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Four Steps Gen X Can Take to Start Preparing for Retirement

This article is more than 8 years old.

When most people talk about retirement, Baby Boomers are the primary demographic that comes to mind. After all, nearly a quarter of Americans were born between 1946 and 1964 -- the typical definition of the Baby Boom generation. That’s more than 75 million people.

But Gen Xers (typically described as Americans aged 35 to 49) are close behind the Baby Boomers in terms of age. Today, many of them are closing in on 50. It’s high time Gen Xers start focusing on retirement and their retirement goals as well.

But a new study by Northwestern Mutual found that Gen X has some work to do. Of four generations surveyed in the study, Gen X was found to have the poorest financial habits. In addition to comprising the majority of “informal” planners, Gen X also has more spenders than savers compared to other generations and was the least likely to have more savings than debt.

The Northwestern Mutual survey also found that two-thirds (66 percent) of Gen Xers expect to have to work past traditional retirement age due to necessity, with 2 in 10 believing they will never retire. Meanwhile, the vast majority (82 percent) of Gen Xers who anticipate needing to work past the age of 65 feel they will need to do so because they will have insufficient retirement savings.

In addition, despite citing “insufficient savings to retire comfortably” as a leading financial fear, one third of Gen Xers (34 percent) said they do not know how much income they need to retire and nearly half (47 percent) have not discussed retirement planning with anyone. Gen X is less likely than any other generation —even Millennials—to have sought guidance from an advisor.

The good news is, it’s not too late to turn things around. Here are four steps Gen X -- or anyone -- can take to get started planning for retirement:

Know How Much You Will Need

Determining what you’ll need is critical to forming a retirement plan that will work for you. But doing so is complicated because there are so many variables — some known, others unknown — that can shape the answer, sometimes dramatically. To calculate your retirement “budget,” remember it’s not necessarily about what you are making today; it’s about what you’ll spend as you transition into retirement, combined with your retirement lifestyle.

Know Where the Money Will Come From

Sources of retirement income can range from Social Security benefits to qualified or non-qualified retirement plans, to personal accounts. Together, these elements make up the “three-legged stool” -- the terminology often used to describe the three most common sources of retirement income. Taking each of these into consideration can help you determine your overall expected benefits in retirement. A potential “fourth leg” of the stool should also be taken into consideration: part time work.

Keep Up with Inflation

When planning your income needs, be sure to keep the impact of inflation in mind. To offset inflation, your income goal cannot remain level, but must increase each year. Inflation decreases purchasing power over time and erodes real savings and investment returns. Many investors fail to realize how much impact inflation can have.

Don’t Forget About Healthcare Planning

Unexpected medical expenses pose a big risk to retirement planning. Further, health care costs are often overlooked — or underestimated — by pre-retirees. Although a healthy lifestyle and good genes can help, it is a fact of life that as we age we need more medical care. Therefore, proper health care strategies should be considered in the overall retirement planning process.

Planning for a financially secure retirement is not as overwhelming as it may first seem. And though you may feel you are behind in planning, the good news is that deficit can often be overcome if you address it sooner than later.

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