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Gen X retirement guide

Key takeaways

  • Understand your annual expenses.
  • Save at least $1,000 for emergencies and pay down any high-interest debt.
  • Save as much as you can in tax-advantaged accounts and invest for growth potential.
  • Decide if your savings are on track to provide the income you need.

The MTV generation is on the cusp of retirement—but many in Gen X (born between 1960 and 1980) say they aren't ready yet. According to a recent survey, Gen X feels the least confident about retirement than any age group in the workforce today.1

If that sounds like you, don't stress. There is still time to get prepared and live the life you want in retirement. There are many different paths to retirement and there isn't one right answer for everyone. But being informed about your options can help you feel confident in the decisions that make sense for you.

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Here are 5 steps that can help you get ready now.

1. Understand your annual expenses

Spending less than you earn and knowing (to some extent) what you spend money on are the keys to saving money. If you aren't already a devoted budgeter, the thought of examining every single purchase can be daunting. The good news is that there are several websites that can help you budget and easily track spending and saving that are even fun to use, including Fidelity Full View®. These types of web experiences let you categorize each expense and then you can quickly and easily see where your money is going. If you want to make changes to your spending, you have all the information you need.

Why this is important: Knowing how much you spend can be critical to retirement planning. The amount you're aiming to save for retirement will be a multiple of your estimated expenses in retirement. To learn how to estimate how much you might need to save for retirement, how to make your savings last, and how much to save each year, read Viewpoints: 4 rules for retirement savings.

2. Save at least $1,000 for emergencies

Emergencies and unexpected expenses can blow your budget for the month or even the year. A savings account earmarked for emergency expenses can be a life saver. If you don't already have emergency savings, consider starting with $1,000. Try to keep going and aim to eventually save enough to cover 3 to 6 months of essential expenses.

Read Viewpoints: How much to save for emergencies

3. Pay down any high-interest debt

Credit cards are convenient and even rewarding. But paying off credit card bills can be another story. It can take a long time and cost a lot of money. You're stuck in a cycle of paying for past purchases rather than planning for the future. So it can make sense to pay down debt with a sense of urgency.

There are 2 strategies to consider if you have multiple loans and credit cards. The snowball method starts with the lowest balance and the avalanche method goes after the highest interest rate—and both can work. Read Viewpoints on Fidelity.com: The debt snowball method vs. the debt avalanche method

4. Save in tax-advantaged accounts and investing for growth potential

A tax-advantaged account is one that offers tax-deferred or tax-free growth. For retirement, examples of common tax-advantaged accounts include workplace retirement plans like 401(k)s and 403(b)s. There are also individual retirement accounts, or IRAs. Even health savings accounts can be used for retirement saving. For Fidelity's suggestions on how to use these accounts, read Viewpoints: How to max out your retirement savings.

If you're confused about the type of account that may be right for you, consider calling Fidelity for help or answer 2 quick questions to help us find the right account for you.

The percentage of your income that you're able to save is known as your savings rate. Fidelity suggests saving 15% of pre-tax income for retirement including any profit sharing or employer match—but that number may be higher or lower depending on when in life you began saving. Your savings rate is a key determinant of when you will be able to retire.

To calculate your savings rate, add up the amount you save each year, including any contributions from your employer. Divide that number by gross income to get the percentage of income you save each year. Increasing that number by just 1% can be powerful.

Investing for growth potential can be almost as important. By investing in stocks and other investments that have historically offered the potential for growth, you may earn a rate of return that allows your money to grow more quickly than it otherwise would, and you may hit your goals sooner than you would otherwise be able to.

Read Viewpoints: The benefits of investing for growth and How to plan for the worst and stay invested

5. Decide if your savings are on track to provide the income you need, in addition to any other income you'll have like pensions or Social Security. For a quick estimate, if you know what your annual income is today, assume you'll spend about 80% of the income you will be making before you retire every year in your retirement—that's known as your retirement income replacement ratio. So, for example, if your estimated preretirement income is $90,000, plan on spending about $72,000 annually in retirement. Read Viewpoints on Fidelity.com: How much will you spend in retirement?

Fidelity's free planning tools can also help you easily gauge whether you're on track or if you may need to adjust. If your savings are behind where they need to be for your plan—don't worry, you have options.

Saving more can help bolster your financial security.

  • Working a few extra years can give you more years to save, more years for your savings to potentially grow, and fewer years of retirement to pay for. Read Viewpoints: When can I retire?
  • Ensuring that you are investing appropriately for your goals and time frame can help make sure your savings have the chance to grow.
  • Working with a financial professional could give you deeper insights into how much it will take to reach your retirement goals.

For extra help, consider these tips for getting your finances on track: 5 small steps that can make a big impact

And remember, your expenses aren't set in stone. Read Viewpoints: How to spend less in retirement

It's never too early—or too late—to plan for retirement

Many in Gen X may have 15 or even 20 years until retirement while others will get there sooner. Even with many years to go, it can make sense to give some thought to how you plan to keep your cash flowing in retirement. There are many options, including a sustainable withdrawal strategy or annuities. This aspect of retirement can be tricky. Your retirement savings represent a whole life's work so taking the time to understand your options makes good sense. Fidelity suggests 3 essential building blocks for retirement income plans. Combining them can provide a combination of growth potential, guaranteed income,2 and the flexibility to adjust as your needs change, or life throws a curveball.

We believe a solid retirement income plan should provide 3 things:

  • Guarantees to ensure core expenses are covered
  • Growth potential to meet long-term needs and legacy goals
  • Flexibility to refine your plan as needed over time

When it's time to make the leap from working to retiring, you'll be prepared. With the oldest members of Gen X turning 60 this year, it's the perfect time to solidify retirement plans. No matter where you're starting from, there may be a lot you can do to protect your financial future and retire when you want.

Is an IRA right for you?

We can help you decide whether you might want a traditional, Roth, or rollover IRA.

More to explore

1. The income replacement rate is the percentage of preretirement income that an individual should target replacing in retirement. The income replacement targets are based on Consumer Expenditure Survey (BLS), Statistics of Income Tax Stat, IRS tax brackets, and Social Security Benefit Calculators. The 45% income replacement target assumes no pension income, and a retirement and Social Security claiming age of 67, which is the full Social Security benefit age for those born in 1960 or later. For an earlier retirement and claiming age, this target goes up due to lower Social Security retirement benefits. Similarly, the target goes down for a later retirement age. For a retirement age of 65, this target is defined as 50% of preretirement annual income and for a retirement age of 70, this target is defined as 40% of preretirement income. 2.

Annuity guarantees are subject to the claims-paying ability of the issuing insurance company.

IMPORTANT: The projections or other information generated by the Planning & Guidance Center's Retirement Analysis regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Your results may vary with each use and over time.

Fidelity's Planning and Guidance center allows you to create and monitor multiple independent financial goals. While there is no fee to generate a plan, expenses charged by your investments and other fees associated with trading or transacting in your account would still apply. You are responsible for determining whether, and how, to implement any financial planning considerations presented, including asset allocation suggestions, and for paying applicable fees. Financial planning does not constitute an offer to sell, a solicitation of any offer to buy, or a recommendation of any security by Fidelity Investments or any third-party.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

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For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of the funds in an investment category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) Although gathered from reliable sources, data completeness and accuracy cannot be guaranteed by Morningstar.

<Past performance is no guarantee of future results.>

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