Generation X will begin turning 60 years old this year, in 2025. This generation, generally defined as those who were born between 1965 and 1980, all tend to encounter the same few problems when it comes to retirement income. If you are a member of Generation X who is about to retire, here are some things to keep in mind. These tips will hopefully help you avoid making the same mistakes that others in your generation may have made.
Budgeting
While working, a budget is important, but it is even more important after retirement. However, many older members of Generation X have had difficulty with budgeting* historically. As members of Generation X get ready to retire, they need to be ready to make tough choices. For the last 40 years or longer, you have been receiving paychecks, but now your savings and retirement accounts will be among your only sources of income. You might not have thought about whether or not you will have enough money to support yourself and uphold your standard of living in retirement. If many members of Generation X were to look at their spending habits, they would discover that their retirement income strategy is insufficient to maintain their current way of life.
Retirement Funds Can Be Withdrawn at 59 1/2
Generation X will probably depend mainly on workplace retirement accounts, like 401(k)s, for their retirement funding. You can take money out of one of these accounts without being penalized as soon as you turn 59 and a half years old. On the other hand, it can be challenging to figure out when to begin distributions and how much to take out. If you withdraw too much money too quickly, you might run out. One way to determine the most effective withdrawal strategy is to collaborate with a financial advisor with a lot of experience.
Taxes Might Go Up For You in Retirement
It is generally believed that retirees earn less money and, therefore, pay less in taxes after they stop working. But this may not apply to everyone. A lot of Generation X employees have saved money in traditional 401(k) and IRA accounts that are tax-deferred. These accounts allow you to deduct your contributions from your taxable income. However, any money you withdraw is subject to income tax. If you’d like to lessen the burden of taxes on your retirement savings, you may want to consider using life insurance as a source of tax-free income. Yes, that’s something you can do. Contact us for more information.
When Should You Start Social Security Benefits?
Generation X widows and widowers who are not married may be able to receive Social Security survivor benefits when they turn 60. However, for the majority of people in this generation, the earliest age to start receiving a monthly Social Security payment is 62.
Although it is a common choice to claim benefits at the age of 62, there are some disadvantages to doing so. If you begin receiving Social Security benefits before the official start date, you may lose up to one-third of your monthly benefit, permanently.
If you were born in 1960 or later, you will reach full retirement age at 67. This means that you will receive the full amount of your Social Security retirement benefits without any deductions if you start withdrawals at that age. However, it goes even further. For every year you wait beyond that, you receive an 8% increase, up to a maximum age of 70. Therefore, if it is feasible, it might be advantageous to begin receiving Social Security benefits at the age of 70.
Medicare Won’t Cover All Healthcare Costs
Even though Generation X does not reach the full retirement age until they are 67 years old, they can begin using Medicare at 65. This government healthcare program provides extensive coverage, but it does have some restrictions. Most people who receive Medicare benefits are required to pay a deductible, copay, and coinsurance. In addition, the program does not include some services. Medicare does not cover the costs of ongoing long-term care, such as those incurred in assisted living, memory care, or nursing homes, which is the most important thing to note. To cover those things, individuals must have their own insurance. For example, long-term care insurance policy or life insurance with a long-term care rider.
Investment Strategies
Generation X members tend to not be as scared of the stock market as other people are. The stock market was the source of most of the wealth that their generation acquired. As a result, they might choose to keep their retirement savings there. If done correctly, investing in the market for retirement is not necessarily a bad decision. However, you don’t have time on your time anymore. You need your savings. You can’t simply sit around and wait for your savings to recover from a loss, since they’re one of your only sources of income. Therefore, it is advisable to keep a portion of your funds in “safe money” accounts. And for the money that you do invest, make sure to do your research and proceed with caution.
Estate Plans Are a Priority Now
As they get older, members of Generation X often neglect to update their estate planning documents. Now that you’re to retire, it’s a good time to think about whether your original plans still match what you want. You may also have new assets or heirs, such as a new spouse, children, or grandchildren. Make sure that all beneficiary and transfer-on-death designations on individual accounts are current, in addition to updating your will. This way, when the time comes, your money and possessions will be delivered directly to the people you intended.
*Source: U.S. News