The MTV generation is on the cusp of retirement—but many in Gen X (born between 1960 and 1980) say they aren't ready yet. According to a recent survey, Gen X feels the least confident about retirement than any age group in the workforce today.1
If that sounds like you, don't stress. There is still time to get prepared and live the life you want in retirement. There are many different paths to retirement and there isn't one right answer for everyone. But being informed about your options can help you feel confident in the decisions that make sense for you.
Here are 5 steps that can help you get ready now.
1. Understand your annual expenses
Spending less than you earn and knowing (to some extent) what you spend money on are the keys to saving money. If you aren't already a devoted budgeter, the thought of examining every single purchase can be daunting. The good news is that there are several websites that can help you budget and easily track spending and saving that are even fun to use, including Fidelity Full View®. These types of web experiences let you categorize each expense and then you can quickly and easily see where your money is going. If you want to make changes to your spending, you have all the information you need.
Why this is important: Knowing how much you spend can be critical to retirement planning. The amount you're aiming to save for retirement will be a multiple of your estimated expenses in retirement. To learn how to estimate how much you might need to save for retirement, how to make your savings last, and how much to save each year, read Viewpoints: 4 rules for retirement savings.
2. Save at least $1,000 for emergencies
Emergencies and unexpected expenses can blow your budget for the month or even the year. A savings account earmarked for emergency expenses can be a life saver. If you don't already have emergency savings, consider starting with $1,000. Try to keep going and aim to eventually save enough to cover 3 to 6 months of essential expenses.
Read Viewpoints: How much to save for emergencies
3. Pay down any high-interest debt
Credit cards are convenient and even rewarding. But paying off credit card bills can be another story. It can take a long time and cost a lot of money. You're stuck in a cycle of paying for past purchases rather than planning for the future. So it can make sense to pay down debt with a sense of urgency.
There are 2 strategies to consider if you have multiple loans and credit cards. The snowball method starts with the lowest balance and the avalanche method goes after the highest interest rate—and both can work. Read Viewpoints on Fidelity.com: The debt snowball method vs. the debt avalanche method
4. Save in tax-advantaged accounts and investing for growth potential
A tax-advantaged account is one that offers tax-deferred or tax-free growth. For retirement, examples of common tax-advantaged accounts include workplace retirement plans like 401(k)s and 403(b)s. There are also individual retirement accounts, or IRAs. Even health savings accounts can be used for retirement saving. For Fidelity's suggestions on how to use these accounts, read Viewpoints: How to max out your retirement savings.
If you're confused about the type of account that may be right for you, consider calling Fidelity for help or answer 2 quick questions to help us find the right account for you.
The percentage of your income that you're able to save is known as your savings rate. Fidelity suggests saving 15% of pre-tax income for retirement including any profit sharing or employer match—but that number may be higher or lower depending on when in life you began saving. Your savings rate is a key determinant of when you will be able to retire.
To calculate your savings rate, add up the amount you save each year, including any contributions from your employer. Divide that number by gross income to get the percentage of income you save each year. Increasing that number by just 1% can be powerful.
Investing for growth potential can be almost as important. By investing in stocks and other investments that have historically offered the potential for growth, you may earn a rate of return that allows your money to grow more quickly than it otherwise would, and you may hit your goals sooner than you would otherwise be able to.
Read Viewpoints: The benefits of investing for growth and How to plan for the worst and stay invested
5. Decide if your savings are on track to provide the income you need,in addition to any other income you'll have like pensions or Social Security. For a quick estimate, if you know what your annual income is today, assume you'll spend about 80% of the income you will be making before you retire every year in your retirement—that's known as your retirement income replacement ratio. So, for example, if your estimated preretirement income is $90,000, plan on spending about $72,000 annually in retirement. Read Viewpoints on Fidelity.com: How much will you spend in retirement?
Fidelity's free planning tools can also help you easily gauge whether you're on track or if you may need to adjust. If your savings are behind where they need to be for your plan—don't worry, you have options.
Saving more can help bolster your financial security.
- Working a few extra years can give you more years to save, more years for your savings to potentially grow, and fewer years of retirement to pay for. Read Viewpoints: When can I retire?
- Ensuring that you are investing appropriately for your goals and time frame can help make sure your savings have the chance to grow.
- Working with a financial professional could give you deeper insights into how much it will take to reach your retirement goals.
For extra help, consider these tips for getting your finances on track: 5 small steps that can make a big impact
And remember, your expenses aren't set in stone. Read Viewpoints: How to spend less in retirement
It's never too early—or too late—to plan for retirement
Many in Gen X may have 15 or even 20 years until retirement while others will get there sooner. Even with many years to go, it can make sense to give some thought to how you plan to keep your cash flowing in retirement. There are many options, including a sustainable withdrawal strategy or annuities. This aspect of retirement can be tricky. Your retirement savings represent a whole life's work so taking the time to understand your options makes good sense. Fidelity suggests 3 essential building blocks for retirement income plans. Combining them can provide a combination of growth potential, guaranteed income,2 and the flexibility to adjust as your needs change, or life throws a curveball.
We believe a solid retirement income plan should provide 3 things:
- Guarantees to ensure core expenses are covered
- Growth potential to meet long-term needs and legacy goals
- Flexibility to refine your plan as needed over time
When it's time to make the leap from working to retiring, you'll be prepared. With the oldest members of Gen X turning 60 this year, it's the perfect time to solidify retirement plans. No matter where you're starting from, there may be a lot you can do to protect your financial future and retire when you want.
