In 2025, members of Generation X will start to reach age 60. Gen X encompasses a diverse spectrum of individuals, including those from different socioeconomic backgrounds. They’re commonly definined as those born between 1965 and 1980. Despite this diversity, however, they all tend towards the same few retirement income mistakes. Here are some things to keep in mind if you’re a member of Generation X who will soon be retiring in order to keep you from making those same mistakes that are typical of your generation.
Budgeting In Retirement
Many older members of Generation X struggle with budgeting,* despite the fact that it’s so important, even more so in retirement than it is throughout working life. Members of Generation X must be ready to make tough choices as they get ready to retire. After around forty years of receiving paychecks from work, your retirement and savings accounts will soon be som of your only sources of income. It’s possible that you haven’t thought about whether you’ll have enough money for retirement. Many Gen Xers would discover that their retirement income strategy is insufficient to sustain their current standard of living if they were to look at their spending habits.
Retirement Money Can Be Withdrawn at Age 59 1/2
Given the growing scarcity of pensions, Generation X is probably going to rely mostly on employer-issued retirement plans like 401(k)s to fund them in retirement. You can take money out of one of these accounts without incurring penalties after you reach age 59 1/2. It can be challenging to decide how much to withdraw and when to begin distributions. You run the risk of running out of money for retirement if you take on too much too soon. One technique to determine the optimal withdrawal strategy is to consult with a financial professional.
Taxes Could Go Up in Retirement
Common sense would tell you that retirees have lower incomes, and therefore, pay lower taxes, after leaving the workforce. But depending on what kind of retirement account you have, this isn’t true. Many Gen X workers have their money saved in tax-deferred traditional 401(k) and IRA accounts. These accounts don’t tax your interest, but withdrawals are still subject to standard income tax. If you’re looking to further lessen the burden of taxes on your retirement income, you might want to think about utilizing life insurance as a source of tax-free income. Yes, that’s an option, and it may be the right one for you. Contact us to learn more.
When to Begin Social Security Benefits?
Unmarried widows and widowers may be eligible to claim Social Security survivor benefits at age 60. However, for most of us, 62 is the earliest age to receive a monthly Social Security benefits. While claiming benefits at age 62 is a common choice, there are some drawbacks. Starting Social Security early could result in a permanent reduction of up to one-third of your monthly benefit. Those born in 1960 or later have a full retirement age of 67. This means you will receive your full Social Security benefits at that age with no reduction. But, it goes further; you receive an 8% increase for every year you wait. The maximum amount being at age 70. Therefore, waiting until you are 70 years old to begin receiving Social Security benefits might be the right choice for you. The best time to begin claiming benefits varies from person to person, however, as everyone’s situation is different.
Medicare Won’t Cover All Health Care Costs
Gen Xers can begin Medicare at age 65, even though they do not reach full retirement age until age 67. Generally, Medicare enrollees must pay a copay, coinsurance, and deductible. Additionally, some services are not included in the program. Most significantly, Medicare does not pay for continuous long-term care expenses, including nursing homes, assisted living facilities, and memory care facilities. To cover those things, people need to have separate coverage, like a life insurance policy with a long-term care rider or a long-term care insurance policy.
Investment Strategies
It’s possible that members of Generation X are less afraid of the stock market than others. A large portion of their generation’s wealth was amassed in the stock market. They might, therefore, choose to leave their retirement funds there. If done properly, investing in the market for retirement is not always a mistake. However, keep in mind that, firstly, you need to do your research, and invest in the right stocks at the right times (contact us about this), and secondly, if you suffer a loss, you won’t have much time to make your money back. In retirement, you’re dependent on your savings as a source of income. So, you should always keep at least some of it in “safe money” accounts.
Estate Plans Are a Priority Now
As they get older, Gen Xers often neglect to update their estate planning documents. As retirement draws near, it’s time to reevaluate whether your initial decisions still suit your preferences. A new spouse, children, or grandchildren might mean adding someone else to your will. Make sure any beneficiary and transfer-on-death designations on individual accounts are up-to-date, and update your will as well. This way, your money and other possessions will get to the right people when the time comes.
*Source: U.S. News
