Affording to retire in today’s market

The economic downturn has thrown an extra problem at older baby boomers who had planned to retire over the next few years: They now have less money at their disposal than they had projected.

Retirement portfolios are shrinking. Home equity is plunging. And Social Security faces an uncertain future. This trifecta of grim news means that all but the wealthiest baby boomers may have to review – and possibly rethink – whether their retirement target dates are still realistic.

The bottom line is this: Unless you’re flush with cash, if you don’t need to retire, don’t. In the meantime, if you still have a few years before you’ll stop working, here’s how to make sure your timetable for retirement is still on track.

Re-estimate retirement needs: Financial planners have long championed a rule of thumb: People will need 70 percent to 80 percent of their pre-retirement income to live comfortably in retirement. But rising health care and living costs have led many planners to raise that percentage to near or even above 100 percent of pre-retirement pay.

“The fact of the matter is that you’re going to spend more, because you have more time on your hands,” says Don Weigandt, managing director for JPMorgan Private Bank.

Shore up investment portfolio: If you plan to retire in a few years, consider keeping a few years’ worth of expenses in short-term liquid investments such as bonds, says Harold Evensky, a financial planner in Miami.

That way, he says, if you must retire while the stock market is falling, you won’t need to tap into your depressed portfolio. By the time you start to withdraw from your portfolio, he notes, the market might have turned around, boosting your investment values.

Plot withdrawal strategy: To minimize your chances of running out of money, planners suggest withdrawing 3 percent to 5 percent of your portfolio a year, with yearly increases for inflation.

Delaying Social Security for a few years can help you offset the sacrifices to your lifestyle you’d have to make if you end up with a smaller-than-expected retirement portfolio. That’s because the longer you postpone Social Security payments – until age 70 – the higher your payouts.