Personal Finance

Generation X may end up with higher incomes — but they’ll still be poorer in retirement

Social Security’s financing problems could pose a serious threat to retirement plans of Generation X (1966 to 1975) and Xennial (1976 to 1985) Americans, according to a new report from the Urban Institute.

The good news is that those generations will retire with a higher income than the average retiree 40 years before, according to the Institute. The median retirement income for Xennials ($39,800) is 24 percent higher than that of pre-Baby Boomers born 1945 or earlier ($32,100).

That increased income is in part due to women making more money, the study found.

“As women work more and earn more per hour, their lifetime earnings are increasing rapidly,” the study found. “We project that, compared with pre-Boomer women, median lifetime earnings will be 88 percent higher for Gen X women and 129 percent higher for Xennial women in inflation-adjusted dollars. These gains will raise retirement incomes for women as well as for married men.”

Despite the increased income, Gen Xers and Xennials may struggle more often to make ends meet. They’re more likely than Baby Boomers to lower their standard of living in retirement because of decreased earnings, according to the report.

It projects that 30 percent of Gen Xers and 32 percent of Xennials will be unable to replace 75 percent of their annual working income, compared to 26 percent of pre-Boomers, 26 percent of early Boomers (1946 to 1955) and 25 percent of late Boomers (1956 to 1965).

“Nonetheless, we project that almost 70 percent of Gen Xers and Xennials will have adequate resources to maintain their living standards in retirement as long as policymakers do not cut Social Security benefits,” the study found.

If government benefits are cut, 40 percent of Xennials and 38 percent of Gen Xers will be unable to replace 75 percent of their income, “leaving them worse off than when they were working,” the report found.

The report found that Social Security cuts would disproportionately affect low-income retirees. The Social Security Administration’s cash reserves are projected to be depleted by 2035, which is just about when many Gen Xers would be entering retirement age.

If the reserves run out, the government could reduce benefits or Congress may act to shore up the fund.

Gen Xers and Xennials also can expect to pay more taxes in retirement.

By age 70, the average tax rate for those two age groups will be 18 percent, compared to 14 for pre-Boomers, 13 percent for early Boomers and 16 percent for late Boomers.

The Urban Institute report can be viewed here.

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Andrew Sheeler covers California’s unique political climate for McClatchy. He has covered crime and politics from Interior Alaska to North Dakota’s oil patch to the rugged coast of southern Oregon. He attended the University of Alaska Fairbanks.