Generation X's Last, Best Hope for Retirement

• Pensions have become things of the past.
• The Social Security system is failing.
• Debt, debt, and more debt.

We Gen Xers are staring into a financial future bleaker than anything our baby boomer parents imagined.

From bad to worse
USA Today published an article that painted a grim future for the generation born between 1965 and 1980. The employer and social safety nets are gone. Life expectancies are on the rise -- so retirement will last longer. That might sound great, but with insufficient retirement funds, those years won't be so golden after all.

While time is less of an ally now, this problem can be solved.

Tick, tock!
The oldest members of Generation X are 43 years old. In 20 or 25 years, they'll be ready to retire -- if they have the nest egg they need. Unfortunately, it gets a lot tougher to amass that nest egg the longer you wait. Time is the enemy here. The less time you have to let your money compound, the more you'll need to come up with out of pocket every month to reach your goal.

Say, for instance, you figure you'll need $1,000,000 and a paid-off home to live comfortably in retirement. If you've been working on your home but not your nest egg, the battle is already starting to get tougher, and the longer you wait, the nastier it will get.

For instance, assume you can get an 8% annual return on your investments. Depending on how much you've got socked away, here's how much you'd have to invest every month to retire with that $1,000,000:

Unless you're a leading-edge Generation Xer who's already got a decent nest egg -- and statistics show that there aren't many in that camp -- this may well be your last realistic chance to retire comfortably at a reasonable age.

Start soon, but start smartly
Time may be running out, but that's no reason to panic. Even the oldest members of Generation X can retire comfortably without stretching beyond the contributions they're likely eligible to make across both their 401(k)s and IRAs.

To get started, make these three priorities:

• Invest enough every payday to be able to reach your goals.
• Diversify appropriately to protect yourself from the failure of any one company.
• Keep your retirement a top financial priority, no matter what life may throw your way.

The diversification part is particularly important, as investors in Bear Stearns or Countrywide can attest. Almost nobody called the size and speed of their implosions accurately. If they were the only companies you happened to own, then you might have been wiped out.

One of the big benefits of a broad index fund is the fact that you get a stake in many, generally successful, companies. In an S&P 500 fund, for instance, you get a stake in 500 companies. If a dozen or so of them hit the skids, then you still own 488 others that should mute your downside. Just look at the wide swings in performance for a handful of companies in the S&P 500 index over the past year:

While the index itself is down 9.7% over the past year, it has done far better than some of its constituents. I admit that this is a crude example of diversification, and I'm not suggesting you own nothing but a single index fund. But even the stock pickers among us can recognize that having at least a portion of their savings in a broad-market index will cushion them even if they've happened to pick the next abject failure within that index.

There's still hope yet
All is not lost for Gen Xers, but if the power of compounding money isn't put to work today, that dream retirement will be just that. So start saving with vigor, diversify appropriately, and make your retirement plan a reality, not an abstraction.

Copyright © 2008 Universal Press Syndicate.