It's hard to believe that just two years ago, all the talk was of leaving the rat race early. Cocky young Internet entrepreneurs were poster children for that movement. Working to 65 was for losers. After all, you can get early, albeit reduced Social Security benefits starting at 62. By the late '90s some 73% of retirees had opted to take early benefits, compared with just 18% in 1960. You can begin to take penalty-free IRA and 401(k) distributions at age 59 1/2—and even earlier under certain circumstances. Many companies start offering retiree health benefits at 55. And when the stock market was growing 20% a year (remember?), the math was simple. All those over 35 had their fingers on a calculator. These days, sadly, the math isn't much fun. In many households no one can stand even to open the 401(k) and brokerage statements because of the angst they inspire.

Can you ever retire? Of course. Just as good times don't last forever, neither do bear markets. The economy is now recovering smartly. Your savings will start to grow again soon. But the game has changed.

To understand how, take yourself back to 1999. Let's say you were 37 then and had saved $100,000 for retirement, with a goal of $1 million—which would provide you with an annual retirement income of, conservatively, $70,000. You could have figured on retiring in 2011 at the age of 49 simply by contributing the maximum to your 401(k) and socking everything into stock funds growing 18% a year. Today that $100,000 in stocks has probably shrunk to $56,000, or considerably less if you were heavy in tech. And you're two years older. You have lost more than money; you have lost time. And the only thing compounding at 18% a year these days is the frequency of your anxiety attacks. At this point, 7% is a more reasonable expected annual rate of return to plug into retirement calculations. Why so low? You're probably—and rightly—more diversified, including some fixed-income holdings (all stock all the time is soooo out of fashion). Diversification among stocks or stock funds, bonds and cash and their equivalents lowers your rate of return but also reduces the risk of losing money.

To continue our example: with a lower expected rate of return and a smaller nest egg (compliments of the bear market in stocks), your savings would come to just $218,000 by 2011—well below the $1 million goal, which you would not achieve until 2028, when you're—gasp!—66. So much for retiring early. Of course, if you could save more and returns improved, you would get to the $1 million mark faster than on that grim schedule. But it adds up to a dramatic shift in your plans and dreams. "It's almost impossible to overstate how many people thought that the booming stock market of the '90s would continue indefinitely," says John Rother, policy director at the retiree-advocacy group AARP.

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Jan Thompson, 62, certainly miscalculated. A bookkeeper for an electrical contractor, she retired in May 2000 mainly on the security of $300,000 in a company profit-sharing plan. But the bear market has claimed half of her retirement pie, and Thompson, a divorcé, recently gave up hope of finding a job in her hometown of Chesterfield, Mo. She will start looking again in the fall, she says. Her money had been invested in a mix of bonds, tech stocks, blue chips and large-company growth funds. She's kicking herself for not investing more conservatively. "If I'd put all my money in a bank account or money-market fund, I'd still have what I started out with. What does concern me is that all these scandals are making people have a lack of faith in the market and leave it."

She has done just that with some of her savings, shifting more heavily into bonds as well as value funds and funds that invest in small and middle-size companies—which have held up best. But even conservative stock portfolios loaded with dividend-paying companies and real estate holdings have begun to melt away in the past month. Thompson now understands that she must work at least part time. "I watch my money, and I don't spend extravagantly," she says. "I'm realizing that the growth in money I thought I would have for my later years just won't be there."

So these days, how does one best prepare for life after work? Saving more earlier is the surest strategy. Nearly half of all households did not save a penny last year; revolving consumer debt over the past five years has soared 30%. The median savings for boomers at age 55 are just $25,000—without accounting for debt. Yet many polls show that people in their 40s still expect to retire in their early 60s. And some 70% of Americans believe they will live well in retirement, even though just a third have attempted to calculate how much they should be saving. Clearly, something has to give: either boomers' high expectations for their retirement lifestyle or their dreams of retiring on schedule. Given this generation's consumption habits, you can count on boomers' working longer.

The first step toward fixing the problem is to recognize how dramatically things have changed. People need to downscale their expectations and recognize that the phenomenal returns of the 1990s were the aberration. David Bach, a New York City financial planner and the author of the best-selling Smart Couples Finish Rich, recalls the types of meetings he would have with investors just three years ago. "We'd meet with people who brought along planning proposals from our competitors, and they'd plugged in 18% yearly returns," says Bach. "For a while it was possible to back-test a hypothetical portfolio of 10 stock funds for 10 years and see those kinds of returns. So it wasn't pure fiction. But we ran our assumptions at 10% or 12%, and we never got the client." In the postbubble market, Bach says, he plugs in 6% returns and prays that he's being conservative enough.

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