If the three legs of the retirement stool are Social Security, personal savings and pensions, people from my Generation X are going to fall fast and hard. Each leg is wobbly. As a 42-year-old woman who barely kept her job during the Great Recession, I’m trading my job worries for retirement worries. According to one article by AARP, Social Security only accounts for 40 percent of income for most retirees. If Social Security doesn’t provide enough income for baby boomers now, it’s not going to provide enough for the next generations that retire. On top of that, I began working at a time when cost companies eliminated pensions. I am going to have to get serious about investing for retirement and reducing my debt now if I want to maintain my current lifestyle when I’m older. I’d rather scrimp and save now than make some of the sacrifices recommended by the AARP for people nearing retirement without enough savings.
Downsizing to free up funds
One tip recommended for people who are forced to retire early is to downsize. If I was in my 50s, I’d sell my home for about $200,000 and buy a short sale in the same neighborhood for about $120,000. It would be a realistic possibility since the foreclosures and short sales are selling at a discount. Also, we could easily live in a 3-bedroom, 2-bathroom home rather than a 4-bedroom, 3-bathroom house. Since I’m in my 40s, I am opting instead to pay down my mortgage so I am mortgage free in retirement.
Putting off retirement
I wouldn’t mind putting off my retirement indefinitely as the AARP article recommends for people who don’t have enough money. I’m sure many Generation-X’ers will be working as long as possible if Social Security is cut by 30 percent as anticipated. If I can keep working in my 60s, I can delay taking Social Security benefits. Since I’m skeptical that Social Security will provide more than a quarter of my income in retirement, I need to beef up my personal savings. I plan to work to age 70 if possible.
Paying taxes now instead of later
I can make my retirement income go a lot further if I don’t have to pay taxes on my investment income. I went into my 401(k) account and changed the settings so my future contributions go into a Roth 401(k) instead of the traditional account. I won’t get a tax break now, but it’s worth it to have tax-free income in retirement. I looked for ways to cut back on my spending so I could max out my Roth IRA as well.
Many people in Generation X don’t have enough money to save for retirement and pay the bills. A recent opinion piece in the Wall Street Journal suggested the problem is people don’t know how to be frugal. I think it will take more than self-discipline to solve the retirement crisis, but it can’t hurt. I’m going to keep building up my Roth accounts, paying down my mortgage and staying out of debt. If my plan doesn’t work, I’ll be forced to learn what frugality is all about when I’m too old to care.
More from this contributor:
Gen-X Needs the Purple Retirement Plan
COLA for Social Security Isn’t Fair to the Young
Retiring on a Different Timeline Than my Husband