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What Gen X and Gen Y Can Do to Get Ready for Retirement

What Gen X and Gen Y Can Do to Get Ready for Retirement

While there are signs that hint an economic recovery is indeed reality, worries about retirement have worsened.

A recent Pew study shows that Americans are more worried about their retirement finances than they were at the end of the Great Recession. Nearly 40% of adults recently polled said they were “not too” or “not at all” confident they will have enough income and assets for their retirement, up from 25% in 2009. The biggest anxiety was among people ages 36-60, 53% who said they felt that way. However, the 60-64 year-olds were less concerned, with 34% expressing those fears, and the 18-22 year-olds were even less fearful, with only 27% sharing those sentiments.

What's stoking those doubts? Research from ING offers some insight. In a recent survey of 25-34 year-olds, 52% had an average student debt of $37,100, and 45% had consumer debt of $5,448. Eighty four percent said that something gets in their ability to save, with 36% citing low income as a culprit. While 72% contribute to their employer's retirement plan, 49% contribute 5% or less. Among those 34.5-49, polled by ING, 10% don't plan to retire at all, 14% have not started to save for retirement. Twenty two percent of this group have an average student loan debt of $35,300, 42% have an average of $6,904 in consumer debt, and 72% have an average mortgage of $193,000. Of the 78% that contribute to an employer sponsored retirement plan, 36% contribute 5% or less.

“For the X and Y generation, retirement is especially worrisome. Many bought first and second homes at the top of the market and may have no equity or even worse, negative equity. Combine this with unemployment, underemployment, declining 401(k) savings, uncertainty about the long term viability of Social Security and extended life spans, and you have cooked up a very dark soup,” says John Geenen, managing partner with Waterfront Financial Group.

It's not that they don’t know what they should be doing. “Clients in their 30s and 40s have difficulty taking advice offered because many of them are financially stretched by the cost of raising kids, a weak economy, and in some cases, also having to provide for parents who did not plan well. Clients understand the need to put money away, but find it even more difficult now,” says Gloria Birnkrant, a certified public accountant and partner with NSBN.

The good news for those in their 30s and 40s, while the retirement clock is ticking, there's still time.

Save now

“If you haven't been funding a retirement plan of some kind, do so immediately. Put that payment as a priority in your budget, even if it is only a few hundred dollars a month. Take full advantage of any 401(k) matching plans that your employer might have. At least, put in the amount necessary to get the full employer match. Do more if you can,” says Birnkrant.

If you're already contributing to retirement savings, ramp it up a notch. Don't bet the farm on your 401(k) though. “A 401(k) is not the only way to accumulate for retirement,” says Ron Campbell, president of Campbell Financial Services.

Think like a CEO

The traditional safety net of pensions and lifelong employment no longer exist for most people. Those who are in the workforce need to understand that rules of money have changed over the last few decades, points out Ted McLyman, author Money Makes Me Crazy. “You have to think of yourself as self-employed and create your own retirement package instead of relying on employers to create it for you. There are a variety of investment vehicles such as IRAs and annuities that can help you reach your goals.”

Learn from experience

Use the experience of the Great Recession as a motivator to take prudent financial steps – like having an emergency fund. “Use this as a lesson to not take on too much risk by overextending on home purchases or making investments that carry too much loss potential versus your goals,” says Karen Goodfriend, a principal of KK Wealth Advisors.

Assess your career

People in their 30s and 40s may live well into their 90s and beyond, acknowledge that time horizon. Chances are, you'll work beyond 65. Ask yourself whether you're in a career that you enjoy and are willing to be employed possibly into your 70s, says Goodfriend. “If not, think about making a change now or in the future, as a 'second act'. Sometimes I see people dislike their jobs and can't wait to retire in their 50s, and they could be better off financially and emotionally by finding something they truly enjoy and by working longer they will enjoy a better retirement later.”

Minimize debt

Analyze your debts and come up with a strategy for whittling it down in a comfortable fashion. “Refinance your mortgage, maybe from a 30 year to 15 year, if you're in a position to do so,” says Etta Money, president of InCharge Debt Solutions. Grow up. “You are middle-aged, live within your means.”

Be prepared

Not only do you need an emergency fund, be sure you are well insured – covered for life, auto, health, home and disability. It's not too soon either, to begin putting together legal documents like wills, trusts and health care proxies, says Michael Fliegelman, president of Strategic Wealth Advisors Network. “The greater the protection, the more confidence you'll have because the risk of significant losses are reduced or eliminated.”

