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Less bang for the boomers

(Page 2 of 2)

"They don't understand some basic financial principles such as compound interest and adequate returns, so they are doing nothing," says Frank Murtha, a business professor at New York University.

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In another new study, recent retirees say they are worried about money, strapped for cash, and dependent on Social Security. About 1 in 5 is struggling financially, according to Putnam Investments, which conducted the study. With household incomes averaging $49,000, half are living on less than they did in their working years. Forty percent worry that they'll outlive their money. Most wish they had saved more and had started saving earlier. Even so, 84 percent describe themselves as satisfied with their new status.

Also, many professionals calculate retirement needs the wrong way, says Mr. Brown, a University of Illinois finance professor. "If you look at most of the financial-planning software or talk to financial planners, they'll say, 'Look, you're 65. According to standard life tables, you could live to 85. To be conservative, let's just tack on five more years.' "

Yet about 1 in 3 women who live to 65 will be alive at 90, Brown notes. More men and women are also living to 100.

As one way to make a nest egg last, he suggests life annuities, which provide a guaranteed source of monthly income that cannot be outlived. Under the proposed Retirement Security for Life Act of 2004, individuals would not pay federal taxes on half of the income generated by lifetime annuities, up to a maximum of $20,000 in excluded income per year. For a typical American in the 25 percent tax bracket, this would provide an annual tax savings of up to $5,000, Brown says.

Whatever the nest egg, the changing business world requires vigilance on the part of workers. Mergers and other corporate shifts can make it difficult to keep track of pensions, says Jeanne Medeiros, a legal consultant for the New England Pension Assistance Project in Boston.

"It's surprising how many people, when they reach retirement age, find that the employer doesn't have complete records," she says. "They're being shortchanged. The burden is on people to become more informed." She urges workers to keep a file for each job they hold. Employers are required to provide an individual benefit statement.

As essential as money is, some retirement experts offer reminders that it represents only one aspect of the later years.

"The discussion about retirement has been seriously monetized," says Ellen Freudenheim, author of "Looking Forward: An Optimist's Guide to Retirement." When people talk about money for retirement, she says, "the question that gets left out is: What are we financing? What is the lifestyle we want? What is going to make me happy?"

The answers will have a bearing on bottom-line decisions. "There are lots of ways to do things cheaper," Ms. Freudenheim says. "One needs to be inventive and creative." She suggests that people who want to travel can save money by swapping houses or going off-season. Others can find ways to make money or do tax write-offs to finance what they like to do.

When Freudenheim interviewed retirees for her book, she found an encouraging pattern. "When you talk to older people who have been retired for some time, in different socioeconomic strata, they don't talk about money," she says. "They talk about family, about how they spend their day, about a good laugh, or the direction the country is going. They talk about their life, the roses in their backyard, the pleasure they get out of learning to play the piano at 65."

Calling those conversations an eye-opener, she says, "There's this whole range of things in retirement that make a difference in people's lives that have nothing to do with money - supportive relationships, family, natural beauty."

Freudenheim, a baby boomer, is still years from her own retirement. But as she contemplates that event, she expects to work in some capacity.

Even economic necessity can bring opportunities for activity and fulfillment. "People might work differently, they might work less, they might work sporadically, or take a year off," she says. "Work will figure much more prominently in our generation's retirement, and that's only partly for economic reasons."

Whatever the size of a retirement portfolio, she insists, "there are ways to live a full life."