Scarred by the dot.com bust and the financial crisis is leaving many Gen X workers with unreasonable fear about the risks associated with investing in the stock market. Sadly, this fear could leave many people broke when it comes time to retire. Let alone able to provide an income stream in retirement that they won’t outlive. Will an unreasonable fear of the stock market leave Generation X broke at retirement?

According to a recent survey by STASH, and investing app, 31% of Americans don’t invest because they think it is risky. That being said, the same survey identified 39% of people thinking that winning the lottery jackpot was a potential means of planning for retirement.

We are all bombarded with messaging about investing and retirement. Some of it may be useful, but most of it has nothing to do with you and your personal retirement needs. I was just helping a successful business owner develop a plan to retire in a few years, and he brought in several articles about retirement readiness.



Here are some of his questions inspired by the articles:

-Can I really retire on a Million Dollars?

-How do I turn my life savings into a retirement stream I can’t outlive?

-How can I live off 70% of my pre-retirement income once I’m not working anymore?

-Should I just use the 4% rule?

He had a bunch more questions beyond this, but these we the gems specifically from headlines, that had little to do with his dream retirement. Just to quickly wrap these questions up, if you chose to use the 4% rule (withdraw 4% of your account each year) a million-dollar retirement nest egg would produce about $40,000 per year of income. You will likely owe taxes (depending on what type of the account the funds are in pre-tax, post-tax, taxable). This guy has been living off an income over $500,000 for quite some time, so I think it is safe to say he would not be happy retiring on a nest egg of just $1 Million dollars, even with at the maximum Social Security benefit for him and his spouse.

Who Is Gen X

Gen X is roughly the group of people born between 1965 and 1979-1981 (depending on whom you ask). Full disclosure I am part of Gen X, my husband is a millennial. So that translates in the Gen Xers being between 38 and 54 years old. Retirement is coming faster than we all think.

A Million Bucks Ain’t What It Used To Be:

If you are not about to retire AND live a ridiculously frugal lifestyle, I hate to break it to you, but you will be severely disappointed in the retirement a million-dollar nest egg will buy you. A few exceptions here: those with terminal illnesses, or a large pension, or some other passive income stream.

For 2018 the median household income in the US was around $62,000 per year. I don’t use the 4% rule with financial planning clients, but for this conversation, it is a good benchmark. Using the 4% withdrawal rate, the median family would want to have a nest egg around 1.55 Million dollars if they wanted to retire today. That number will grow as inflation does its thing. Keep in mind by definition of median income- half of the families will need more, and half will likely need less.

How To Keep Up With Inflation:

If you want your nest egg to grow over time faster than inflation you will need to do more than put it under a mattress. Historically, investing in stocks has outperformed things like real estate, bonds, CDs or savings accounts over the long term.

You may still have visions of the stock market tanking during the financial crisis. True, value dropped dramatically. In fact, the Dow Jones Industrial Average (DJIA) dropped by more than half to 6,547.05 on March 9 th, 2009. I cannot deny that this is a scary drop. But, do you have any idea where the DJIA is now? Just over ten years later, the DJIA has recovered and skyrocketed up 26559.54 (as of closing 4/18/2019).

The financial crisis smacked many in Generation X, just as they were entering their peak earning years. During the portion of their career when they were likely in the best position to benefit from a strong stock market. We shouldn’t be surprised that many in this generation bailed out of the stock market (or never entered it), and have never come back.

Saving For Retirement In Cash Is Nearly Impossible

Humans do harbor quite a few irrational fears. I know people who won’t go in the ocean for fear of great white sharks. One friend is afraid of the loch ness monster, but I will save that story for another time. Would you believe bed kills more people per year than sharks? Yet, I’m assuming everyone reading this sleep in a bed at least most nights? I just read that 450 people every year die falling out of bed in the United States alone.

Historically speaking the S&P 500 has averaged 10% per year since 1926 according to Investopedia. What past performance is not indicative of future results; these types of investment returns should have made me people clamor to be investing.

On the flip side, Gen X (and boomers and millennials for that matter) all seem to be stuck fixating on the bad year. Keep in mind, since 1926 we’ve had the Great Depression, World War II, Korean War, Vietnam, Desert Storm, Dot.com bust, September 11 th terrorist attack, the financial crisis, and we’ve still had this great long term average.

I know many of my readers would be upset if I didn’t include Donald Trump on this list of American disasters, but in his defense, he hasn’t nuked Cleveland yet, so give him credit for that. All the same, I do have at least one conversation a week about people concerned about Trump and what he means for their financial future. We have been through worse, and don’t let him be the reason you are not able to retire comfortably.

The Numbers Cash Versus Investing:

I get it, cash in the bank feels safe, secure and like a smart financial move. Yes, we all should have some money in the bank for emergencies and to pay our current bills. However, leaving large amounts in the bank getting eaten by inflation is just a recipe for retirement disasters.

Why don’t we take a look at two Gen X workers, one who stashes their savings in the bank, the other who just get boring, average stock market returns in some passive index fund? Our cash saver Cary Cash, and out indexer Peter Passive.

Cary and Peter are both 42, plan to work to full retirement age (67), and have accumulated $100,000 so far. What will their nest eggs look like in 25 years when they are 67 years old? Cary Cash – obtains a high-interest savings account at the bank, paying a whopping 2% per year. Peter Passive picks a run of the mill index fund and lets it ride.

Here is their estimated account balance in 25 years, ignoring taxes, inflation, and any fees, additions or withdrawals.

Cary Cash: $164,060

Peter Passive: $1,083,470

In this hypothetical example, going for safety cost Cary nearly 1 million dollars.

Now, let’s assume that they are both diligent about saving and contribute the maximum to a 401(k) each year until they reach age 67. For 2019, the maximum contribution to a 401(k) as an individual is $19,000.

These contributions, really help get them closer to a realistic retirement nest egg.

Cary Cash: $772,636

Peter Passive: $2,952,064

Ouch, that hurts, ignoring the stock market again costs Cary dearly. Her nest egg is around ¿ smaller than Peters, who took the so-called risky option and invested for his future.

Keep in mind that this is just an example for illustrative purposes and not a recommendation of any investment or investment strategy.

You Don’t Have To Do This Alone:

For the older members of Gen X time is no longer on your side, you need to get serious about planning and saving for retirement. For the younger part of Gen X you have a little more time for compounding interest to work its magic, but all the same, you should get started sooner rather than later.

You don’t haven’t to face your fears of investing alone. Look for a Certified Financial Planner™ to help you develop a road map from where you today where you want to be in the future. Retirement planning doesn’t have to be stressful. In my opinion, nothing is scarier than what retirement will look like without the benefit of growth and income from investments.

This article was written by David Rae from Forbes and was legally licensed by AdvisorStream through the NewsCred publisher network.

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Matthew A. Helfrich
Partner and President
Waldron Private Wealth
Office : 412-221-1005