The economic ground is shifting for millions of Americans in their 50s and early 60s who find themselves forced to reconsider their dreams of a comfortable retirement.
Experts say that many have abandoned plans for early retirement and growing numbers are laying plans to continue working far beyond what has been considered a normal retirement age.
The reasons are varied. We are living longer than ever before. The quality of health care and its cost are growing at a head-spinning pace. There have been some unpleasant surprises for some who rely on investment income and continuing changes in the retirement promises made by large employers.
But for many who have already retired, life is proving to be surprisingly manageable. They have found satisfying answers to an array of economic challenges and offer lots of advice from the other side.
Here's some of what they have to say in answer to questions about the growing challenges of retirement:
Question No. 1
How much money do you need?
"The rule of thumb I heard is if you retire and have the same kind of income when you were working, you might be pretty well off," says Herbert Harris, 81, of Silver Spring, who retired at 65 as an industrial engineer for the federal government. He consulted for a few years after that.
When planning retirement, Harris figured that he and his wife, Fran, a retired teacher, could live comfortably on his annual salary of $75,000. The couple's traditional pensions and Social Security, both of which provide cost-of-living adjustments, make up 80 percent to 90 percent of that, he says.
"We can pretty well handle most of all expenses," he says, including winter trips to Florida.
Future retirees likely will look at Harris and others like him as the lucky ones. Pensions that promise a monthly check for life are being replaced with defined-contribution plans, such as a 401(k). With these plans, the size of one's nest egg will depend on investment performance and how much the worker, and often the employer, kicks in.
In 1975, about 67 percent of private retirement plans were defined contribution; by 1998, it was 92 percent, according to an Employee Benefit Research Institute (EBRI) study.
These plans require a whole new set of financial decisions upon retirement when workers receive their savings in a lump sum. They can use the cash to buy an annuity that will provide them with a monthly check, or they can try to invest and manage it so they don't outlive their money.
Ada and Bob Stankard of Arnold faced some of these financial decisions.
Bob Stankard, 66, worked as a manager for film and imaging companies and retired twice, in 1993 and early 2002. The first time, he took his pension in a lump sum, the second time he received a payout from a 401(k).
Ada Stankard, 64, taught off and on while raising three children, but worked 10 years at private school before retiring in 2000. She had a defined-contribution plan and small pension.
The lump sums they received from employers were rolled over into an individual retirement account. They collect Social Security.
The Stankards hired a financial planner to manage their IRAs in the mid-1990s. The money is being invested with the goal of earning an average of 7 percent annually and allowing the Stankards to withdraw slightly less than 6 percent a year. Not until they are in their mid-80s will they begin to dip into principal, unless they increase their spending earlier.
Currently, they say, they are comfortably living on just under 70 percent of their preretirement income.
"We are sort of living on what was our take home pay," says Ada Stankard.
Some expenses have disappeared in retirement. Bob Stankard had been living and working in New York and commuting to Maryland on the weekends, so those costs are gone. The couple also is no longer saving for retirement, which ate a big chunk of their earnings.
"Ordinary living expenses haven't changed that much," Ada Stankard says. "My clothing budget is a little bit less ... but we do travel more and also seem to eat out a little bit more."
Of course, the answer to how much one needs to retire is as different as the individuals.
"You need to be able to maintain your previous standard of living," says Alicia H. Munnell, director for the Center for Retirement Research at Boston College. "You don't need to be rich if you weren't rich before. You do need to plan."
For planning purposes, experts for years advised that retirees would need 70 percent of their preretirement income. Now, many financial planners suggest that retirees will need the same amount of income that they had while working.
These planners find new retirees often spend just as much as before. Sure, work-related costs go down, but healthy retirees have time to travel, dine out and pursue pricey hobbies.
Other factors also will shape finances in retirement. Will you move to another state that has higher or lower taxes and housing costs? Is the mortgage paid off? Does your employer offer medical insurance for retirees, or will you pay that out of pocket until Medicare kicks in at age 65?
And perhaps the toughest question to answer: How long will you live? Planners suggest workers figure on living until 95, unless there's some family history that suggests otherwise.
The Social Security Administration mails a statement annually to workers to give them an estimate of their future benefits, whether taken at age 62 or later. The statements, experts say, often show workers that Social Security alone won't be enough to comfortably retire on.
