Can Generation X retire?

If you’re a member of Generation X, retirement may be a reality for you. But are you ready?

Generation X is currently aged between 44 and 59 – a stage in life when people start to have their retirement plans crystallised, says Claire Matthews, an associate professor at Massey University.

“It starts to become more real… 50 is when it really starts to come into play.

“When you’re young, you know you’re going to retire, you know you’re going to live to 65 and all these things are going to happen, but it all seems so far away. At 45 and especially 50, people start to think about it seriously.”

Are you on the right track?

The first thing many people ask themselves is whether they are on the right track and whether they will ever retire. The Retirement Council study found that only 38% of people aged 45 to 54 said they expected to be financially comfortable in retirement.

Matthews said Gen X is more like a “sandwich generation” than some previous generations — caught between parents who live longer and children who may have children later in life.

Figures from actuary Melville Jessup Weaver show the average KiwiSaver balance for 46-50 year olds is $43,600. The average balance for 51-55 year olds is $50,446 and the average balance for 56-60 year olds is $55,632.

According to Sorted, a 51-year-old earning $100,000 a year could have $160,369 saved by age 65 if they had $50,000 in KiwiSaver now, with 3 per cent saved plus their employer’s 3 per cent in a balancing fund.

But is that enough?

If you want a lavish lifestyle, Matthews’ work suggests that may not be the case.

Every year, she produces a study outlining the income needed to live a “simple and modest” life or a “selective” life (with a few extras) in cities and provinces. The study is based on data from a household means survey, which is then adjusted for inflation in the intervening years.

Her most recent update showed that a two-person household living in a metropolitan centre and leading a “choice” lifestyle would need a lump sum payment totalling $969,000 to meet living expenses, in addition to the pension.

To live a “modest” lifestyle, the couple would need to shell out a total of $235,000.

A single person in a metropolitan area who lives a sophisticated lifestyle would need $717,000, while a single person who lives a simple lifestyle would need $355,000.

Shirley McCombe, manager at Bay Financial Mentors, said beyond the estimated spending of current retirees, Generation X is incurring costs in other ways.

“The current cost of living crisis means children are spending more time at home with their Gen X parents. Gen X parents often move in with them and need financial support.”

How do you get there?

Saving for retirement is one area where compound interest really pays off. The earlier you start, the less you’ll need to save to reach your goals.

If you’re a Gen Xer just starting out, or realize you’re falling behind where you should be, you may need to significantly step up your savings efforts.

The same Massey report calculated that a single-person household in an urban area would need to save just $106 a week starting at age 25 to live simply, but that figure would have to rise to $394 a week starting at age 50.

To live a meaningful life, they would need to save $221 a week starting at age 25, or $806 starting at age 50.

If they are a lifestyle couple, they will need $211 per week from age 25 and $806 per week from age 50.

Likewise, if the 50-year-old making $100,000 were to raise his contributions to 10% and switch to a growth fund, his savings could grow to $313,000 — roughly the amount needed to be single and live a simple life in the city, according to Matthews.

Mr Matthews said the advent of KiwiSaver meant Generation X was likely to be in a better position than baby boomers when it came to saving for retirement.

“Baby boomers have other advantages, but in terms of retirement savings, Generation X have had KiwiSaver for 17 years.”

She said those worried about saving for retirement can talk to a financial advisor or use a tool like Sorted’s calculator to figure out what changes might be needed.

So what about home ownership?

Home ownership is another important pillar of retirement planning, as owning a freehold home can provide important security and reduce costs in retirement.

The data shows that at ages 45 to 49, 77.9% of baby boomers own homes, compared to 70.3% of Generation Xers.

But Infometrics chief forecaster Gareth Kiernan said some buy-to-let appeared to occur later in life as people inherited money from their parents or had more disposable income after their children left home.

“At ages 45-49, the homeownership rate for baby boomers was 6.4 percentage points (ppts) lower than for the Silent Generation at the same age. Fifteen years later… the gap had shrunk to just 2 ppts.

“When we compare homeownership rates among younger generations, we see similar trends, but likely with different drivers. At ages 30-34, the gap in homeownership rates between Baby Boomers and Gen Xers was 17.6 percentage points, but by ages 45-49, the gap had narrowed to 7.4 percentage points.”

He said this could be due to people settling down later, but that meant they were carrying a mortgage for longer, as well as having the financial responsibility for children later in life.

Gen Xers also may not receive the same windfall their parents inherited, he said.

“As people live longer, the likelihood of significantly improving one’s financial situation through inheritance becomes greater, so the homeownership gap we’ve seen narrow among the Silent Generation and Baby Boomers by age 64 may not be seen to the same extent among Generation X.”

McComb said Gen X homeowners are also often asked to help their children own their own homes.

And debt…

Getting out of debt may be another major concern for Gen Xers.

McComb said Gen Xers were the first to take out student loans, making it harder for them to save for a home and retirement. Many also often have children to support so they don’t have to take out student loans themselves. The Retirement Council found that 35% of Gen Xers still owe more than $100,000, much of which is likely related to mortgages. Nearly 2% of active student loan borrowers are over 50 years old.

She said financial coaches have come across people who are trying to provide for their children and grandchildren while they themselves can barely make ends meet.

“The kids often don’t contribute anything, while the clients go deeper and deeper into debt.”

Generation X: 50 pieces of art from the Chartwell Collectionopens at Te Papa on Saturday, July 27 and runs until October 20.

Learn more about Generation X

X-plainer: Who are Generation X?

From lazy to old-fashioned: What the data tells us about Generation X

The X Factor: The generation that quietly took over parliament and the boardroom

What Gen X women need to know about their bodies