Members of Generation X grew up navigating the challenges of such video games as Pac-Man, taking care of themselves after school and riding bikes without a helmet.
Today, as they approach retirement, one of their most profound challenges will be ensuring they have enough money to see them through their later years.
Born from 1965 to 1980, Gen X is now in its peak retirement-planning years.
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With retirement on the horizon, many are confronting complex questions about financial security and how to make their savings last.
If the U.S. is to avoid a widening of the retirement savings gap beyond its current estimated size of $7 trillion, it’s imperative that the next cohort of retirees is better positioned to achieve long-term financial security.
Unlike the baby boomer generation, most Gen X workers have spent their careers without access to traditional defined benefit-pension plans. Instead, they’ve relied primarily on 401(k) defined-contribution plans.
At the same time, many are also facing major financial headwinds, including rising housing and education costs, as well as dual caregiving responsibilities for both their children and aging parents.
As a result, many members of Generation X report either insufficient savings or low confidence in their ability to make their savings last.
An opportunity for financial pros
This shift presents a significant opportunity for financial professionals. While baby boomers have been much of the industry’s focus, Generation X has now entered a pivotal stage of retirement preparation.
The need for help is undeniable. About 37% of Generation X have either postponed, or are contemplating postponing, their retirement due to financial concerns, compared to 19% of boomers.
Meanwhile, nearly 20% of Americans age 65 and older remain employed — up from 11% in 1987. As Gen X progresses toward traditional retirement age, financial pressures might further expand the proportion of older Americans remaining in the workforce.
Generation X faces tough decisions about how to manage asset decumulation. While defined-contribution and IRA plans serve as effective accumulation vehicles, they’re limited in their ability to convert savings into guaranteed income streams.
Annuities address this challenge by turning a sum of money into predictable payments that one can’t outlive.
In addition, anticipated intergenerational wealth transfers from boomer parents might increase demand for structured income solutions, if it fits the goals of the Gen X recipient.
The fragile decade is coming
Many Generation X individuals are still years from retirement and haven’t planned for comprehensive income strategies. This presents both a challenge and an opportunity for the retirement and annuity industry.
Historically, annuities are most commonly purchased by individuals age 55 to 70. Today, the oldest members of Gen X are around 60, while the youngest are now 45.
As more enter the “fragile decade” — the five years before and after retirement, the period when market volatility can severely impact long-term financial security — the importance of downside protection and income certainty becomes more pronounced.
According to trade association LIMRA, 69% of surveyed Gen X respondents indicated they would prefer an annuity over investing a $100,000 inheritance in the stock market. And 37% said they would be “most interested” in purchasing an annuity, compared with 21% of boomers.
However, 64% of respondents find annuities the hardest product to understand. This suggests a clear need for improved education and transparent communication.
While annuities are one tool in the retirement toolkit, albeit a useful one, there are several areas that Gen Xers should understand before incorporating them into their plans.
Chief among these should be understanding how the contract value can grow — for example, is the return offered by an annuity set at a fixed rate or is it tied to the stock market?
Providers often present hypothetical back-tested scenarios to illustrate potential outcomes, but as with any investment, past performance is not a reliable indicator of future results.
Equally important is evaluating the provider. Given the longevity of an annuity, they must feel confident in the insurer’s ability to meet its obligations:
- How long has the firm been in business?
- What is its financial rating?
- Are you confident in their ability to pay out when due?
Other considerations
Generation X investors should also assess how an annuity will fit within their broader financial planning. Guaranteed income products are most effective when they complement, not replace, other assets and align with liquidity needs, risk tolerance and long-term retirement goals.
By the same token, there are a variety of areas that the financial-services industry should consider to enhance education and adoption among Generation X. These include:
- Deepening collaboration with financial planners to address retirement savings gaps and clarify how annuities might contribute to sustainable income planning
- Expand access through employers, including integrating annuity options into 401(k) plans and other retirement programs
- Encourage comprehensive retirement-planning discussions that include guaranteed income solutions as part of decumulation strategies
- Help reduce debt burdens and increase savings, both within and outside of retirement plans
- Support multigenerational planning, helping Generation X households balance the financial decisions of baby boomer parents and dependent millennial children
- Reframe annuities beyond retirement, using them to help fund known future expenses such as education
- Incorporate anticipated wealth transfers into long-term income planning, helping Gen X clients prepare for how future inheritances might support their retirement income strategies
Generation X is digitally fluent and accustomed to mobile financial experiences. Although the annuity industry has historically lagged in this area, substantial progress has been made in recent years to serve financial professionals and consumers digitally.
Online platforms that simplify onboarding, allow for self-service, and provide real-time income illustrations will be critical to engaging with Generation X.
Without significant change, this “forgotten generation” faces a serious risk of entering retirement less secure than any generation before it.
The retirement industry has both an opportunity and a responsibility to engage Generation X proactively to help prevent a deepening of the retirement savings crisis across a new generation.
