We all like to think that the experts know what they are talking about and are operating from a foundation of solid and realistic information. However, that is not often the case. Here is an example of where traditional retirement planning articles tend to go off the rails for families who make a modest income.
In an attempt to push their narrative, financial writers run the numbers on people who are not representative of the majority of people in this country. I’ve discovered this is the case when said writers offer advice to Gen Xers about all the things they are doing wrong with their retirement planning.
Gen Xers Making $100,000 a Year
In Attention, Gen Xers: You’re Making a Major Retirement Mistake, Maurie Bachman at The Motley Fool explains why Gen Xers are failing in retirement planning. She then offers her suggestions that open with this line:
Let’s say you’re a 45-year-old employee earning $100,000 a year and you want to retire at 65.
Okay, back up the bus. How many 45 year olds do you know who are making $100,000 a year?
But maybe I just hang out with a lot of moderate income folks in flyover country so I decided to check it out.
Typical Income for Gen Xers
A quick look around demonstrates this is a terrible place from which to start. The Business Insider ran the numbers and looked at the typical income for Gen Xers, Baby Boomers, and Millenials in each state.
The average income for Gen Xers ran from a (skewed) high of $90,000 in Washington, D.C. to a low of $40,000 in Arkansas. The highest states were Massachusetts ($67k), Maryland ($65k), and Connecticut ($65k) – all states with a higher cost of living that will immediately eat into some of that extra. Take away the expensive east coast numbers and the vast majority of the country falls into the range of mid-$40s to mid-$50s.
That means even with two people working in a Gen X family, a good portion of the country is still going to come in under the $100,000 a year mark. For families with one parent who works and one who stays home, the numbers don’t even begin to approach the scenario Bachman throws out there so casually.
The reality is that for a large percentage of Gen X, they are going to have to be much more creative in their retirement savings than Bachman’s approach lays out.
Gen X Must Plan Now for a Better Retirement
The first article you linked has some very optimistic assumptions. Not only about the income, but about the socio-regulatory environment going forward.
It is clear that means testing for Social Security is going to be phased in at some point. And all of that money sitting in 401k accounts is already looking awfully tempting to lawmakers. A few years ago there was talk of converting it into government accounts with guaranteed (low) returns.
Hi Peggy,
Retirement articles ALWAYS seem to be overly optimistic in their predictions. And I agree about means testing coming. That will be one of the first ways they deal with shortages.
You are so right about the 401ks. Lawmakers have been trying to figure out how to get control of that money for some time, but the timing hasn’t been right yet. Of course they will say they are doing it for our own good. Right. Because everything always gets better when the government takes it over. /heavy sarcasm
Sallie
Another factor in Gen X demographics is the massive amount of immigration that has happened over past decades…if you look at how the demographic/population pyramid for the U.S. has changed over time, the lower birth rates that made for the Gen X “Baby Bust” have been mostly made up for with immigration. That is a factor in every single social issue, but gets mentioned only very rarely.
Animated version here: https://www.visualcapitalist.com/us-population-pyramid-1980-2050/
By eyeball, it looks like about 1/4 of Gen X is made up of immigrants. Boomer generation is less than that; millenials more.
Hi Peggy,
Thank your for mentioning this. You are correct about it not being well known. This is something I haven’t heard come up at all in my research.
And that website. That’s a huge time waster just waiting to happen. Lots of interesting information there. LOL!
Sallie