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Gen X faces daunting task: Planning for retirement

Members of Generation X face the daunting task of planning for a retirement that will likely include no pension, a potential Social Security haircut, stagnant wages and high education costs for them and their children.

Sandwiched between 80 million baby boomers and 78 million millennials, Generation X—roughly defined as those born between 1965 and 1980—has 46 million members.

Fortunately, all is not lost for Gen Xers who are behind schedule when it comes to saving for retirement.

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With that said, I offer three simple steps that can increase the odds of a more confident and secure retirement.

To begin, if you take out more than 4 percent of a diversified portfolio, on average, you'll have a 20 percent chance of running out of money within 30 years.

As a point of reference, you'll need $2 million to generate $80,000 of income that isn't adjusted for inflation and will be subject to taxes if it's inside a qualified retirement account.

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Many people believe that Social Security can help subsidize their lifestyle in retirement. However, the Congressional Budget Office recently reported that the Social Security trust fund will be exhausted by 2030 and would only be able to pay 75 percent of scheduled benefits.

Of course, that's right around the time when many in the Generation X demographic reach full retirement age.

Reduce fixed expenses

The first step to a financially independent retirement, therefore, is to reduce fixed expenses.

For many households, mortgage payments represent one of their largest outlays. Speaking from experience, many of my middle-class clients—outside of those receiving a pension—have created the greatest chance at maintaining their lifestyle during retirement because they paid off their mortgage before they left the workforce.

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Relax. It's really not that complicated.

Depending on the interest rate, a typical $250,000 mortgage would require roughly $1,300 a month in mortgage payments on a 30-year fixed loan, or an estimated $15,600 a year.

As a rule of thumb, investors shouldn't withdraw more than 4 percent of a portfolio. In that sense, a family at the front end of a loan, or a serial refinancer, would need a $400,000 portfolio to create the $15,600 a year that can be withdrawn to pay off that mortgage.

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So how do you pay down your mortgage early?

Well, once your children have finished college and start to make it on their own, add up all the money you spent each year on education, food, clothes and transportation (did I mention food?) and apply it monthly or quarterly to your mortgage.

While the temptation is to have fun and spend your newfound windfall once the house is empty, the true benefit is to pay down the mortgage by making extra payments.

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The idea behind this isn't reducing intramonth interest expense; it comes from paying down your outstanding loan balance with additional principal payments.

Keep in mind that if you're halfway through a 30-year mortgage, your tax benefit is negligible and the extra payments could eliminate the last seven or eight years of mortgage payments and save you tens of thousands of dollars.

Save up and still work

The second thing you should do is save more money during the last few years of your career. In fact, once your mortgage is satisfied, you then have an opportunity to allocate the money you would have used on a mortgage payment and instead fund an investment account—if you still remain in the workforce.

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Finally, consider working part-time once you leave your full-time job. Do something that you enjoy. For example, if you enjoy riding bicycles, work for a bike shop. For those who love animals, get a job at a pet shop. The additional income can delay or reduce the distributions from your savings. It will also allow you to take Social Security benefits at a later date, which would increase the amount you ultimately receive per month.

"I encourage Gen Xers to speak with a financial advisor to help create a sound retirement plan. It should be a priority for those who seek financial security after they leave the workforce."

Here's a hypothetical example of how this will work. If you took Social Security at age 62, on average you would collect $1,350 a month. If you waited until 66 to collect, you would receive $1,800 per month, and waiting until age 70 would get you $2,376 a month.

I encourage Gen Xers to speak with a financial advisor to help create a sound retirement plan.

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It should be a priority for those who seek financial security after they leave the workforce, but like anything else, it requires a little bit of sacrifice and some long-term planning.

—By Ivory Johnson, special to CNBC.com. Johnson is the founder of Delancey Wealth Management.