The 401(k) Decision Gen Xers Regret the Most

Gen X is the first generation to have had 401(k) retirement plans available for most of their careers. Additionally, many Gen Xers are currently at the peak of their high-earning years.

However, according to a Nationwide retirement survey, more than 80% of Gen X workers have regrets when it comes to their 401(k) retirement plans. Here is their top regret, along with other Gen X statistics that serve as a warning for younger workers.

The ages of the current members of Generation X

Gen X includes people who were born from 1965 to 1980. That means Gen X is primarily made up of people who are between the ages of 46 and 61. Many people in Gen X are thinking more about retirement because they are in the later years of their career and nearing typical retirement age.

The number one 401(k) regret for Gen X

According to an Empower survey, 63% of Gen X wish they had saved more money for retirement when they were younger.

In a separate CFP Board survey, 53% of Gen X said they wished they had prioritized retirement earlier. Respondents in the same survey also shared several other things Gen X wish they had saved more for, including their children's college costs and homeownership.

Why Gen X is behind on their retirement savings

Gen X is behind on retirement savings for a few reasons. First, many of them cashed out their 401(k)s when leaving jobs and switching employers. Cashing out a 401(k) early usually means workers must pay a 10% early withdrawal penalty if they are under age 59 1/2. Additionally, cashing out a 401(k) usually increases workers' income for that year, which can result in higher taxes.

Secondly, more than one in four Gen X workers have an outstanding 401(k) loan, which is the highest percentage out of any generation, according to Fidelity data. Although a 401(k) loan can provide a temporary cash infusion, the biggest drawback is that the money removed from a 401(k) cannot compound and grow. Finally, many members of Gen X simply did not save enough over time.

The $400k+ gap for Gen X's retirement years

There is a large gap between the amount of money Gen X says they'll need in retirement and the amount Gen X has actually saved on average.

Data from Empower shows that people in their 40s and 50s have saved an average of $425,052 and $640,770, respectively. Meanwhile, the median is $160,710 and $251,083. Those currently in their 40s and 50s probably align more closely with the median.

Gen Xers expect to accumulate just over $700,000 in retirement savings, but they say they need an average of $1.1 million to retire, according to a Schroders survey. That means there is more than a $400,000 gap between what Gen X is likely to save and what is actually needed.

Ways Gen X can close the retirement gap

Fortunately, even though Gen X is behind on retirement savings, many still have time left in the workforce to add to their nest eggs. For example, Gen X can take advantage of catch-up contributions starting at age 50. Those aged 50 or older can contribute an extra $8,000 per year on top of the $24,500 401(k) maximum. Workers aged 60 to 63 can contribute an extra $11,250.

Social Security adds a stream of income, but it's not enough

Gen X workers can also get an additional stream of income in retirement once they start receiving Social Security benefits. If Gen X can delay Social Security benefits to age 70, they can get an even larger check.

Social Security helps because it provides guaranteed income. However, according to the latest projections from the Social Security Trustees, the OASI Trust Fund is set to be depleted by the fourth quarter of 2032. Unless Congress passes new legislation to fix this discrepancy, incoming revenue would be sufficient to pay only 78% of scheduled benefits at that point.

Where Gen X can get advice on retirement planning

If Gen X workers want to make sure they are on track for retirement, one option is to consult a financial planner. A financial planner can review your retirement goals, your current 401(k) portfolio, and your projected income from Social Security. Then, they can make recommendations on ways to optimize your 401(k) contributions so that you do not have to delay retirement.

Bottom line

Even though Gen X was one of the first generations to use 401(k)s throughout their careers, many workers still have a deficit between what they will need in retirement and what they have saved.

The good news is that it is not too late for many members of Gen X to catch up. To save money in retirement and enjoy their golden years, Gen X workers can take advantage of catch-up contributions and maximize their contributions during their last few years of work.

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