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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.
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 divorce, 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.