group with those of retirees, the older group spends well below that 80% figure.

How You'll Spend Less

The biggest line item that drops during retirement is the amount you pay in taxes. The Social Security and Medicare taxes that employees have to pay disappear entirely once you stop working, and much of the income retirees receive is either not taxed at all or only partially taxed, leading to a decline of two-thirds or more on your overall tax bill.

But surprisingly, other categories of expenses also drop dramatically:

  • Transportation is a big one, as retirees don't have to commute to work and can be more flexible with their leisure travel, taking advantage of discounts that workers often don't have time to use.
  • Food, clothing and entertainment expenses all dropped significantly as well.
  • And although rising health-care costs offset some of those savings, in total, the typical 75-year-old spends just over half what the typical worker in the 45-54 age range does.

You Still Have to Worry -- But a Little Less Than You Might Think

None of this means that Gen Xers should simply assume that everything will be fine. Plenty of uncertainties still exist, ranging from whether Social Security will get cut how health care coverage will change.

Following some of the advice in the Fidelity study, including saving more and looking into alternative investment options such as annuities, can help make sure that you'll be prepared no matter what happens. It'll take work, but with smart moves on both the income and expense side of your budget, you can make ends meet in retirement and still expect to do the things you've always dreamed of doing.

But dire predictions about finances often make workers of all ages lose hope that they have any chance at a secure retirement. If you're one of them, don't let the fear mongers convince you that your retirement is doomed.

Motley Fool contributor Dan Caplinger has a long list of things he'd like to do in retirement. Click here for a free video research report on Social Security, Medicare and your retirement from The Motley Fool.

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The only currency for gen xers retirement will be guns, ammo, and food

April 27 2012 at 7:14 AM Report abuse +2 rate up rate down Reply

DON'T RETIRE IF YOU NEED TO HAVE A MORTGUAGE. If you do, take out insurance so if either spouse dies, the loan is paid in full. The 80% income figure is a rule of thumb. I have been retired for nine years and know many that spend as much as before. Others spend almost nothing. Where you fall on the spending scale depends on what you like to do, how much traveling you do, whether you help you siblings, the age of your home, and many other factors. Make sure you spend the money for a trust to avoid probate for your spouse and heirs.
If you choose a financial planner look for a fixed fee manager, or go to vanguard or fidelity. Also you better be realistic about what kind of return to expect. If you spend less than 3% of your portfolio you should never run out of money.

April 26 2012 at 11:59 AM Report abuse -1 rate up rate down Reply
1 reply to jhrooney's comment

So if it costs $60K/yr for you and your wife, you need $2M in retirement nest egg. That is a pretty big nest for most.

April 26 2012 at 10:52 PM Report abuse rate up rate down Reply

Huff Post must be wvornking for Obama.
Just keep on spending......

April 26 2012 at 10:03 AM Report abuse +4 rate up rate down Reply

Dont worry about retirement... Obama will make sure you never retire... of course you will never work either... aint Socialism grand... all in the same toilet with this Occupant

April 26 2012 at 9:49 AM Report abuse +3 rate up rate down Reply

Why does the Government never have any layoff's. Get rid of Senator's all of them!!!!!

Thank you

April 26 2012 at 9:11 AM Report abuse +7 rate up rate down Reply

Retirement іѕ a totally different ballgame. It іѕ іmрοrtаnt thаt уου know hοw tο manage іt аnd υѕе іt properly.
Mаkе sure thаt уου dο nοt take out tοο much money frοm уουr investments.

April 25 2012 at 2:02 PM Report abuse +1 rate up rate down Reply
2 replies to Topfinancetips's comment

Invest in food stamps???/

April 26 2012 at 9:50 AM Report abuse +2 rate up rate down Reply

Invest in Section 8 housing. You will make a killing, if Obama's voters do not wreck it.

April 26 2012 at 11:36 AM Report abuse +1 rate up rate down Reply

you will need 1 million if you are retiring in the next 5 years and you live to 80+

April 25 2012 at 1:06 PM Report abuse rate up rate down Reply
1 reply to SPQR's comment

Got work? Nobama 2012.

April 26 2012 at 11:38 AM Report abuse +1 rate up rate down Reply