Having a Backup Plan as Retirement Approaches

Ulrich Gaisrucker, 41, of Huntington Beach has another plan. Instead of pushing back his retirement, he and wife Margret Phinizy, 53, would just learn to live on less. "Instead of the world cruise, we'd go to Death Valley or visit relatives for vacation," he speculates. "We could adjust pretty easily."

Too old to think they have time to waste and too seasoned to believe they can plan for every variable--especially in volatile financial markets--many aging baby boomers now have both a Plan A and a Plan B for retirement. Maybe even a Plan C.

Financial advisors say boomers are using a logical approach to handling long-term planning uncertainties in middle age.

"We have lived long enough not necessarily to be soured, but to know that things might not work out the way we expected," says Judith Martindale, a 53-year-old financial planner in San Luis Obispo.

There are, of course, personal circumstances, like divorces, mid-life crises, medical emergencies and the unpredictable needs of children, that can derail the most meticulous financial plan.

Whatever the cause, some 40- and 50-somethings may be realizing that, with retirement less than 15 years away, they simply haven't saved enough so far.

People like Viner and Gaisrucker, who each have saved a bit more than $100,000 so far, could find their retirement savings inadequate if investment returns prove substantially less generous than they were in the 1990s.

The impact of lower returns on your retirement nest egg can be lifestyle-changing. If you had invested $100,000 in the S&P 500 in 1990, you had $608,810 by the end of 1999. But the same amount invested in 1965 would have been worth just $113,194 by the end of 1974, at the bottom of that era's horrendous bear market in stocks.

If $100,000 was all someone had socked away for retirement in 1965, that retiree in the 1970s could count on only about a $6,000 annual income from that nest-egg.

"The most important thing in planning for retirement is making informed decisions that take into account investment risk," says Christopher Jones, vice president of financial research and strategy at Financial Engines in Palo Alto. "If you are substantially investing in stocks, either through equity mutual funds or individual holdings, the range of possibilities [of returns] can be quite wide."

Since you can't predict precisely what the market might do, it's wise to take a look at the vast array of possibilities.

An easy way to do that is to visit the Financial Engines web site at http://www.financialengines.com. You can plug in the details of your investment portfolio and the site's computer program will analyze the range of possible returns based on subjecting your portfolio to a host of economic scenarios. In roughly a minute, you have a view of your best case, worst case and most likely outcomes.

If those outcomes aren't appealing, many baby boomers still have the time, and flexibility, to come up with new plans to improve the outlook for their retirement years.

Here are some of those options:

*Work harder now to save more.

Consider a hypothetical boomer, John Jones, who is 40 and wants to retire at age 55. He has saved $50,000 and sets aside $450 a month in his 401(k), but knows that's not going to be enough.

So, he economizes where possible and starts working some overtime to double his monthly contributions to savings.

What will that mean for his nest egg? Assuming he earns 11% annually on his money--the average annual return of the S&P 500 over the last 73 years--he'd have $667,620 in 15 years, versus $463,009 if he didn't ramp up his contributions.