Traditional advice to Gen-Xers who haven’t saved enough falls short

The oldest cohort of Generation-Xers will be turning 59 this year. An important age as penalty-free withdrawals from qualified retirement accounts can begin at age 59½. That’s all well and good but there’s a problem. 70% of those aged 44-59 in Generation X feel they haven’t saved enough to have a comfortable retirement according to a recent Bankrate survey. 

How much have Gen-Xers saved? The average 401(k) retirement savings for people in their 50s is over $200,000. However, the median balance is only $64,000 as of the second quarter of this year according to recent data from Fidelity Investments. 

CNBC notes fewer pension benefit plans were offered when Gen Xers entered the workforce in the 1980s and 1990s. Instead, employees were offered to participate in 401(k) plans. However, only 60% of employees voluntarily enrolled in these employer profit-sharing plans which further eroded retirement preparedness. “Participation rates are typically as low as 60% when people have to sign up themselves, but over 90% when they’re automatically enrolled,” Anne Lester, a retirement expert and author.

Younger Gen-Xers may be able to boost their retirement contributions, a feat that’s become increasingly difficult with today’s high cost of living and inflation. Fidelity recommends at least 15% of one’s earnings be set aside for retirement. 

However, boosting retirement contributions isn’t always financially feasible. And that’s where traditional retirement planning advice, such as that given in the CNBC article falls short. This is a common oversight that again ignores most Generation Xers’ largest asset- their home.

The good news is decades of monthly mortgage payments have built a treasure trove of untapped housing wealth that could offset years of meager retirement savings. The oldest members of Gen-X will turn 62 between 2027 and 2042. Significant equity has likely accumulated since 1997 for those who didn’t use their home as an ATM. 

Recent data from the U.S. Census Bureau reveals that those aged 55-64 have an average of $162,000 in home equity. Those over 65 may have as much as $300,000 in accumulated equity. Shortfalls in retirement savings could be significantly lessened by tapping into housing wealth to close any gaps in retirement cash flow. 

It could be argued that FHA’s Home Equity Conversion Mortgage is an ideal candidate to close significant shortfalls in retirement savings especially when considering the loan’s unique line of credit feature which typically grows each year increasing a homeowner’s borrowing power. 

The HECM’s line of credit could be left to grow until needed at a later date when it could be converted into monthly tenure payments, term payments for a fixed period, or simply tapped as needed with a line of credit draw. Yes- Americans are behind in their retirement savings. With that in mind perhaps it’s time for the financial press and advisors to begin looking at realistic solutions hiding in plain sight.