Some discovered that too late.
Bernadette Kimmons, 74, retired about six years ago from an auto paint shop in Oregon where she had worked for 42 years. She lives on her monthly Social Security check of $887 and the $150 she earns each month baby-sitting her grandchildren.
She owns her home, she says, but still has bills such as homeowner's insurance, property taxes, utilities and health insurance. After bills, there's no money left to travel or remodel her 50-year-old house, she says.
"Retirement is for the people that have money and can go places," Kimmons says. "Retirement is hell if you don't have your own money."
Question No. 2
How do you know when it's time to retire?
That's what Dr. Alan Jung used to ask his retired patients once he turned 50. Their answer was the same across the board," says the 74-year- old dentist from Westminster. "They'd say, 'You'll know.'"
At 61, Jung visited a financial planner to see if he would be able to afford to retire the next year. The planner told Jung that he could retire the next day if he didn't substantially change his lifestyle. That's when Jung knew. He retired shortly thereafter.
Jeanne McConnell, 62, burst into tears when she was told about three years ago that she could afford to retire from her job as a grant officer with the Institute of Museum and Library Services in Washington.
"I said, 'It isn't the money. It's the rest of my life.' And at that junction, I knew I wasn't ready," she says.
A year later, she was ready.
"I miss my friends at work, but I've never looked back," says McConnell, who lives in Alexandria, Va. "And I don't know how I did work. I started taking piano lessons again. I did that as a child. I do that now for myself."
On average, today's retirees retired at 62. The reasons for their timing vary.
Some were coaxed to retire early by employers offering financial incentives. Others were able to afford to retire in their 50s and early 60s because their company offered retiree health benefits. Some quit because of health problems, they didn't like the new boss or felt unwanted because of their age.
"People are going to have to retire later in the future" because of longer life spans and often inadequate nest eggs, says Munnell.
Workers are getting the message. In a 1995 survey by John Hancock Financial Services, workers said they expected to retire on average at age 60. When the survey of 800 workers was recently updated, the average age of expected retirement had jumped to 64.4, and 18 percent plan to work until age 70 or later.
Question No. 3
Should you work in retirement?
"When you teach music, you never retire," says Elizabeth Flaherty, 76, a widow who earns $12 an hour teaching piano and singing 20 hours a week to children in Baltimore County.
"I'm working because I love to be in music. I love children. It's a therapy for me. I couldn't sit home and do nothing," she says, adding, "It helps me live on what I have without touching my savings."
Many of today's new retirees still work, at least part time. "They are not yet ready to scale back permanently," says Sara Rix, a senior policy adviser at AARP, an advocacy group for those 50 and older.
"Working part time is really valuable," Munnell, of Boston College, adds. "It puts structure to your day, provides companionship and gives a sense of accomplishment."
However, working can have an impact on taxes and Social Security. Retirees taking Social Security before their full retirement age will see a reduction in benefits if earnings this year are more than $11,640. Also, if your income is high enough, as much as 85 percent of benefits could be subject to tax.
According to the Bureau of Labor Statistics, 18.4 percent of 65- to 69-year-olds worked in 1985. Last year, that number grew to 27.4 percent.
This trend is expected to grow as baby boomers retire.
Nearly eight of 10 boomers say they plan to work in retirement, according to a survey recently released by AARP. Of those, 30 percent want to work for enjoyment, while 25 percent expect to work because they'll need the money.
But workers can't count on having a job as long as they want.
Nearly four of 10 retirees in an EBRI study this year ended up retiring earlier than planned, often because of poor health or a job loss through a layoff or company closure.
Bernie Lazar of Silver Spring, for instance, says he retired from a part-time job at age 66 because his employer, a restaurant supply company in Washington, shut down.
"If they didn't go out of business, I would still be working," the 82-year-old says.
Question No. 4
What worries retirees?
For most who retire, medical care is the largest concern.
"I'm fortunate. ... I'm not one of these seniors having to cough up $1,000 a month for medications," says Cynthia Anderson, a retired Baltimore County biology and health teacher.
"If my health fails, and I have to start taking expensive medicine, it will be a hardship," she adds. "Basically, my retirement income takes care of me because I don't have heavy medical expenses."
