Generation X is inching closer to retirement, but many of the challenges ahead are the same as those faced by baby boomers today.
Some of these issues can derail even the best-laid retirement plans. If you’re a Generation Xer, make sure you understand these retirement issues so you have time to adjust and avoid the financial surprises seen by many baby boomers.
Many baby boomers believe they will downsize, cash out some equity, and move to a smaller location during retirement. In fact, many of them are stuck in homes that are either too expensive to maintain or too large for their current lifestyles.
The main reason for this is that home prices have increased so much that it may not even be worth selling your home and buying something smaller. According to the Federal Reserve Bank of St. Louis, the current median home sales price in the United States is about $410,000, which is $100,000 higher than five years ago. Even condos and townhouses in many cities now cost more than baby boomers paid for their original homes. High mortgage rates also discourage people from moving because they don’t want to trade low interest rates for higher rates in retirement.
Generation X may be facing the same situation. You may have a lot of home equity on paper, but that doesn’t guarantee you can convert it into a more affordable living arrangement. If your future home budget is based on selling and moving, you may want to have a backup plan to account for staying longer than expected.
Take note: 64% of Americans are not ready to retire and 48% don’t care
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Baby boomers have learned that Social Security is not the reliable basic income that many think it is. While the plan is still paying benefits, current retirees face two issues that Generation Xers should be prepared for.
The first is that Social Security may be lower than expected. The Social Security Board of Directors projects that by 2035, the program’s costs will rise so that taxes will cover 75% of scheduled benefits. In other words, you should plan for benefits that can replace a lower percentage of your preretirement income.
The second issue is taxes. Many retirees are surprised to learn that according to the Social Security Administration (SSA), up to 85% of their Social Security benefits are taxable based on their gross income. These tax thresholds have not been adjusted for inflation for decades, so more people are experiencing higher tax liabilities without realizing it.
