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Grungy Retirement May Await Gen Xers

Generation X has another reason to be cynical about the future: Many will not be able to afford retirement unless they slash spending right now and slow the economy in the process.

Other paths to retirement security — a lavish pay raise, more generous Social Security benefits, a massive stock windfall — are more hopes than plans.

This retirement cliff, and the frugality needed to avoid it, comes as younger adults' student debt already is weighing on spending and economic growth.

Gen X must exercise more discipline or risk hardship in old age. The median couple, based on assets, will have only 50% of their pre-retirement income when they turn 65, a recent Pew study found.

That includes Social Security and still falls well below the recommended minimum of 70%.

The Social Security Administration predicts the trust fund will be depleted within 20 years. That would come before most Gen Xers — Pew includes those born 1966-75 — retire.

Entitlement legislation is needed and will likely include benefit curbs, higher payroll taxes or a mix of both. Either way, Gen X will be squeezed.

The typical late baby boomer couple, born 1956 to 1965, is on track to replace only 59% of their income, Pew says. They have less time to save but are less likely to feel the pinch of any Social Security benefit cuts or tax hikes.

Meantime, early baby boomers and other generations born before had income replacement rates topping 80%.

"As policymakers focus attention on Americans' retirement security, particular consideration should be paid to helping the youngest cohorts ... prepare for financial security over the long term," the Pew report warned.

Earning more isn't necessary. It's possible for a diligent saver making the median income to retire with more than $1 million, says Greg McBride, senior financial analyst at Bankrate.com.

Gen Xers, who are in their 30s and 40s today, still have time to save and have plenty of areas from which to cut spending.

"The problem is, do they have the fortitude to do it?" he said.

Many need to boost the amount of income they set aside to 15% from the recommended 10%.

Saving now is critical, McBride stresses. While a worker can delay retirement, health woes or other limitations can come up later that will prevent that.

"It's one thing to say you're going to work until you're 70, but reality may pan out differently," he said.

More Debt, Fewer Assets

Gen X has racked up more debt than prior generations, making saving for retirement that much harder.

Median Gen X debt is more than $80,000, says Pew. When late boomers were in their 30s and 40s, their debt was about $50,000 in constant 2010 dollars. Early boomers had about $40,000.

Homeownership inflated debt for Gen Xers, though their home equity tops what late boomers held at similar ages.

The "slacker generation" lags in savings, 401(k)s, pensions and individual retirement accounts. The median total for these assets is $19,382 vs. $25,344 for late boomers and $21,623 for early boomers in their 30s and 40s.

Pension programs for many older workers likely propped up their assets. So did strong economies and stock markets. Early boomers' median net worth rose 61% from 1989 to 1998, then 83% from 1998 to 2007.

Pew's data go through 2010. Since then, the S&P 500 has risen 33% while home prices have rebounded. So Gen X finances may be somewhat better.

Given federal government fiscal constraints, a long bull market may be the only bailout that today's 30- and 40-somethings can hope for ahead of retirement.