Will We Ever Retire?: Everyone, Back in the Labor Pool

Martha Parry had had it all figured out when she sold her small insurance firm in Massapequa, N.Y. Her house was paid for, and she would be receiving monthly payments over the next two years from the sale of her business. Those proceeds would cover her expenses until she turned 65 and started collecting Social Security benefits. Meanwhile, the $1 million she had managed to save in tax-advantaged accounts would grow to $1.3 million or so. Only then would she start tapping the income from her nest egg. Parry looked forward to filling her golden years with golf, restaurant meals and frequent travel.

That was two years ago. Now the payment stream from her business has come to its scheduled end, and Parry's plan has fallen apart. Her accountant recently floored her with awful news: the stock market has whacked her savings to $600,000, and she can no longer afford the lifestyle she had tasted so briefly. "I'm looking for part-time work," she says bitterly. "But something tells me it will end up being full-time work."

Stung by a jobless recovery on the heels of the first recession in a decade and by a 2 1/2-year slide in stock prices that on Friday left the market at a five-year low, Americans are more worried about their financial future than at any other time since the turbulent '70s. They flocked to stocks in the roaring 1990s, only to see $7.7 trillion of paper wealth incinerated. If the scandal and collapse at Enron had been isolated, the nation's deflated sense of opportunity might have been repaired by now. Instead, the lid has been lifted on bogus revenue-generating schemes throughout the energy and telecom industries; earnings deception on an even broader scale; and the frightening failure of accountants, stock analysts, board directors and regulators to protect the nation's retirement assets. "These people have all lost credibility and should be prosecuted," says Parry. "I've lost faith in the whole darn market."

These unsettling developments have forced many of today's retirees to return to work and have confronted the next generation--the baby boomers, turning 50 at the rate of 10,000 a day--with dire financial issues for the first time in their lives. Can they ever retire? If so, when? What kind of lifestyle will they be able to afford? A powerful set of trends will leave many of them unable to call it quits until after they turn 70--possibly long after.

Stocks and other investments are expected to grow more slowly than usual for years to come. Health-care and college costs are rising fast. Many middle-aged Americans who had children relatively late in life are being hit with tuition bills at the same time they're footing at least part of the cost of nursing care and other expenses for their parents, who are living longer than anyone expected or planned for. Full Social Security benefits, which have kicked in at age 65 since the program began in 1935, will get pushed back starting next year and gradually recede to age 67. Dozens of companies, including Sears and Ford, have scaled back health-insurance benefits for retirees. A smaller and smaller percentage of Americans (now just 16%) receives guaranteed-benefit pensions from their employers. Americans are more dependent on 401(k) savings plans--in which balances have been shrinking (4% in 2001, to $10.9 trillion) despite record amounts of new investment ($140 billion last year).