Members of Generation X will begin turning 60 this year. Generation X (born between 1965 and 1980) is a diverse generation, with people 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 the same mistakes typical among your peers.
Creating Your Budget
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 likely been collecting paychecks for the past 40 years, but soon your savings and retirement accounts will be some of your sole sources of income. You may not have thought about whether that’s enough to last you your whole retirement. If many members of Generation X were to examine their spending habits, they would discover that their retirement income strategy can’t actually maintain their current lifestyle.
Withdrawals Start at Age 59 1/2
With pensions becoming increasingly scarce, Generation X is projected to rely mostly on employer-issued retirement plan accounts like 401(k)s to support them 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 payments and how much to withdraw is challenging. If you take too much too soon, you may run out of money to spend in retirement. Working with an experienced financial advisor is one approach to determining the appropriate withdrawal strategy.
Taxes Might Go Up in Retirement
Conventional wisdom holds that retirees have lower incomes, and therefore, pay lower taxes, after leaving the workforce. However, this may not be true for everyone. Many Gen X workers have money saved in tax-deferred traditional 401(k) and IRA accounts. These accounts provide a tax break, but withdrawals are still subject to standard income taxes. If you want to lessen the burden of taxes on your retirement income more effectively, you might want to think about using life insurance as a source of tax-free income. Yes, that’s an option, and it may be the right fit for you. Contact us to learn more.
When to Start Social Security?
Unmarried widows and widowers may be eligible to receive Social Security survivor benefits at the age of 60. However, for the majority of us, 62 is the earliest age to receive a monthly Social Security benefits.
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 benefits.
Those born in 1960 or after reach full retirement age at 67. You will receive your full Social Security benefits at that age, without any decrease. However, it goes further; you earn an 8% boost for each year you wait after that, capping at age 70. So, if possible, deferring Social Security benefits until you reach the age of 70 may be a good option.
Medicare Won’t Cover All Expenses
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 in 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 workers may be less afraid of investing in the stock market than others. Their generation gained much of its riches from the stock market. As a result, they may choose to leave their savings there even during retirement. When done right, investing in the stock market for retirement is not always a bad idea. But you need to be careful. You also don’t have time on your side anymore: you can’t just wait for your money to recover from a loss. So, it’s best to keep at least some of your money in “safe money” accounts, and when you do invest, do your research and work to prevent losses (something we may be able to help you with!)
Estate Plans Are a Priority Now
As they get older, many Gen Xers fail to update their estate planning documents. As you prepare for retirement, assess whether your initial goals still reflect what you want. You may also have new assets or heirs. For example, you may have a new spouse, children, or grandchildren. 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 off directly to the people you chose.
*Source: U.S. News
