It Gen Xers' dim retirement prospects

His nickname, he says, is Dr. Doom, and it comes from Jack VanDerhei's decades-long career studying the increasingly grim odds of whether Americans can make it through retirement without, to be blunt, going broke.

It's a topic that, when spoken in political or media circles, is often followed by a loud chorus of angst from senior citizens or that other group in or near retirement, baby boomers. They, the choir bellows, are the ones most in peril.

But Dr. Doom would not entirely agree. Nor is he alone in that. His and other well-respected research over the last two years strongly suggest that a different group altogether faces potentially more tenuous retirement prospects: Generation X.

Knowing what VanDerhei knows about the economy, people's personal finances, wage stagnation, the nation's frayed retirement safety nets, and electoral politics, here's what the research director at the Employee Benefit Research Institute in Washington told me he would do if he were in his 30s or 40s planning for retirement:

"I'd pretend I was 20 years older so I wouldn't be a Gen Xer," VanDerhei said, "because I'd be a baby boomer."

He didn't even chuckle.

Why would this former longtime Temple University professor want to Houdini-ify himself into someone born between 1948 and 1964 (a definition used in one of his recent studies), instead of 1965 and 1974 (Xer)?

Because if you're older than an Xer - even if you think you've got it bad - the plain fact is you're actually luckier than you think and in much better shape.

A boomer, VanDerhei explained, has an edge:

"Basically, I'm going to be much older by the time Social Security runs out of money. I'm not going to get hit by many of these proposals that grandfather in people that are already at least age 55. I'm in a rather safe voting bloc of people in very large numbers, and it's going to be difficult to, in essence, enact legislation that would be detrimental to my cohort."

There would be no need to compare generations if policymakers and the economy treated them equitably. That, however, has not been the case.

The "proposals" of which VanDerhei speaks - legislative and policy-debated solutions to underfunded Social Security and Medicare - are so discriminatory and distorted to disfavor younger workers, they might as well be stamped with a surgeon general's warning for Gen Xers that says: The following political remedies for the problems created and continually ignored by your predecessors will be harmful to your health.

This was most evident in a recent GOP congressional budget proposal to make people under 55 shell out most of the cash to fix Medicare while leaving all others untouched.

It's worse than that, though.

Today's Xers in the workforce have, unlike prior generations, watched pensions vanish and their wages flatten - not grow. They also bought houses when prices were artificially high, meaning they carry more mortgage debt than those sitting on the fat equity of homes bought before the housing bubble jacked up prices to unprecedented heights.

Xers also have been nailed by another bad fact, one they share to some degree with so-called late boomers in their 50s: They invested more in 401(k)s (as other retirement accounts disappeared) - and made much, much less than you would imagine, all because of when they were born, more or less.

"As jarring as the financial collapse may have been for the Early Boomers, the market has actually treated them well over their lifetime," according to a March 2010 analysis by the Center for Retirement Research at Boston College.

In that study, the center considered a hypothetical early boomer (born in 1949) who was approaching 50 in 1999 and had begun investing in a 401(k) of equities (no bonds) at age 30, had amassed a 9.2 percent rate of return as of February 2010 - not bad, considering the stock market crashed in 2008.

A hypothetical late boomer (born in 1959) who was 40 in 1999 and had begun investing at 30 had a 5.5 percent return.

Then there's the Xer (born in 1969), who began investing in an equities-only 401(k) at the age of 30 in 1999.

Rate of return for that Gen X worker in February 2010: 0.3 percent. (Not a misprint.) That's barely better than having stuffed the cash under a mattress.

"They have no savings, and what they had was devastated by two market crashes," said Andrew Eschtruth, of the Center for Retirement Research. "They never got off the ground."

Forecasts are divided on whether the markets will ever recover sufficiently to help generate the kinds of returns needed over time to put these groups on retirement par with the early boomers.

But wait. There's more.

Another Boston College study in October 2009 found Gen Xers were more "at risk" of being unable to maintain their standard of living in retirement than their elders: 56 percent of Gen X, compared with 48 percent of late boomers and 41 percent of early boomers.

You see, the government has already decided that in 2037 - when many Xers will be just entering retirement - they will have to be 67 (not 65) before they can collect a dime from Social Security, even though they will have contributed into the fund at the same rate as those before them.

And when they do retire, the assumption is that the government will have changed things so that Xers can receive only 76 percent of the benefits given to today's retirees.

Imagine, VanDerhei warns, that on top of all this, tax rates have increased by then. Xers will have even less money coming out of their 401(k)s.

What to do?

Get yourself a retirement planner. Call your lawmakers. And cross your fingers.

Rates of return, as of February 2010, on equities-only 401(k) plans for three generations of hypothetical workers who began investing in 401(k)s when they turned 30:

Early baby boomer (50 years old in 1999)         9.2%

Late baby boomer (40 years old in 1999)          5.5%

Generation Xer (30 years old in 1999)             0.3%

SOURCE: "Returns on 401(k) Assets by Cohort," Center for Retirement Research, March 2010.

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Percentage of households, by generation, considered "at risk" of being unable to maintain their standard of living in retirement. The assessments were as of October 2009:

Hypothetical early boomers (born 1949)               41%

Hypothetical late boomers (born 1959)               48%

Hypothetical Gen Xer (born 1969)                     56%

SOURCE: "The National Retirement Risk Index: After the Crash," Center for Retirement Research, October 2009.EndText