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Combining HSAs and 401ks Can Help Improve Gen X Retirement Readiness

Combining HSAs and 401ks Can Help Improve Gen X Retirement Readiness. Forbes’ wealth and lifestyle contributor Megan Gorman wrote an article that corroborates a piece published on 401kTV a few weeks ago. Her thesis, and ours? Generation X — those born in the 1970s and 1980s — is woefully underprepared for retirement. But there’s still time for employers to help shift that trajectory and help this “lost generation” find its way to better retirement outcomes.

Sandwiched between the Boomers and Millennials — who get the lion’s share of attention from the retirement industry and providers due to their unique needs — Gen X truly is like an overlooked “middle child.” What’s more, a new paper from the Federal Reserve of St. Louis, “The Demographics of Wealth 2018,” noted that if Gen X does not step it up on the wealth accumulation front, we run the risk of being a “lost generation.” That’s a bitter pill to swallow (or is it a “Jagged Little Pill”?) as Gen X enters its peak earnings years.

Ms. Gorman also points out these sobering statistics, from Transamerica’s 18th Annual Retirement Survey: 80% of Gen Xers are saving for retirement, however, their average account balance is only $72,000. What’s more, their finances are wonky at best: Gen Xers have more debt than Boomers and Millennials, and 34% had taken a loan or early withdrawal from retirement savings. In a word, yikes.

With the youngest of Gen Xers turning 40 within the next three years and some retiring within the next 25, this generation has quite a bit of catching up to do. That said, Gen X is a collectively cynical generation, and not wholly inclined to trust the financial industry or professionals.

So how can plan sponsors help Gen Xers dig out and get on track for more financially secure retirements? As Ms. Gorman aptly observes, helping them figure out how to maximize the tax and savings advantages of their workplace retirement plan, combined with a Health Savings Account (HSA), is a good place to start. The average Gen Xer is contributing just 8% of compensation to employer-sponsored retirement plans — obviously not enough. Ms. Gorman suggests Gen X should begin maximizing those contributions as much as possible (a feat not feasible for everyone, she acknowledges). In 2018, the maximum allowed contribution is $18,500; with an additional $6,000 in “catch-up contributions” allowed for those age 50 and older.

Then, there are healthcare costs to account for. Fidelity’s latest data says the average retiree will need a whopping $280,000 to cover medical and other expenses — potentially more. HSAs can be a great planning tool for these future costs, especially due to their tax benefits. Taxpayers get a deduction for contributions they or someone other than their employer make to the account. What’s more, earnings on that money grow tax-deferred, and the withdrawals come out tax-free, provided they’re used for qualified medical expenses. What’s more, HSA balances can be carried over from year to year. HSAs can help workers of all ages, including Gen X, create a reserve —separate from their retirement account — for savings specifically earmarked to help offset hefty medical costs in retirement. The tax benefits alone are worth it.

Look, it’s not that the majority of Gen Xers are unaware of their shortcomings on the retirement savings front. As a Gen Xer myself, I can say that I think, psychologically, we are overwhelmed, and frankly, intimidated, by how to bridge the gap from our current savings shortfall to where the industry tells us we need to be. As an employer, if you can help us figure out how to solve that conundrum by providing us with the know-how and the tools to prioritize, and maximize, our workplace retirement and HSA benefits, you will be providing this “lost generation” with a critical roadmap to success. Keep educating us, and continue providing vital resources and offering those one-on-ones with financial professionals who can help us make sense of it all. While we may have another 25 years until the oldest Gen Xers retire, there’s no time to lose. We must start now if we want to improve our retirement readiness as a generation, and ultimately, achieve our goals. Plan sponsors, we need you to help us find our way.

Robyn Kurdek

Robyn Kurdek

Freelance writer with nearly 2 decades of financial industry experience, with niche expertise in the defined contribution (DC) industry. I also have defined benefit (DB) plan knowledge. I write all types of content for retirement plan participants, sponsors and advisors, including web copy, newsletters, white papers, fact sheets, blog posts, financial wellness articles, and more. "I speak DC."
Robyn Kurdek
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