Rethinking retirement: Gen X has 'significantly under-saved', according to new survey

Gen X is getting closer to retirement age, but many of them are underprepared for that next phase of their lives. Prudential Vice Chair Rob Falzon joins Yahoo Finance Live to break down the results of a new Prudential survey that shows why Gen X may need to rethink their retirement plans.

Video transcript

JULIE HYMAN: Retirement will look different for Gen X-- economic uncertainty, inflation, declining pension plans, and Social Security facing a shrinking trust fund, it's redefining the retirement experience. According to the Bureau of Labor Statistics, the average retiree in the US needs $4,350 to cover monthly expenses. With Social Security payments averaging $1,830, there is a sizable gap between those two. The Gen X is going to need to fund themselves and many aren't prepared.

A report out this morning from Prudential shows 67% of Gen X-ers have no retirement strategy and 19% of those folks are not saving at all. Rob Falzon is the vise chair of Prudential Financial. He joins us now with an exclusive check of Gen X-ers' retirement plans.

This hits home for me, Rob. I'm in that cohort. I'm a Gen X-er. These are pretty sobering statistics. And there is still time for people within Gen X to catch up during their working years, but not a heck of a lot. What stood out to you from these findings?

ROB FALZON: Well, the first thing that stood out is this is the tip of the spear in terms of this is the first generation where the significant majority of the generation is heading into retirement without a defined benefits plan. Instead, they switched over to a defined contribution plan.

And as a society, we haven't done a very good job at educating these individuals on what level of assets and composition of assets are going to be required in order to generate a sustainable income through retirement. And so there's a disconnect there, a lack of education, a lack of understanding, and a significantly undersaved population heading into retirement.

BRAD SMITH: And so for a lot of Gen X as well that has seen the market turn multiple times at this point, for the savings that they've put into their retirement that are pegged to the stock market, how do you go about even starting to advise on where they could potentially make sure that they are better positioned regardless of what the equity markets and savings there may do?

ROB FALZON: So that gets into having a retirement strategy. A quarter retirement strategy is what level of assets and composition, Brad, to your point, do you need at different points in your life. So those-- the earlier end of the Gen X still has time to accumulate savings. And so if you think about equity returns over longer periods of time, probably very appropriate to be more skewed toward getting equities and seeing the returns associated with those.

As you're getting nearer to retirement obviously, de-risking of that portfolio in order to ensure that a downdraft in the market doesn't put your retirement security at risk. And then there are solutions around guaranteed income associated with pools of assets like annuitization otherwise that individuals can undertake in order to get to take that market risk out of their own plans and lay it off to a financial provider.

JULIE HYMAN: Rob, I also want to talk a little bit more about that gap between what people are going to get from Social Security and what they need to live. Because also in the survey, you found 58% expect to rely on Social Security as their primary source of income.

But by the time Gen X-ers get to prime retirement age, which will be around, what, 2033, Social Security isn't going to be paying out 100% of benefits, right? It's estimated it could be something like 77% of benefits. So how do people deal with that uncertainty and filling that gap?

ROB FALZON: Well, the gap is large. If you look at the statistics, as you put up the $2,500 per month, gap between average expenses and today's typical Social Security payout on average, that translates into a level of savings to replace that gap, to fill that gap, would require a level of savings that's depending on mortality and returns. And also, it's going to be it's going to be $300,000 or $400,000 that someone would have to have in order to be able to fill that gap. And a third of Gen X has got $10,000 or less saved. So there's a big delta there.

And I think a number of levers individuals would have to pull as a part of that retirement strategy. One is increasing savings today, so a change in lifestyle today in order to be able to preserve a lifestyle post-retirement. And then also, a reset of expectations as to the level of spending and lifestyle that you're going to have in retirement.

One of the other things that the survey came out with that I thought was quite interesting was that more than half the surveyed population expects to extend their retirement date. And 10% expect never to be able to retire. 40% expect to be working part-time after retirement. I don't know if that qualifies as retirement if you're still working part-time post that date. But those are the sorts of actions that I think individuals are going to have to be contemplating.

BRAD SMITH: I mean, even I plan on picking up a little part-time job at a golf course somewhere. I mean, start a Ranger.

ROB FALZON: It's not going to be about the golf, Brad. I do not have a view.

BRAD SMITH: Let's go. That's cool. We'll stay away from it today. But while we've got you, Rob, I mean, even as we think about some of the roles and how the employment situation is changing, how people are being compensated, and where that skills gap is, what are the biggest considerations as people are preparing for retirement and the reality of the labor market demand for some of those highest paying jobs?

ROB FALZON: Yeah. You know, so there's an interesting intersection of individuals are indicating they need to work longer in order to be able to get to sort of a level of retirement savings. Yet, over half the surveyed population indicated some job insecurity, concern about the security of their job. Number one on that was the economy-- economic outlook and what that might do to their job security.

But behind that were things around being replaced by other workers-- younger workers, cheaper workers, et cetera. When you dig below that, Brad, but I think that's saying is they're concerned about technology and skills that are required in what the work of future is going to look like. And so as individuals are thinking about extending their work life, they're going to need to think about how they invest in re- and upskilling in order to remain relevant to the workplace.

And today, we have a gap. There's a reason there's a gap between positions that are open and positions that are filled. Much of that has to do with the reality that the skills needed for many of the positions as the economy is advancing with AI and other technology advancements, the skills are not there in the marketplace.

And so there's this high demand for certain skill level that doesn't exist. Individuals are going to have to figure out how they train themselves in order to position themselves to fill those jobs or at least have the skills that are required to maintain their jobs as they look to extend that retirement date.

JULIE HYMAN: Well, all of this is hopefully an important wake up call for people. But we'll see what happens. Rob Falzon, it's always great to speak with you. Thanks for spending some time with us this morning. Prudential Financial Vice Chair, thanks.