Anderson, 70, also is concerned about long-term care. Her mother has Alzheimer's disease, and Anderson figures she may live into her late 80s or 90s. "I can't put the burden of my care on my son," she says.
The typical stay in a nursing home is 2.4 years, and, as of last year, the average cost of care was $66,153 a year, according to MetLife.
Medicaid will provide care for those who are poor, and the wealthy can afford to pay health costs out-of-pocket. It's the group in the middle, like Anderson, who face the decision of whether to buy long-term care insurance. The older one is, the pricier the policy.
Anderson, who purchased her policy just before turning 65, pays $1,578 a year. "It's like auto insurance," she says. "You don't build equity in that."
Question No. 5
How can family affect a retirement?
"I didn't realize I would have to help my grown children," says Ivene Nelson, 78, a retired administrative assistant in Los Angeles County in California.
Nelson has financially helped two of her four children over the years, including giving her 55-year-old son the down payment for his first house. The helping hand means less for her modest retirement, but she has no regrets.
"I didn't have to help them," she says. "If I need help, they would be ready to help take care of me."
Sometimes, family troubles can derail retirement plans.
Madeleine Greene, 65, an educator with the Maryland Cooperative Extension in Howard County, says she expected to retire five years go, until her son, a single parent, developed cancer. He has recovered, but Greene and her husband, 74, have been raising their 11-year-old grandson.
"There are a lot of people putting off their retirement plans because things happen," Greene says.
Question No. 6
Should you have a mortgage in retirement?
Herbert and Fran Harris sold their home in 2001 and took out a 30-year-mortgage on a condominium. "I don't believe in putting all my money in a house," Herbert Harris says. "I put down what I thought was comfortable. It's silly, if you have any sudden expenses and all that money is tied up in the house. It doesn't do any good.
"You might as well invest your money and earn a better rate of interest," says Harris, whose mortgage rate is 5.75 percent.
Some planners advise against a mortgage in retirement.
"That's a substantial drain of their money," says Jerry Cannizzaro, a financial planner in Oakton, Va. A $1,200 monthly payment, for example, eats up $14,400 a year that they could have spent on other things, he says.
Also, if one spouse dies and income drops, the survivor may struggle to keep up with mortgage payments, he says.
At the very latest, Cannizzaro says, a mortgage should be paid off by age 70, around the time when retirees' health care costs start climbing.
Another advantage to paying off the house is that retirees will be in a better position to get a reverse mortgage if finances take a turn for the worse and they need income, says John Bacci, a financial planner from Linthicum. The loan won't have to be repaid until the borrower permanently moves or dies and the house is sold.
Question No. 7
Retirement is all golf and books, right?
Patricia Cooper of Lynchburg, Va., was an investment banker for most of her career and retired in 1999.
"My thought was I could read every book I wanted to," the 66-year-old says. "That there would be days that I could do nothing but read. The reality is that I'm not happy just sitting all the time."
Today, Cooper is active in her church, performs in two choirs and volunteers with a program that helps low-income people apply for prescription drug assistance. She's interested in medical issues and is thinking about going back to school to be a pharmacy technician.
The happiest retirees aren't necessarily the richest, but those who are active and have goals, whether it's travel or visiting grandchildren, Cannizzaro says.
"You need to know what you are going to do in retirement," he says. "You don't just want to retire and lay down with the remote control and watch 180 cable channels. That's the way you will die earlier."
Question No. 8
What would you advise today's workers?
Many retirees, no matter their income, wished they had saved more and advised others to do so.
"All the old cliches are true," says retired dentist Jung. "The more money you can put away, the better off you are going to be, even if it's only a few dollars. It's the discipline of the thing."
Anyone can save, they say.
"It's not what you make, it's what you can save," says Harry R. Cook, 73, of Towson. "Some earn $100,000 and spend $101,000. So where are you?"
Retirement planning resources
Plenty of online sources are available to help baby boomers and younger workers plan for retirement. Among them:
Request a copy of estimated Social Security benefits at www.socialsecurity. gov.
Get an idea of life expectancy with a longevity calculator, such as the one at www.livingto100.com.
Baltimore's T. Rowe Price Associates offers a Retirement Income Calculator to compute the likelihood of running out of money at retirement at www.troweprice. com.