The New Retirement Rulebook

BOSTON (MainStreet) -- The rules of retirement are in need of a rewrite.

The loss of company pensions, longer lifespans, concerns over Social Security and a volatile investing world are among the forces that have made planning for a financially secure retirement more challenging than ever.

Longevity and market volatility mean that retirement goals and how to reach them have changed.

Retirement strategy has long been almost entirely focused on the accumulation of assets, but study after study has continually moved the goal post for what is needed in savings -- $500,000, $1 million, $3 million.

The problem is that big numbers of that sort can either scare investors into thinking a target is unobtainable or force them into a risky glide path in search of returns to reach that magic number. More skeptical savers point out that the very financial firms that benefit from the growth of investible assets have been the ones marketing bigger and bigger "numbers."

How much people need to retire has become more individualized, more of a moving target. Building needed assets may require more than just the standard simplicity of splitting a "buy and hold" portfolio among stocks and bonds.

"There's a lot of people who are vulnerable. When you really take a look at the most vulnerable people, any of the baby boomers fall into that category because they lack that defined benefit-pension plan, and the old three-legged stool of having a pension plan, Social Security and savings is kind of broken," says Bill Smith, president and founder of Ohio-based Great Lakes Retirement Group. "With the 401(k) now being the primary source for funding an individual's retirement, what happens is it becomes up to the individual to build their own pension."

Smith advocates an approach that takes into account an "individualized inflation rate" based upon standard of living. A laddered annuity approach can cover baseline expenses to "give peace of mind for lifetime income that they can never outlive."

"In theory, they can spend the rest of their money and never run out of income," he says.

That personalized inflation rate is determined by assessing basic necessities and retirement goals. Someone with a history of medical problems, for example, may need to account for the higher rate of health care inflation; those who live in a major city may also see basic expenses increase at a greater rate.