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Generation X

The financial future for this group looks even shakier than it does for their baby boomer parents

by Marcia Frellick

Jeff Rose is like many Gen X’ers in the way he thinks about retirement.

He doesn’t expect Social Security to be around by the time he needs it. That would be “icing on the cake,” says Rose, 34.

And while he would like the option to retire early — he’d like that choice in his late 50s — he knows that will depend on how much he can sock away in a 401(k) or other investments, and not on payouts from a pension or cashing in on a housing boom.

While much attention has been given to what retirement looks like for the 79 million baby boomers now approaching that stage, the 70 million X’ers coming behind them — born roughly between 1965 and 1980 — have different expectations and challenges.

In contrast to baby boomers, who often have pensions, company matches and social programs shoring up their nest eggs, Gen X’ers are seeing those options eliminated or dwindling.

It’s also a generation focused on immediacy. X’ers can order coffee by tapping their phone at the register. They can download books, watch movies and get sports scores instantly.

They want things and they want them fast, says Rose, who has been known to order movies while waiting for restaurant take-out.

“Our generation is so in need of immediate gratification,” he says. “We buy stuff. …We’re surrounded by it: iPads, iPhones, big TVs, computers, new cars, clothes.

“Because of the immediate gratification, we’re not saving enough money. We’re not even close to it.”

Part of the lag in savings comes from getting a slow start on earning because of extending education, he notes. People are taking longer to graduate, whether it’s because they can’t fit in all their requirements in four years or they have to alternate working with going to school to keep up with rising tuition.

A survey by U.S. News & World Report last year found only 40 percent of full-time college students were graduating in four years.

“By the time you start making money, you’re in your late 20s,” Rose says.

And just as X’ers, who are now in their 30s and 40s, hit peak earning years, they ran smack into the housing disaster and worst recession since the Great Depression.

But there’s also gross underestimation or denial when it comes to knowing how much to save, Rose says.

Where Rose parts from his Gen X peers is his clear view of what it will take to retire. It’s his job to know that in his role as a financial planner for the company he founded, Alliance Wealth Management in Carbondale. Retiring comfortably at 60 is just not reality anymore for most X’ers, he says.

Underestimating what it will take to retire is something he sees every day from Gen X clients.

“I think they are oblivious,” Rose says. “How many people are in this sad belief that they’re doing enough? How can they retire at 50 or even 60 when they have $100,000 in their 401(k)? … You’ll survive for 2.5 years and then you’re done.”

Rose works with many blue collar clients in southern Illinois ready to retire and says, “If they have $700,000 to a million [without including home equity], obviously that’s a good starting point.”

But that’s with pensions and 401(k)s boosted by company matches and Social Security that cushion the lifestyle that they want, he says.

Gen X’ers are watching those benefits fade.

Darren Lubotsky, economics professor at the University of Illinois Urbana-Champaign, says while Gen X’ers’ fears that Social Security benefits won’t exist may be exaggerated, it is likely that the system will not be as generous as it was to earlier generations.

A second issue, he says, is that most young people will work their entire career in jobs that either have no pensions or have defined-contribution-style pensions. Defined-contribution pensions mean the employer agrees to contribute a certain percentage to a pension account while the person is employed. The account grows based on the performance of the funds chosen. That system is evolving from pensions where the employer guaranteed to pay a certain amount every month when the employee retired.

“These (defined-contribution) pensions have many advantages, but they do require a greater degree of financial sophistication than many people possess,” Lubotsky says.

With less security surrounding pensions, hopes fall largely to 401(k)s and similar investments. And those continue to be severely underfunded. The median amount deferred from paychecks into employer-sponsored plans is 6 percent, according to a Vanguard study of 2010 data.

“Studies show that if you’re not investing at least 10 percent, then there’s no way you’ll be able to retire comfortably at the age of 60,” Rose says. “Really, 15 percent is where you want to be, bare minimum, and 20 percent is better.”

The 2008 recession did a number on Gen X’ers, and for many of them it meant dipping into savings, according to the nonprofit Insured Retirement Institute (IRI) in Washington, D.C.

Many had to cut back on retirement savings, and nearly a quarter stopped contributing altogether, says IRI CEO and president Cathy Weatherford.

“Another worrisome trend that developed during the recession is what we call 401(k) leakage — that is, early withdrawals from 401(k) accounts. Our research found that 15 percent of Gen X’ers prematurely withdrew retirement funds. This number reached 21 percent among the oldest of the Gen X’ers.”

The recession further disillusioned an already skeptical generation, says author Karen McCullough, who speaks on Generation X and has a Gen X daughter, with whom she wrote The Seven Women Project, and a younger Gen Y son.

That skepticism had roots in the ’80s recession, where kids started to see parents who had had one job all their life being laid off, she says.

“They were seeing their parents disappointed, being let go, getting divorced — it’s a generation that has seen a lot of things not work. And that’s a lot of their mentality. They don’t trust,” she says.

