Since 1926, stocks have returned about 10% a year, before allowing for inflation, and there is no reason to believe that rate will not persist. But returns can fluctuate wildly for decades at a time, and people within 10 years of retirement should prepare for subpar returns the rest of their working lives. Why? For one thing, to allow for the working off of the excesses that accompanied the two decades of exceptional market growth we have just experienced. It does not necessarily follow that two decades of outsize gains will give way to an extended period of market torment, but that's what some market analysts expect, and you might as well own up to the possibility, especially since most stocks remain expensive relative to their earnings, even after the steep declines of the past couple of years.

The S&P 500 is trading at 22 times trailing 12-month earnings—still well above the norm of about 16. If profits grow as they have in the past, at about 7% annually, and the P/E multiple retreats to 16, the market will return zippo for five more years, except for an annual dividend of less than 2%. This assessment may prove too pessimistic. The recession depressed earnings; a robust recovery could drive them higher faster. But there's no realistic scenario in which stocks resume and sustain anything close to their '90s trajectory.

For every retiree living well, there is another living in financial dread, according to a recent study for SunAmerica by retirement author Ken Dychtwald. He concludes that as boomers retire, the group living in dread is likely to expand. The study focuses on today's retirees, who at 65 have a life expectancy of 18 more years and climbing and who can expect to spend much of that time in good health.

Once upon a time, retirement was a luxury. It gained widespread acceptance only with the industrialization of America and especially with the Great Depression, when the old suddenly were expected to get out of the way of the young, who were stronger and more productive and who needed jobs to buy homes, raise families and spur the economy. Today's boomers generally look forward to retirement but see it as a time to become active in ways they could not be when they were building careers and rearing families. For some that means finding new work, not out of need but for fulfillment—teaching, consulting, writing. In the SunAmerica study, 95% of employed people ages 55 to 64 said they expected to keep working, even if they don't have to.

This attitude sets boomers apart from their parents, who have traditionally been content to travel, golf and play a lot of pinochle. The emerging retirement ideal is far more active. The University of Miami Institute for Retired Professionals arranges for anyone over 50 to audit regular university courses or take five-week summer sessions, with such classes as creative writing, literature, drawing, computers and a newly added course on Middle East politics and Islam. "A lot of folks are here every day," the institute's director, Noreen Frye, says of the over-50 set. "Others are active with their church or synagogue, and some have gone back to work or consult or have started new careers." Most of the students are between 65 and 70, Frye says.

One of their instructors is Jay Jensen, 69, a retired drama teacher who now works as a drama coach and teaches music appreciation, as well as English as a foreign language. "I'm incensed," he says of scandals rocking the stock market. "Every time I look, I'm getting poorer." But he's not letting that slow him down. "My theory is, you die if you don't keep moving," he says. "The people I hang out with are in their 20s and 30s. I want to be around people who want to paint a picture, be in a play, become a lawyer—not people who are planning their funerals."

Another willing older worker is Frank Dillon, 65, of Concord, Calif. After 37 years as a marketing executive at PG&E, Dillon enjoys a generous pension benefit and has personal assets of more than $1 million. He spent his first golden year exactly as he had envisioned—reading, playing some golf and, one by one, knocking off several odd jobs and improvements such as building a deck at his home. But then something he had not envisioned intruded on years of planning: he got bored. So he took a part-time job supervising tee times at a nearby golf club. "I just wanted something to do," Dillon explains. "I like to meet people and keep active." He later went back to work full time as a consultant to his old employer. "A lot of people in business haven't been honest with us," Dillon says, noting the recent headlines. Yet he believes this will all pass in a few years and vows not to touch his stock investments until they recover.

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