A Few More Years Working

Florida beckons, but these days it looks as if people on the verge of retiring may have to wait for those sunny skies a little longer.

Financial planners say that investors who pinned their hopes on early retirement only a few short years ago have had to put those plans on ice. Given the market's lousy performance, they're now planning to put in more years of cubicle time than they had expected.

Indeed, a UBS/Gallup survey released this February found that 19% of investors said they might delay their retirements because of the weak economy. On average, they expect to leave the workforce 4.4 years later than they had originally expected.

Meanwhile, the average expected retirement age of those polled in the UBS/Gallup February survey jumped to 63.8, up from 62.9 in a June 1998 UBS survey.

More evidence of the shift in retirement realities was supplied in a just-released May report from John Hancock Financial Services. Its survey of investors between the ages of 25 and 65 found that half of those without old-fashioned pension plans were facing a savings shortfall of 20% to 30% at retirement, even after factoring in Social Security benefits.

The upshot: People are starting to face up to the fact that early retirement is no longer anything but a pipe dream.

In the boom years of the late '90s, "there were a lot of middle-income people who thought they might retire early," says M. Eileen Dorsey, a St. Louis-based certified financial planner. "I don't think a whole lot were making definite plans, but when they saw their accounts and 401(k)s going up and up and up, it gave them the option to retire early. Now that's pretty much been taken away."

Some clients have told her they now expect to work an additional two to five years because of stagnant or negative returns in their retirement accounts, she says.

Older Investors Say Retirement Is Looking a Little Less Rosy These Days
Age	Percent of investors who say they face a less comfortable retirement due to the weak economy
18-39	14%
40-49	20
50-59	32
60 and up	38
Source: UBS/Gallup Poll of Investor Attitudes, February 2002.

But while plenty of folks are less than thrilled at the prospect of putting in more work time, others may not even realize yet that they won't be able to retire as planned. "My guess is probably some people are not [aware of their savings shortfall]," says Wayne Gates, general director of market research and development at John Hancock Financial Services. According to survey data, he points out, investors are still expecting unreasonably optimistic returns in the stock market. "They think they could actually contribute less and get there. But a lot of people will be disappointed."

The Bubble Lives On -- in Investors' Heads
Asset class	Survey respondents' est. of expected avg. annual return over the next 5 years	Survey respondents' est. of expected avg. annual return over the next 20 years	Actual historical returns
Equities	10.85%	15.75%	10.71%
Bonds	8.12	10.31	5.77
Money Market Funds	7.72	9.80	3.81
Stable Value Option	7.55	9.87	N/A*
Source: John Hancock survey, May 2002.

Perhaps it's no surprise that many people seem ill-prepared for retirement, given that a startling number lack even a basic understanding of investments. For instance, the John Hancock survey also found that nearly 80% didn't know that the best time to invest in bond funds is when interest rates are expected to decrease.

After back-to-back market declines, 10% of those surveyed didn't know they could lose money in stocks.

Worst of all, even after the blizzard of bad publicity surrounding Enron, those polled said their employer-company stock is less risky than a diversified domestic stock portfolio. "There appears to be a 'not my company' attitude among respondents," stated a report that accompanied the John Hancock survey.

Michael Boone, a certified financial planner based in Bellevue, Wash., says he's well aware of retirements that have been delayed because investors saw massive holdings in company stock take a beating. Though his own clients tended to be conservative, "they all have stories from work of people who had entire fortunes, dreams of sipping drinks in the Hawaiian sunset, and now they don't anymore. They had their choice and decided to bet on their company stock because of its historically great performance."

Other times, employee stockholders suffered from circumstances beyond their control. Boone, who worked with a number of employees at the former U S West, says many watched helplessly as the company underwent a transformation following its acquisition. "U S West was pretty much considered a dividend-paying, blue-chip, relatively safe stock. But when it was purchased by Qwest (Q Quote), it became much more aggressive, and the stock then became much more volatile," he says. "I think a lot of them were disappointed." Qwest's stock has slid 87% in the past year.

The situation was most frustrating for employees who wanted to sell stock but weren't allowed to by their companies. "In their weaker moments, anger is a pretty good word to describe" what they're feeling, says Boone. "But they understand there's not much they can do about it. And they're much better positioned than people who've already retired and held on to those positions. They not only have a huge drop to deal with, but they don't have a job, either."

In that sense, people who haven't retired yet are lucky, he says. Though they may have lost big in the market, at least they can continue working another few years to build up more savings.