Also think ahead and plan for your children's education. “If you wait too long, you may be forced to borrow from your retirement to pay for your kid's schooling,” warns Money.

If you want to “test drive” what you think your retirement budget might be, take three months and practice living off of it. This will allow you to see how much you will need to have when it comes time to retire and will help you evaluate how much to save, advises Derrick Kinney, a principal with Derrick Kinney & Associates.

Put your priorities first

There is no standard formula for the perfect retirement; everyone is unique. Says McLyman, “Your retirement strategy should be based on your values, your money temperament (how you think and feel about money) and your learning style. Allow these factors to form the foundation for your action plan – the specific financial behaviors you take on a daily basis that will allow you to live happy now and retire successfully down the road.”

Edit 12/2/12: Corrected a few typos.

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Anonymous   |     |   Comment #1
Retirement is no longer what it used to be. Today’s generations are not all that concern about retirement as you suggested. My son for example thinks that everything will come his way without work and sacrifice. My daughter thinks that she will inherit everything we have worked for and saved and she is also not concerned about retirement, she is 40 and has $0 in savings and is as happy as it comes.
The rest of the generations thinks that the government will take care of them and they are in a mentality of entitlements. Your view is not what the rest of the people thing about the retirement.
Anonymous   |     |   Comment #2
Slightly off topic.  Why are there so many typos and grammatical errors in the article?  The article has very sound advice, however I find myself pausing every other sentence to try and figure out what the author is trying to say.  It is very distracting to do this reading "stop-and-go".
Anonymous   |     |   Comment #3
It's hard to save more when your pay doesn't increase but cost of everything is going higher (I live in CA, high state income tax, high sales tax of 9% and still trending up, living cost is going up too). Even if I put max into 401K and try to save as much as I can, I still feel no confidence in living a good life when retiring. the main concern is health insurance cost, and medical payment/cost even with medicare. And probaly don't have much money left for travleing etc, except for basic life expense. Though about leaving CA but my whole family is here...

401K is not making money. 2008 wiped off all my 401K capital gain, and even if the market is back, 401K did come back as much. It feels like I've put money away for 15 years without 0% interest. I would have more money if I put the money in CDs. And the funds I have are comparatibly good performance among the 401K choices given by the company. The 401K tool tells me that I need to save more than my income (pre-tax) in order to have my current life style (assume after 20 years w/ inflation 3% per year, my current life style will cost 70% of my current income). What a joke!

decades   |     |   Comment #10
#3.... not from cali but all my workmates say the same thing , that they should have had there  401kmoney in cd's.

