NEW YORK (CNNfn) - Wake up and smell the cafe latte.|
That's what Generation X investors are telling themselves after enjoying 20 to 30 percent stock market returns. It just isn't going to last.
Most GenXers started investing in the '90s and have never participated in declines that lasted more than a three-month cycle. During the 1987 market crash, GenXers, those roughly between 22 and 35, were donning cap and gown at their high school graduation or just entering the work force.
"With the bull run market, our generation has seen only good news," said 26-year-old John Loughran.
Loughran isn't jaded about his retirement savings. He realizes that his generation, brought up on Atari, "Brady Bunch" reruns and SchoolHouse Rock, has known only a skyrocketing market and that it won't last. But looking into a crystal ball and forecasting what finances will be like during the golden years is tricky.
"Technology is moving so fast, we don't know what we'll have in five years let alone 35 years," he said.
Many of his peers describe a retirement of riches, full of travel and dining out. Although still a student, 22-year-old Jeannette Lai said she's planning extravagantly for her gray years.
"I'm going to make big bucks," she exclaimed.
Many young Americans punch numbers into online retirement tools and calculators trying to decide exactly how much they need to stash away now to retire comfortably in 30 years.
Some experts say it's difficult to know exactly what it will cost to retire, so young investors shouldn't rely on huge stock market gains.
GenXers must study a long time horizon to determine how the market will affect their investments.
"We've been very spoiled," said Jose Rasco, an economist with the Hoenig Group. "There's been no inflation, and high productivity."
Five years may seem like a lifetime for those in their twenties or early thirties, said Steven Kaye, a certified financial planner and president of the American Economic Planning Group in Watchung, N.J.
"Don't just pick some random five-year period to look at the market. Investors must consider a 30-year period, which historically has returned 10 to 12 percent profit," Kaye said. The 1960s were drastically different from the 1980s, and the 1990s have seen "returns through the roof," he added.
Social Security -- not so secure
The news that Social Security may not be there when GenXers reach retirement has been a wake-up call for young adults to realize that they will have to provide for their own retirement.
In a stark example of the cynicism, GenXers said they have more faith in flying saucers than the Social Security system, according to a survey conducted by Third Millennium, a Gen X advocacy group. Forty-six percent of those 18 to 34 years old said they believe in UFOs, while only 28 percent said they thought Social Security would still exist by the time they retire.
"It comes down to the fact that people don't have faith in the benefits they're being promised," said Richard Thau, executive director of Third Millennium.
Douglas Coupland's 1991 novel "Generation X," about three middle-class drifters in their late twenties, started the phrase that defines a group that includes anyone born between 1964 and 1978, according to GenX commentator Meredith Bagby.
The skepticism and self-reliance that typifies this group has sent GenXers to the Internet and bookstores seeking out information on how to save money for retirement.
"Every time you turn on the TV, you hear about someone with stock options who's become a millionaire," said Bagby, 26, and author of the upcoming book, "We've got issues."
And despite some early stereotypes depicting the MTV generation as lazy and indifferent, GenXers are actually financially savvy.
A 1999 retirement survey by the Employee Benefit Research Institute (EBRI), shows that 23 percent of GenXers already have put away up to $50,000 in retirement savings. About the same amount, 26 percent, have saved up to $10,000. But 11 percent of those surveyed still have an empty piggy bank for retirement.
Act on it
Unlike their parents' generation, today's young investors are bombarded with advice from all directions. Now, it's a question of sifting through the messages.
"It's a matter of getting good advice," said April Brooks, 30, program director at Jumpstart, a nonprofit educational group in New York City. It's not uncommon to find Brooks with some of her friends discussing finances and retirement.
"Being in a nonprofit, I'm realizing that I have to make some serious decisions for me," she said. "It wasn't as important at 22."
Bagby, the GenX author, suggests putting aside two hours on the weekend to assess long-term savings, firing up the modem and surfing the Internet for financial advice, checking out sites like E*Trade and Suretrade.
"Think realistically: What do I have to give up now to free up money for savings?" she said.
The best suggestion is talk to people who you think are up to date on investing. Talk to friends and find out what sites they use.
In addition, hit the bookstore to complement your research: "Get a Financial Life: Personal Finance in Your Twenties and Thirties," by Beth Kobliner, and for more sophisticated reading about investing, "A Random Walk Down Wall Street: Including a Life-Cycle Guide to Personal Investing," by Burton G. Malkiel.
The 'X' files
Steve Kraus, a partner with research marketing firm Yankelovich Partners, said Generation X itself encompasses a variety of lifestyles. Some are just entering the work force at 22, while the 35-year-olds are married with children.
And contrary to popular thought that Generation X consists of couch-potato slackers, Kraus says they're more self-reliant and entrepreneurial in their investing habits than the prior generation.
"GenXers subscribe to the classic American individualism that you can do whatever you want as long as you work hard enough," Kraus said.
Loughran, the 26-year-old, recently moved to the Big Apple with an MBA from American University in one hand and a personal investing plan in the other. He's currently siphoning pre-tax dollars into his 401(k) account and he opened a Roth IRA.
"There's no company loyalty today," Loughran said. "We've got to rely on ourselves."