Even 40-something Americans who know they should be saving more for retirement are too mired in debt to do it

Members of Generation X say credit-card debt, unexpected expenses, and monthly bills are hindering their ability to save for retirement, a new survey from Schwab revealed.

The survey of 401(k) plan participants found that the typical Gen Xer thinks they'll need $1.8 million for a comfortable retirement, but they saved an average of just $9,500 last year.

401(k) plans are a valuable, tax-advantaged tool for saving for retirement, but financial planners recommend utilizing IRAs and health savings account as well.

America has a consumer debt problem and it's hitting Generation X hard.

A new survey from Schwab Retirement Plan Services found that 42% of Gen Xers who have a 401(k) are more focused on paying off debt than saving for retirement right now. Schwab polled about 1,000 401(k) plan participants, including 368 Gen Xers, defined here as ages 39 to 54.

The Gen X respondents named unexpected expenses, credit-card debt, and monthly bills as their top reasons for not prioritizing savings. Many also said paying for their children's college education or their own student loans are interfering with their retirement preparation.

According to data from credit-reporting agency Experian, the average indebted Gen Xer had a total debt balance — including student loans, personal loans, credit cards, and auto loans — of $134,323 in the fourth quarter of 2018.

“Gen Xers are at a time in their lives when they have financial pressures on all sides,” said Catherine Golladay, president of Schwab Retirement Plan Services. “While many are caring for children and financing those children's education, many are also providing care and financial assistance to older relatives. Given all of these competing priorities, it's not too surprising that they're relying on credit to cover expenses.”

According to the survey, the Gen X respondents think they'll need a $1.81 million nest egg, on average, for a comfortable retirement. And yet, their average 401(k) contribution last year was about $9,500. The maximum contribution limit for workers under age 50 in 2019 is $19,000, while the annual limit for over-50 workers is $25,000.

“Most in this group are in critical earning years and at an age when it makes sense to really focus on retirement preparations,” Golladay said.

IRAs and health savings accounts are good tools for retirement savings

According to the Schwab survey, nearly 60% of Gen Xers say their 401(k) is their largest or only source of retirement savings — and many aren't leaving the money to grow as they should. Almost one-third of the Gen X survey respondents have taken a loan from their 401(k) at least once. Withdrawing money from a 401(k) before age 59-and-a-half means you have to pay a 10% penalty and income tax on the amount.

“The biggest thing with saving for retirement is being able to look at your whole financial picture,” Amy Ouellette, director of retirement services at Betterment for Business, told Business Insider. “Of course, the easiest way is through a 401(k) or other plans that your employer sponsors — the reason is because it comes directly from your paycheck. The savings is happening without you having to do more,” she said.

But 401(k)s aren't the only tool to save for retirement, and only about half of the US workforce has access to them. Ouellette recommends utilizing a variety of tax-advantaged and taxable investment accounts to save as much as possible — the earlier, the better.

For example, Roth and traditional IRAs allow you to save money on taxes but also give you more control over your own investments, and health savings accounts allow you to sock away money for medical expenses to use now or in the future. An HSA is a little-known triple tax-free investment account available to people with high deductible health plans. Contributions to HSAs are made pretax; earnings and interest on investments are tax-free; and withdrawals made for qualified medical expenses are tax-free.