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Gen X Reclaim Savings

More than 4 out of 10 Gen Xers are not confident they will have enough money to live comfortably in retirement.1

The financial prospects and retirement accounts of many Generation X members (born from 1962 to 1981) were hit hard by the tech bust and the Great Recession, but there may still be time to turn things around. The oldest Gen Xers have started to reach 50, the age when workers become eligible to make ”catch-up” contributions to employer-sponsored retirement plans and IRAs.

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The 2016 maximum contribution limit for employer-sponsored retirement plans — 401(k)s, 403(b)s, and 457s — is $18,000, plus a $6,000 catch-up contribution for those 50 and older, for a total of $24,000. The IRA contribution limit is $5,500, plus a $1,000 catch-up contribution — for a total of $6,500.

It’s also important to contribute enough to receive full company matches and any available profit sharing. Some workplace plans require that workers remain employed by the company for a certain period of time before they can keep the matching funds. Consider the company plan’s vesting policy — and how much of your non-vested money might be forfeited — when deciding whether to leave your current employer.

Feeling Powerful Boosts Savings

According to a 2014 Stanford University study, a more immediate change in the way an individual feels can drive savings. When a person feels powerful, even if it is just a temporary state, he or she is more likely to save for the future. By contrast, an individual who feels powerless is more likely to spend money. This is an attempt to compensate, which may explain why many people shop when they are frustrated or unhappy.2

The study also found that feeling powerful and saving can become a self-perpetuating cycle, because powerful people typically want to maintain their power.3
Few people feel powerful all the time. There are typically ebbs and flows. But, the next time you’re feeling good about yourself, take steps to save more.

For example, getting a raise might make you feel powerful, and this could be an ideal time to increase your retirement plan contributions. The same is true for the day you pay off a car loan, student loan, or credit card. Since you’ve already been making those payments, you may be able to put the money to work as savings without a big change in your monthly cash flow.

On the other hand, you might want to monitor your “feel-good” spending. There’s nothing wrong with a treat now and then, but spending on little things can add up over time. There’s also nothing wrong with making a major purchase for something you really need. But if it’s just a “want” or a way to make yourself feel better, you might ask yourself whether you are powerful enough to save instead.

Saving Is About The Long Journey

Saving for retirement is a long journey, and there are many competing priorities along the way. By considering the way you feel when you save and taking advantage of opportunities to save more, you may be able to develop a stronger, more disciplined approach that could help you fund a comfortable retirement.

Sources:
1) Insured Retirement Institute 2014
2–3) Journal of Consumer Research, October 2014

Freeman Owen, Jr -Retirement Specialist

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