Generation X will start to turn 60 this year, in 2025. Generation X, the generation born between 1965 and 1980, is a diverse generation, with its members coming from various socioeconomic backgrounds. However, they all confront a few common retirement income difficulties. 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 other people your age.
Budget Realistically
A budget is even more vital in retirement than it is while you’re working, but many older Generation X members struggle with it.* As Generation X prepares to retire, they must be ready to make difficult decisions. You’ve been collecting paychecks for the past 40 years or more, but soon, your savings and retirement accounts will be some of your sole sources of income. You may not have thought about whether you will have enough money to last your retirement. When many members of Generation X examine their spending habits, they will discover that their retirement savings aren’t enough to maintain their current lifestyle.
Funds Can Be Withdrawn From Retirement Accounts at Age 59 1/2
With pensions becoming increasingly scarce, Generation X is projected to rely mostly on workplace retirement plans 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 remove is challenging. If you take too much too soon, you may run out of money to spend in retirement. Working with an experienced financial professional is one approach to determining the appropriate withdrawal strategy.
Taxes May Increase in Retirement
The understanding most people have would tell you that retirees have less income to report and, as a result, pay lower taxes after leaving work. However, this may not apply to Generation X. Many Generation X employees have employer-issued, tax-deferred traditional 401(k) or IRA plans. These accounts offer tax deferral, but withdrawals are still subject to standard income taxes. Depending on their situation, they may want to instead think about using life insurance as a source of tax-free income, which, yes, is something you can do. Contact us for more information.
Should You Start Social Security Benefits ASAP?
Unmarried widows and widowers in Generation X may be eligible to receive Social Security survivor benefits at the age of 60. However, for the majority of this group, 62 is the earliest age to receive a monthly Social Security payout.
While claiming benefits at age 62 is a popular option, there are a few disadvantages. Starting Social Security 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. This means you will receive your entire Social Security retirement payments at that age, without any decrease. However, it goes farther; 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 a good approach.
Medicare Won’t Cover All Health Care Costs
Although Gen X does not reach full retirement age until 67, they can begin Medicare at 65. This government healthcare program provides broad coverage but has restrictions. Medicare enrollees are often expected 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 on 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 wary of the stock market than others. Their generation gained much of its wealth from the stock market. 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 hands; you can’t just wait for your money to recover from a loss. That money is your main source of income now! So, it’s best to keep at least some of your money in “safe money” account or other options, and when you do invest, do your research and do so cautiously.
Estate Plans Are a Priority Now
As they get older, many Gen Xers fail to update their estate planning documents. So as you, personally, near retirement, assess whether your initial decisions still reflect what you want. You may also have new assets or heirs, such as a new spouse, children, or grandchildren to include in your will. 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 straight to the people you chose.
*Source: U.S. News