 my 401k adviser always marvels how my graph of savings goes up from left to right at a 45 degree angle . Then he says geez i guess you sat out all the volatility ,just keep doing what your doing .
Anonymous   |     |   Comment #13
#10.........I'm sorry but one would have to be severely mentally challenged to have their entire 401k money (of all things) in CDs. The entire premise of a 401k is based on a long term view that will survive market volatility & outpace inflation.  From the standpoint of a long term financial plan, having your entire 401k in CDs is almost as good in insuring long term mediocrity as being an 18 year old single mother with no prospects of future education. 
Paoli2   |     |   Comment #18
#13:  I will add to #17's with a DOUBLE WRONG!!  The only money I ever lost was NOT in CDs!  When my DP's company decided to "early, early retire him and a big group of employees in their late 50's was I thrilled I had kept our company plan in just their money market all those years!  However, to be truthful, the money market made a lot more than the CDs we are getting now and it was matched by the company so that compounded earnings and we had NO RISK worries.  Maybe the people counting on their stocks etc. to make them millionaires are the ones who are "mentally challenged".    We all have a right to what we want to do with our funds and our investment choices does not make us more stupid or more intelligent than others. 
Anonymous   |     |   Comment #4
to Anonymous #3, I think you meant to say "401K did NOT come back as much", from the context. A common typo for online post.
Anonymous   |     |   Comment #5
I live in California now but I've lived all over the world & I'd love to know why Americans appear to talk about retirement more than the rest of the world combined. Try going to Europe or Asia & strike up conversations with members of Generation Y about retirement & you will get looks ranging from are you serious, are you stupid to are you insane...............Now perhaps they think about or talk privately about it, I don't know. But they dont devote all this bandwidth to it.  
Anonymous   |     |   Comment #6
Anon #1 when it comes to your kids you reap when you sow.
Paoli2   |     |   Comment #8
#6 & #7:  It's "you reap WHAT you sow" but that is not always true in the case given.  Parents can be the best example of financial prudence and follow all the rules of a good saver but our kids are living in a world where they see saving is a joke and savers are treated very badly by our government.  They don't seem to have confidence in their futures so the attitude seems to be to enjoy today while they still can.  Who can read the news or listen to tv and feel great about tomorrow?  If you can, maybe you are the one living in a dream world.   Don't blame the parents.  Put the blame where it really belongs.
Anonymous   |     |   Comment #7
And I always thought the expression was...........you reap WHAT you sow!
Scott   |     |   Comment #9
to Anonymous #3, I remember reading some article a few years ago that compared going for the best CD rates Vs the Market over a long period and they came out pretty equal. Pretty much why I have less than 10% of my portfolio in the market and rest I use to find the best bank deals, even if I come out a little behind the great nights sleep I get not worrying is worth the trade off. I would get the heck out of CA, things probably only get worse for you there. I retired 3 years ago at 48 and luckily thanks partially  to this site I still have a few years left on some good CDs, if things don't improve in 3-4 years I might get out of expensive MA and move south
Wil   |     |   Comment #11
#9: Don't count of the South (or, for that matter, New Hampshire) being much better for long. If too many people move from expensive MA, or expensive NY, NJ, CT, RI, etc., and yet retain expectations of a veritable laundry list of government services akin to the "big-government" states they're fleeing, and demand those services, then they will find that the South will soon become just as expensive as "expensive MA."
Wil   |     |   Comment #12
Correction: "Don't count on the South . . ." Wish I could edit these posts to correct overlooked typos!
lou   |     |   Comment #14
California is definitely a tough place to retire. We have the highest income and sales taxes in the country and the cost of living (at least on the coast) is extraordinarily high. Given the results of the last election in Ca, it is not going to get better anytime soon.
Dave   |     |   Comment #15
There's a lot of truth in this article. Being on the breakpoint between age 35-36 myself, I know that my retirement will not be comfortable if I don't take the steps to make it that way, and take them now. My best advice for all of us professionals in that age range is to invest in a company-matched 401(K) plan, as well as have your own outside plan. Saving a little bit now, over time, will add up. Waiting until your 50 years old will be disatrous at best.

Editor, www.thejeffriestube.com

decades   |     |   Comment #16
(hangs head in shame)
Anonymous   |     |   Comment #17
To #13, WRONG!

My entire retirement account is tied up in a laddered CD portfolio.  Granted, the interest it is producing is gradually decreasing as the CDs mature and roll over, but I have no stock market anxiety, no sleepless nights and still enjoy a comfortable retirement.  If that's being severely mentally challenged, as you put it, then I am very comfortable having that handicap.  Trolling are you?
Anonymous   |     |   Comment #19
To #5 the reason people in Europe are not worried about retirement is that it is still generally provided for them by the governmet. They do not have to save, so they don't worry about saving. Only in America, the home of the free, have we been given the freedom to hose ourselves in retirement by not saving enough.
Anonymous/Paoli   |     |   Comment #20
#19 :  From what I understand the people in Europe get nothing for "free".  They pay for everything through very high taxes and the government just takes care of them.  Kind of what we seem to be becoming in the US except I don't think we are ready to accept such high taxes at this time.  We have to be programmed to want to be an "Entitlement" society first and too many of us prefere to do it "our" way. 
Scott   |     |   Comment #21
To #13, go ahead and call me mentally challenged then, I don't care. Never even had or really even know what a 401k is? I do have an IRA which is all CDs, they started IRA's right when I turned 18. My only market position is an Annuity that my company was funding when I was working, and it's about 5% of my entire portfolio, rest is cash. But have done very good chasing rates over the last 20 years and big part of the reason I was able to call it quits at 48. Great thing is with no W2 income anymore and a lot of deductions I pay almost 0% tax on my interest income so does help with the lower rates we are seeing.
Anonymous   |     |   Comment #22
Scott......If you truly dont know what a 401K is then the mentally challenged label is one that you have already tagged on yourself. 
Scott   |     |   Comment #23
I know basically what it is but not the details. I have worked one place my entire life, my own company, and it was not something we offered, so never looked into them and glad I didn't. All i know is every single year my savings had growth while the Annuity goes up and down like a freaking roller coaster
Anonymous   |     |   Comment #24
anonymous #1 hit the nail on the head!!!
zelle   |     |   Comment #25
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