Generation X Lacks Confidence in Social Security and Pensions

Armen Hareyan's picture

Retirement Plan

Members of Generation X by and large understand that Social Security and pensions may evaporate by time they leave the workforce and instead are looking to themselves to fund their retirement, suggests a new poll conducted by Harris Interactive for the American Institute of Certified Public Accountants (AICPA).

"The message is getting through to Generation X consumers about taking control of their own financial futures," said Carl George, CPA, Chair of the AICPA's National CPA Financial Literacy Commission and CEO of Clifton Gunderson LLP. "As a result, they intend to draw on personal savings and investments for retirement, unlike many of their baby boomer elders."

More than half the Gen-Xers surveyed (55 percent) indicated they will rely on savings and investments to carry them through their golden years. Sixty- five percent don't expect Social Security to be a retirement option, and slightly more (68 percent) don't see pensions as a safety net, either. Generation X represents more than 29 million adults born between 1964 and 1980.

"When you're young, you have time and compound interest on your side," said George. "Even small saving steps can go a long way towards building that nest egg." Many employers offer 401k plans as a tax-deferred savings vehicle to help employees save for retirement. Added George, "Gen Xers should take advantage of these 401k plans as soon as possible. The power of compounding interest can have a dramatic effect on 401k savings. And the earlier they get started the better."

As an example, if a 26-year-old employee puts 10 percent of a $25,000 annual income into a 401k plan, that money can increase significantly over the longer term. If the employee continues to contribute 10 percent and the salary goes up by 5 percent a year, assuming the rate of return remains at 8 percent average annual return, then by age 59 and a half, the employee can amass roughly $729,000 before adjusting for inflation. If the employee can wait until age 65 before dipping in, the individual will have saved nearly $1.3 million for retirement.


Basic Steps Gen Xers Can Take To Build Retirement Savings

The AICPA's 360 Degrees of Financial Literacy program has set up a consumer Web site, with hundreds of free tools and resources to help educate consumers about personal finance matters, including retirement. The basic retirement planning steps recommended on the site include the following:

  • Use the Power of Time to Your Advantage. Gen X adults need to make sure that the basic power of interest works for them. That means paying off credit card debt. In general, people are acutely aware of interest on bank earnings, yet they'll pay 16% and not even flinch when using a credit card. Keeping a balance of $1,000 on a credit card charging a 16% annual rate costs $800 in interest over five years. Pay down the debt.

  • Start an Emergency Fund. CPAs recommend that Generation Xers save at least three months' living expenses. The money is a cushion against unexpected events, such as losing a job.

  • Plan Today for Tomorrow's Retirement. Gen Xers should enroll in their company's 401k plan. Most plans offer a menu of funds, from conservative fixed-income to aggressive growth, and let users divide their contributions among them. CPA/Personal Financial Specialists recommend that Generation Xers, given their long investment horizons, should consider putting a sizeable portion of their funds into higher risk/higher return investments in order to grow their funds more quickly.

  • Open an Individual Retirement Account (IRA). IRAs also carry the advantage of being tax-deferred. Explore the current options that best fit your needs.



i heard somewhere that generation x will not get social security when they are old enough to retire, because they were cut off by a law in the 70s. Is this true? is there really a law or is it based more on speculation of the amount the government gets paid int to this program and what they will eventually pay out?