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Why Gen X Investors Shouldn't Go It Alone

Rebecca Lake

The retirement planning woes of millennials or baby boomers often overshadow those of Generation X investors, but their struggle is just as real. In a TD Ameritrade survey, 43 percent of Gen Xers were behind on saving, while 37 percent believed they would be unable to afford retirement.

That gloomy outlook is rooted in several factors. The demise of traditional pension plans has shifted more of the savings burden onto individuals. Although Gen Xers are heading into their highest earning years, many are caught in the sandwich generation crunch of taking care of children and aging parents. And, according to a study from Allianz Life Insurance, Gen X has more debt, on average, than any other generation.

Despite that perfect-storm scenario, many Gen Xers, who are approximately in their mid 30s to early 50s, are reluctant to seek professional financial advice. According to the third annual Advisor Authority Study, 52 percent of Gen X investors don't have a financial advisor. "Gen X has always been the forgotten middle child," says Gage Kemsley, vice president at Oxford Wealth Advisors in Rio Rancho, New Mexico, and this generation rarely gets custom-tailored advice. Gen Xers may view their choices as limited to the advisors their parents use or the robo advisors millennials seem to prefer. "Because there's no focused effort on Generation X, few members of that generation feel empowered to seek out advice."

Gen X's perceptions of the stock market also play a role. David Kanani, president of Kanani Advisory Group in Irvine, California, says Gen X investors have watched the market rise steadily over the last decade. For some, this has contributed to a false sense that investing is simple and professional guidance unnecessary.

Trust is another issue. While Gen X investors may have benefited from the market boom following the 2008 financial crisis, they haven't forgotten it. "They know how volatile and unpredictable markets can be, so why trust an advisor," says Daniel Fan, director of wealth planning at Irvine, California-based First Foundation. They watched their parents and friends lose money and had a front-row seat to the Bernie Madoff scandal. "Generation X has always been skeptical, and 2008 only made them more so."

[Read: How to Invest in the Late Stages of a Bull Market.]

Whatever the reason, forgoing professional financial advice can have unintended consequences for Gen X portfolios and retirement strategies. For these mid-life investors to change their minds, financial advisors need to sell Gen X on the value they can provide.

Life-stage planning matters. In your 30s and 40s, you're beginning to accrue wealth, but other financial demands and goals may compete for those dollars. "Gen Xers are mid-career accumulators," says Martin Schamis, vice president, head of wealth planning at Janney Montgomery Scott in Philadelphia. "They need help managing their cash flow to be most efficient and to ensure they pay themselves first."

The financial responsibilities for children and parents can complicate those efforts, as can lifestyle demands that supersede saving. Schamis says an advisor can help Gen Xers with the most critical discussions that need to take place in their 30s and 40s. For instance, if your children will attend college soon, you should discuss where they'll go and how those costs will be covered. With aging parents, talks should center on estate and late-life planning, "so you're not put in a position where you're not prepared emotionally or financially."

Fan says an advisor can put together a comprehensive plan that takes into account where you are now and where you want to be financially. "Advisors can help Gen Xers model different situations, letting them see the long-term impact of decisions" and prioritize their goals.

Delaying can be expensive. An advisor can also shed light on the effect that waiting to save will have on your retirement. Paul Lightfoot, president of Optima Asset Management in Dallas, says Gen X investors often don't recognize the full cost of delaying savings -- it weakens the power of compounding interest over time.

For example, if someone invested $10,000 per year for 10 years starting at age 35, that person would have $448,000 in savings at age 65, assuming a 6 percent annualized rate of return. If that same person waits until age 45 to begin saving and also invests $10,000 per year for a decade with the same 6 percent annualized return, the account would be worth only $250,200 by age 65. In each case, the same amount of money was invested, but the 10-year delay came with a $197,800 cost.

[See: 7 Things That Can Derail Your Retirement Investing.]

If you're behind on saving, an advisor can help you define your ideal savings target so that you can get back on track. "A good financial advisor will do projections to determine how much you'll need to invest to reach retirement by your desired age, and meet your income needs," says Mark Farnan, president of Retirement Income Planning in Madison, Wisconsin.

An advisor can also motivate you to save if you've put it off because you don't think you have the money to do so. "Even small contributions will grow over time," Farnan says.

You can't afford to get risk wrong. A common pitfall for Gen X investors is miscalculating their risk tolerance, says Sandra McPeak, a financial advisor with the Rolling Hills Estates, California, branch of Wells Fargo Advisors. Too much risk could expose you to losses; too little could stunt the portfolio's growth. "A mistake some people make is viewing the start of retirement as the time to become completely conservative," McPeak says. "Because many Gen Xers could be retired for 20 to 35 years, one risk of being too conservative is erosion of buying power due to inflation, which could potentially reduce what their savings will buy by half or more."

Gen Xers are still in the age range that needs an equity-based growth portfolio. "They need to own companies that will grow over time," says Daryl Patten, partner, senior vice president and financial consultant at Fort Pitt Capital Group in Pittsburgh. They don't need to have a lot of fixed-income exposure, given their time frame."

An advisor can help you strike the right balance between high- and low-risk investments.

[See: 10 Questions to Ask Before You Hire a Financial Advisor.]

Patten says the best way to choose an advisor is by interviewing a broad group of financial professionals. These conversations can help Gen Xers better define their investing style, risk profile and preferences. "It's important to look for the best match for investment discipline fit."

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