On one hand, it is a generation empowered with technology like never before. They grew up with the advent of the home computer, telecommuting and electronics that let them communicate and do business freely with friends and associates all over the world.

But it’s also a generation that saw the bubble burst, the space shuttle Challenger explode, the savings and loan crisis unfold and deaths mount from the AIDS epidemic. They were starting their families when the Twin Towers fell.

Their skepticism is backed up with historic trends that explain why there’s less money in their pockets, says Ralph Martire, executive director for the Center for Tax and Budget Accountability in Illinois.

The first thing Gen X’ers can expect is to earn significantly less during their primary earning years, based on long-term trends, he says.

“From the end of World War II until about 1980 … the bottom 90 percent of all income earners in America accounted for about 66 percent of all income growth — that’s when we were building a middle class and standard of living was increasing in real terms for everybody. Beginning in 1980 and continuing through ’07 — even before the great recession — that flipped, and the top 10 percent of income earners accounted for about 64 percent of income growth in America, and the bottom 90 percent had to be satisfied with about 36.”

The 90 percent had flat or declining wages for a long period of time and a lower standard of living.

“They will not have the capacity as individuals to save during their primary earning years like their parents were able to save.”

Another thing working against workers in this age group is that health insurance costs are an increasing burden, and currently, coverage is not a given, even for the employed. The numbers covered could be much higher if and when health care reform is implemented.

“Right now, 43 percent of the people with a job do not get health insurance on that job,” Martire says. “With declining wages, more and more workers’ paychecks aren’t keeping up with inflation, and now they have to assume this very significant health care cost.”

A briefing paper by Elise Gould, director of health policy research at the Economic Policy Institute, says the percentage of Americans under age 65 covered by employer-sponsored health insurance eroded for the 10th year in a row in 2010, falling from 59.4 percent in 2009 to 58.6 percent.

There is some good news for Gen X’ers who live in Illinois, and that comes in future tax relief.

Of the 41 states that have an income tax, Illinois is one of only three that exempts all retirement income from taxes. Mississippi and Pennsylvania are the other two. Illinoisans don’t pay income taxes to the state of Illinois on Social Security, 401(k) benefits or pension benefits, even when they’re collecting it.

To understand how Gen X’ers look at retirement, it’s important to look at those who came just before and after.

McCullough says X’ers are “sandwiched between two of the most self-absorbed generations.”

But she says they are closer to boomers than Gen Y in terms of work ethic: They’re more independent, and they had working mothers, unlike many in the baby boom generation. They had to take on more responsibilities for themselves, and often, younger siblings.

They also weren’t governed by Gen Y’s “helicopter parents,” the ones that hover over their every move. Parents of Gen X’ers were so tied up in building two careers and buying homes that they didn’t have the time to micromanage their kids, she says.

“They like to buy their own cars, buy their own homes without a Realtor — they want to look online and do the research. They feel like they can handle their own lives,” she says.

The IRI points out that many Gen X’ers could use more help, though, in handling their finances, as evidenced by their report Retirement Readiness of Generation X.

Even though only 16 percent of Gen X’ers overall said they felt very knowledgeable about investing, only 37 percent of married Gen X’ers and 20 percent of single Gen X’ers have consulted a financial adviser, the study found.

Among the findings were these statistics:

  • Only one-third of Gen X’ers are very confident of having enough money to live comfortably during retirement, cover their medical expenses and pay for their children’s higher education.
  • Just 41 percent of Gen X’ers have done the math on how much money they will ultimately need to save. And, among those who have saved, half have put away less than $100,000. Thirty percent of those polled said they had saved less than $50,000.

The report found that there were stark differences between male and female Gen X’ers when it comes to confidence in investing.

Fifty-four percent of female Gen X’ers rated themselves as having little to no investment knowledge, compared with 37 percent of male Gen X’ers.

McCullough says retirement just isn’t something that’s top of mind for Gen X’ers, probably because they’re having enough trouble figuring out how they’ll climb out of this recession and put their kids through college.

There’s plenty of worry to go around in this age group, she says.

“This is a generation [that] when they were 10, 11 years old, we took their [Halloween] candy to the hospital for X-rays and we started putting missing kids on milk cartons, so we were trying to scare them, and we did,” McCullough says.

“Now they are worried there won’t be any Medicare, and there won’t be. There won’t be Social Security. I think they are coming into a world where baby boomers thought tomorrow would be a better day. This generation isn’t quite so sure.”

Marcia Frellick is a Chicago-based free-lance writer.

Illinois Issues, May 2012


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Challenger explosion
The space shuttle Challenger exploded in 1986, when members of Generation X were coming of age.

button with red AIDS ribbon
The AIDS epidemic was starting when members of Generation X were growing up.

Twin towers on 9-11
Generation X’ers were starting to raise families about the time of September 11, 2001.