If older Americans are in trouble when it comes to their retirement planning, Generation X is in big trouble, because:

We Gen X'ers 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 from 1965 through 1980. The public and employer-provided safety nets are gone. And life expectancies are on the rise -- so retirement could 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 quickly becomes the enemy. 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:


From $0

Starting From

Starting From

















Unless you're a leading-edge Generation X'er 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. Yes -- the market has performed much worse lately. Over the decades that it typically takes to build a solid retirement nest egg, however, such short-term fluctuations matter far less than long-run average returns.

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, Countrywide, Lehman Brothers, Fannie Mae, or Freddie Mac 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 hundred or so of them hit the skids, then you still own 400 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





Abbott Laboratories (NYSE:ABT)






Allstate (NYSE:ALL)


Fifth Third Bancorp (NASDAQ:FITB)


Starbucks (NASDAQ:SBUX)


All prices split-adjusted.

While the index itself is down almost 35% over the past year, thanks to the bright lights that still shined within it (like UST, which may soon be acquired by Altria), the index has done far better than some of its constituents. 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 our savings in a broad-market index will cushion the blow if we've happened to pick the next abject failure within that index.

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

If you're ready to get started and need advice on making sure your golden years will be as comfortable as possible, join us at Motley Fool Rule Your Retirement. We offer a 30-day free trial without obligation to subscribe. To learn more, click here.

This article was first published June 17, 2008. It has been updated.

Fool contributor Chuck Saletta is a Generation X'er who's actively investing for his retirement, even through this market chaos. At the time of publication, Chuck owned shares of Fifth Third Bancorp, and he's very glad it's not the only thing he owns. Starbucks and 3M are Motley Fool Inside Value selections. Starbucks is also a Motley Fool Stock Advisor pick. The Fool owns shares of Starbucks and has a disclosure policy.