Retirement is one of those privileges that many Americans look forward to throughout their careers, but it seems to be slipping away for Generation X.

Dubbed the “forgotten generation,” Gen X is inching closer to the retirement age threshold of 65. Yet, many Gen Xers continue to work to make sure they make ends meet through their golden years.

That's largely because Gen X has been caught in between the old way and new way of doing things—and it’s clear they’re not prepared for retirement.

For one, Gen X went through corporate America’s pivot away from the defined benefit pension plan, which all but guaranteed a secure retirement and where checks keep flowing.

Pensions were replaced by the defined contribution 401(k) plan, a less secure savings vehicle in which the balance fluctuates with extremely volatile financial markets.

According to the Bureau of Labor Statistics, as of 2022, a mere 15% of private sector workers were part of a pension plan while nearly three-quarters of them had the option to invest in a 401(k).

Gen Xer Dan Doonan, who also serves as the executive director of the Retirement Security Institute, explains that the dwindling of the pension has shuffled around the incentives that once fueled employee loyalty.

“Theres sort of a chicken and an egg here—factories used to want you to come there out of high school and work your full career,” he said, adding that in today’s work culture, companies are not generally looking for employees to stick around for multiple decades.

Gen X is not ready for retirement

As the first generation to retire without the crutch of the U.S. pension system, which has all but gone the way of the dinosaur, most Gen Xers have given up on their “dream retirement,” according to a recent poll by Schroders.

The survey reveals that Gen Xers will need a cool $1.1 million to retire from their jobs but only expect to have saved approximately 40% of that amount, resulting in a shortfall of more than $451,000.

Worse, nearly two-thirds of Gen Xers believe they will miss out on their dream retirement because of insufficient savings, compared to less than half of Millennials who face a similar fear.

Deb Boyden, head of U.S. defined contribution at Schroders, echoes Doonan’s concerns.

“As the first generation to head into retirement without the safety net of a pension plan, the stakes are higher for Generation X and the margin for error is lower,” she said. “Not only are Gen Xers facing a formidable savings gap, our findings suggest a knowledge gap is a formidable headwind that’s threatening to prevent many from reaching their dream retirement.”

So, who’s to blame? On the one hand, Gen Xers were given a raw deal, with the average 401(k) plan balance as of 2023 hovering at just over $112,000, according to Vanguard.

Adding insult to injury, balances have been trending in the wrong direction, having fallen from an average of over $141,000 in 2021.

On the other hand, Gen Xers have simply not been socking away enough savings, with 63% of them choosing instead to keep cash on hand out of fear of losing it all or lacking the knowledge to invest, the Schroders survey reveals.

Last year, 401(k) account holders directed more than 70% of their funds into the stock market. The average return of the stock market, as measured by the S&P 500, is 12.39% over the last 10 years, surpassing the historic average of closer to 9.0%.

But the tricky part is no two years are exactly alike, leaving investors to endure the roller coaster ride of volatility along the way.

And with an average retirement savings portfolio of just $40,000, according to the National Institute for Retirement Security, Gen Xers are a far cry from where they need to be.

It’s not that Gen Xers are the only Americans ill-prepared for retirement, but they are setting a precedent for the generations that follow. If they can’t get it right, what hope is there for their children and grandchildren?

Optimal retirement goals, according to experts

There’s no hard-fast rule on retirement savings because everyone’s journey is different. Nobody knows exactly how long they will live or what their healthcare needs might be in old age.

However, there is no shortage of guidelines. One of the most common benchmarks for retirement savings is the following:

  • Age 30: Savings = 1x salary
  • Age 40: Savings = 3x salary
  • Age 50: Savings = 6x salary
  • Age 60: Savings = 8x salary
  • Age 70: Savings = 10x salary

By some standards, millennials have learned from the mistakes of their older counterparts and are contributing more to their retirement plans.

According to a Vanguard survey, millennials with an average salary are on track to replace nearly two-thirds of their pre-retirement income with a combination of Social Security as well as their retirement savings from 401(k) and IRA plans.

This might sound surprising considering that this young generation lags behind Gen Xers and Baby Boomers when it comes to other major financial milestones, like owning a home.

For retirement, however, millennials are charting their course.

Ironically, millennials are succeeding in retirement planning because they have no say in the matter.

As The Wall Street Journal noted, many workers in this age group are enrolled in their employer’s 401(k) plan, automatically contributing 3% of their salary.

“There’s not that much financial education in college, which is why automatic enrollment is helpful. It gives you a default savings option until you educate yourself on what the 401(k) can do for you,” a 34-year-old engineer told the Journal.