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Generation X Needs to Get Serious About Retirement

Jason Notte

PORTLAND, Ore. (TheStreet) – Want to ditch that slacker label, Generation X? Start by getting your retirement plans in order.

If you’re about 33 to 49 years old, we know the past few years haven't been easy on you. The Pew Charitable Trusts says the leading edge of Generation X — folks born from 1966 to 1975 — lost about 45% of its wealth during the Great Recession. It's a generation that graduated amid one recession, missed out on the dot-com bubble that preceded it, missed out on the housing boom because it couldn't scrape together enough cash and was plunged headlong into yet another recession, thanks to the housing bust that followed.

Gen X has since watched what little net worth it had plummet from an average of $75,000 in 2007 to just $42,000 in 2010. That $33,000 loss isn't nearly as much as the nearly $75,000 lost by baby boomers born just after World War II, but at least that group is still sitting on roughly $170,000 apiece, thanks to the cash it made during the dot-com and housing booms. Pew concluded that not only did Gen X lose out during the housing bubble because of its low rate of homeownership but that "Gen Xers are the least financially secure and the most likely to experience downward mobility in retirement.”

To top it off, Gen Xers are generally less prepared for retirement than the baby boomers because of the switch from employer-paid pensions to 401(k) plans, investment losses, higher debt and lower savings. Still, it's not too late to create even a modest cushion for retirement, if not one that's somewhat comfortable.

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“If you wait too long, you might have to delay retirement and keep working a lot longer than you’d like,” says Melinda Kibler, a certified financial planner with Palisades Hudson Financial Group in Fort Lauderdale, Fla. “Since neither employers nor Social Security will fully fund a decent retirement, you have to take the initiative.”

It won't be easy. According to a 2012 Insured Retirement Institute report, only a third of Gen Xers are "very confident" about having enough money to live comfortably during retirement, cover their medical expenses and send their kids to college. Just 41% have figured out how much they'll need to save for retirement. Among those who have saved, half have amassed less than $100,000. The study also noted that during the recession, 15% of Xers made early withdrawals from their 401(k) plans, 23% stopped contributing to their retirement accounts and 22% stopped contributing to college savings plans.

Unlike their Depression-era predecessors who have been shedding debt over the past 20 years, Gen Xers have been accumulating it. As of 2010, however, their grandparents' assets were 27 times their outstanding debt, while boomers' assets were four times that of their outstanding debt. Gen X? Only double their current debt load.

So how do Gen Xers make what little money they have work a little harder? Kibler suggest buckling down and creating a budget. It'll show you where you're spending, where you can reduce and how to prevent reaching the end of the year without saving a dime.

“Without a formal budget, you’ll be too lax and won’t reach your goals,” Kibler says. “Once you’ve set your goals and built a budget to reach them, you’re on your way.”

The next step is to reduce that crushing debt, starting with credit-card debts loans carrying the highest interest rates. Eventually, that savings will be enough to cover 12 months of living expenses in case of an emergency. If nothing goes wrong, guess what? You've built a retirement fund.

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Now you just have to pile on. Your employer's 401(k) or 403(b) plans will do the trick, especially if they're among the rare souls offering matching contributions. That's free money you shouldn't turn down. If those 401(k) contributions get maxed out, a Roth IRA is a great way to sock away all that additional cash without incurring a huge penalty later on.

If your employer doesn't have a retirement plan or if you're one of the economy's many free agents, Kibler suggests a Roth IRA, SEP-IRA or Keogh plan for socking away your savings. That last one is a godsend for the self-employed: Tax deductible up to 25% of income with a maximum annual contribution of $47,000.

Oh, and if Generation X is still a little shell shocked by fluctuations in the market after the recession, playing it conservative at this point isn't going to add up to much. Growth potential is key, and Kibler recommends dividing equity investments among a U.S. large-cap fund, a U.S. small-cap fund and an international fund for starters. Tossing some bond and money market funds into the portfolio wouldn't hurt, either.

“Make a plan and stick with it instead of trying to time the market. Think long term,” she says. “There are lots of competing demands on your money, but by the time you get to your mid-30s, it’s very important to save, even if you have to start small.”

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