Rethinking Your Retirement in Tough Times

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The notion of a traditional, leisurely retirement is fading fast.

The precipitous drop recently in retirement investment accounts, rising health care costs, a dearth of traditional pension plans, faltering Social Security and Medicare systems and the fact that Americans just are not saving enough have shattered the hopes of millions of Americans who dreamed of spending their days on a golf course or growing a prize-winning garden.

Instead, retirement is more likely to happen later in our lives and may involve working at least part time. Conclusion: Most of us probably will need a well-defined savings strategy if we expect to retire comfortably.

Most of us have some hurdles to overcome. For starters, we don't know how much we need to save for retirement. In Bankrate's retirement poll, 37 percent of Americans admitted they don't know how much they'll need to retire, and another 15 percent said they took a wild guess at a number.

Savings are sad
Our savings are paltry, generally speaking. According to the Employee Benefit Research Institute's 2008 Retirement Confidence Survey, nearly half of Americans (49 percent) have less than $25,000 saved, not including the value of their homes or their pension plans.

But beyond the idea of simply spending less and saving more, other attitudes and outlooks are in for a change.

Take age, for example. When the average life expectancy was 72, retiring at age 65 meant retiring with about 10 percent of your years left. But life expectancy keeps going up -- today it's about 78 years -- and if you live to age 85 but retire at 65 you will be counting on your retirement monies to sustain you for more than 23 percent of your life. In other words, if you live to age 78 and want to spend the last 10 percent of your time in retirement, you would not retire until you are 70. Using that 10 percent rule of thumb, if you live to age 85, you would not retire until age 76.

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More Retirement Advice from Bankrate.com:

• Bankrate's Retirement Calculator
• Asset Allocation Explainer
• Blueprint for Success in Old Age

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Attitudes already changing
Ironically, the good news is that American attitudes toward retirement savings may have turned a corner -- as a result of the bad news all around us. Henry "Bud" Hebeler, author of "Getting Started in a Financially Secure Retirement," says now that the national attention is focused on the credit crunch, failed mortgages and the souring economy, many of us are starting to ask more questions about saving.

"There's a wake-up call out there right now, and I believe a lot of people will heed it," he says. "People are going to be much, much more dependent on personal savings in the future."

Kevin Reardon, a CFP in Brookfield, Wis., adds that baby boomers may be ushering in a new period of austerity where ditching McMansions and SUVs for a downsized lifestyle will have "more to do with our current savings rate than anything else."

He predicts the future may hold a progression toward more federal programs and higher Social Security payments as well as a spike in households with three generations under one roof.

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