Gen X Facing the Stark Reality of Retirement

More than any other generation, its members are receptive to in-plan guarantees.

A new study from Allianz Life found that retirement plan participants—particularly Generation Xers—are increasingly interested in guaranteed retirement income options.

Born between 1965 and 1980, members of Generation X are between the ages of 40 and 55. Its older members are beginning to realize that retirement is fast approaching and that they might not be as prepared as they should be, Matt Gray, assistant vice president of worksite solutions at Allianz Life Insurance Co. of North America tells PLANADVISER.

“They have also lived through at least two significant market crashes,” he says, referring to the dot-com crash of 2001 and the Great Recession of 2008. “The current volatility they have been seeing as a result of the coronavirus pandemic is also making them worried.”

Among all age groups, 71% of participants in retirement plans would like an option that offers guaranteed income for life. This jumps to 75% for Gen Xers, but declines to 67% for Millennials, who—having been born between 1981 and 1996 and ranging in age between 24 and 39—are further away from retirement.

Among all workers, 55% are worried that the money they have saved in their employer-sponsored retirement plan will run out, and, again, this figure rises for Gen Xers, to 69%. Among Millennials, 56% are worried the savings in their 401(k) or other workplace retirement plan will run out in their golden years, and this is true for only 45% of Baby Boomers.

Fifty-eight percent of workers would be receptive to having an annuity offered in their plan, and 68% would like a product to protect them against market downturns, the study found.

Gray says that given their proximity to retirement age, Gen Xers’ concerns do not surprise him, but he is rather stunned “to see such an intense focus on protection.” This wake-up call is, in a sense, a good thing for Generation X, as its members still have 15 to 30 years to continue to save, should they retire at age 70, Gray says. “Most of them are in their peak earning years, and there is still enough time for them to adequately prepare for retirement if they act.”

He adds that the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which has implemented a safe harbor and allowed portability for annuities inside retirement plans, is a true gift from the government for Millennials, who are likely to be the first generation to be offered in-plan guaranteed options. “They are lucky to be inheriting a much better tool set,” Gray says. “You are going to see a lot of innovation coming. These are two good things in their favor that can help them overcome this worry.”

He adds that he expects future surveys Allianz conducts in the next 10 to 15 years to show Millennials sharing the same concerns as Gen Xers.

Thérèse Wolfe, a tax principal with UHY Advisors, says that besides seeing retirement on the horizon, many Gen Xers are taking care of both aging parents and children, making them the newest “sandwich generation.” Gen Xers are also the first generation to have valid concerns about Social Security funds not being there for them in retirement, Wolfe says.

Matthew Schulte, head of financial planning at eMoney Advisor, agrees, saying: “This group is sandwiched between their children, who often still require financial support, and their ageing parents, who may also need financial or medical assistance, especially amid the current pandemic.”

Wolfe reports that many of her older Gen X and Baby Boomer clients are “reinventing themselves” by taking on second careers to remain longer in the workforce to make up for savings shortfalls.

Aadil Zaman, a partner at Wall Street Alliance Group, which serves high-net-worth clients, says he encourages his Generation X clients to save as much as they possibly can in their retirement plan. “In our experience, more often than not, they are not saving enough, especially those in their 50s,” Zaman says. “Even the high-net-worth people earning a lot don’t have much to show for it because they haven’t been conscientious.”

Zaman says he is not a proponent of insurance products because of their costs and the current low-interest rate environment. Rather, he encourages his clients to have a well-diversified portfolio of equities and bonds, 50/50, held in mutual funds and exchange-traded funds (ETFs). “The likelihood of the market being higher 10 years from now is almost 100%,” Zaman says.

He also is a proponent of gold as an investment, as well as whole life insurance. He advocates that those closer to retirement increase their bond holdings so that they are “less susceptible to market declines.”

Zaman says that, overall, Generation X needs much more education about the importance of having a diversified portfolio and saving enough to put themselves in a solid position at retirement.

Gray concludes that he hopes “great plan advisers and consultants will help plan sponsors and participants understand in-plan guarantee solutions and how they can improve outcomes. It is a great time for advisers to learn more about these solutions. They will enhance the value they bring to sponsors and participants alike.” As well, Gray continues, “there is an onus on insurance companies providing these guarantees to make them simple for advisers, sponsors and participants to understand and use.”