The rules of the retirement game have changed, courtesy of the worst recession since the Great Depression. Confronted with dwindling nest eggs, housing market meltdowns and general economic mayhem, soon-to-be retirees are being forced to give their retirement plans a face-lift - not to mention a tummy tuck, collagen injections and a little lipo. (Learn more in our Retirement Planning Tutorial.)
However, some blissfully oblivious seniors are sticking their heads in the sand and pretending nothing has changed. Unfortunately, covering your ears and loudly singing "I can't hear you!" every time someone utters the word "recession" will not make the problem disappear.

If you hope to enjoy a comfortable retirement, it's time to get real. Here are four cold, hard truths every soon-to-be retiree must face in this age of economic turmoil.

  1. Your "castle" isn't worth much.
    Your home is your castle - but these days, that castle's worth is probably closer to that of a cozy cottage or even a shabby shanty. It's no secret that home values have plummeted, and sadly, real estate experts predict it could take 10 years or longer for the housing market to bounce back to where it was in 2007.

    What does that mean for you? It means you probably shouldn't hang your hat on your home equity as a means to fund your retirement. It's probably time to break out the pencil and calculator and figure out just how much equity you'll have in your home by the time your reach retirement age. You may discover it won't be enough to pay for a case of Ramen noodles, let alone 20 years worth of retirement expenses. Home may be the heart is, but it's not where the money is. (Learn more in Net Worth Nosedive: Can You Still Retire?)

  2. Your retirement plan needs an overhaul.
    As the U.S. economy took a nose-dive, it took retirement portfolios down with it. In the past couple of years, you've probably watched your nest egg shrink, and you're not alone. According to a 2009 AARP survey of people age 45 and older, 79% of those with a 401(k), IRA, mutual fund, or individual stocks and bonds said they have lost money.

    Shockingly, even in this environment, many seniors still have not changed their retirement plans. McKinsey & Co., a global management consulting firm, recently developed a retirement readiness index to determine how financially prepared households are for retirement. A retirement readiness index of 100 means a household can maintain its current standard of living after retirement. Based on the firm's research, the average U.S. household currently has a retirement readiness index of only 68. These households will need to cut back on basic living expenses dramatically after retirement.

    Now is the time to take stock of your nest egg (or nest crumb) and decide if you're truly ready for retirement. Sit down with your financial advisor and come up with a new game plan. You may have to make some tough decisions … which leads us to our next reality.

  3. Don't quit your day job.
    The thought of postponing retirement may send shivers down your spine. Unfortunately, this may be the only logical solution if you hope to maintain your current standard of living after retirement.

    Here's a fairly easy way to determine if you are ready to retire: add up all the Social Security and pensions you will receive after retirement. Next, add up all of your retirement accounts and other financial assets and assume that only 4% of that amount will be available to you each year for living expenses. Does the grand total match what you spend each year right now? If not, you should probably put retirement on hold.

    So, exactly how long will you need to keep working? Forever! No, not really. Some experts say that if you've been working between 20 and 30 years, it would only take another year and nine months on the job to recoup your market losses. (Learn more about a late retirement in Retirement Plan Solutions For 70+ Workers.)

  4. Debt doesn't disappear after retirement.
    Yet another lovely side effect of the recession? Debt levels among seniors are skyrocketing. Faced with fixed incomes, diminished retirement savings and devalued homes, many retirees are relying on their credit cards to pay for living expenses.

    Average credit card debt among low and middle income Americans age 65 and older soared to $10,235 this year, according to a study by public policy group Demos. That's up a whopping 26% from 2005. Still, more than 60% of non-retirees say they expect to be free of non-mortgage debt when they retire, according to a Securian Financial survey. However, more than half of the retirees in the same survey say they did carry non-mortgage debts into retirement.

In other words, many soon-to-be retirees are in denial. It ain't just a river in Egypt, you know. If you have dreams of a happy, financially secure retirement, it's time to face facts and give your retirement plan a makeover. (Learn more in Ten Last-Minute Retirement Tips, What's The Minimum I Need To Retire? and You CAN Retire In A Recession.)

Related Articles
  1. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  2. Retirement

    The Cities Where the Ultra-Rich Retire in Florida

    Understand why the Florida communities of Miami Beach, Palm Beach and Key West serve as magnets for the ultra-rich retirees who descend on the state.
  3. Retirement

    The 5 Best Retirement Communities in Austin, Texas

    Discover five of the most desirable retirement communities for seniors located in the Austin/Georgetown metropolitan area in Texas.
  4. Options & Futures

    Pick 401(k) Assets Like A Pro

    Professionals choose the options available to you in your plan, making your decisions easier.
  5. Budgeting

    6 Cost-Effective Tips for Raising Your First Child

    The excitement of welcoming your first child to your family shouldn't prevent you from making good cost-effective decisions.
  6. Budgeting

    5 Ways to Date on a Budget

    Dating on a budget doesn't have to be boring. Try these 5 tips to find the best dates on a budget.
  7. Budgeting

    7 Kids Items You Should Never Buy Used

    Buying secondhand items is a great way to save money, but these seven kids items should not be bought used.
  8. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  9. Retirement

    4 Reasons Why Americans Retire in the Dominican Republic

    Understand why many Americans are deciding to retire internationally. Learn about the top four reasons why Americans are retiring to the Dominican Republic.
  10. Retirement

    You Would Be Crazy to Retire in These 3 States

    Learn the common criteria for choosing a retirement destination, and understand why you would be crazy to retire in Oregon, Missouri or Alaska.
  1. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  2. Can my 401(k) be seized or garnished?

    As long as your retirement funds are held in your 401(k) and you do not take them as distributions, your 401(k) cannot be ... Read Full Answer >>
  3. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  4. What are the best ways to use your 401(k) without a penalty?

    The best way to use your 401(k) retirement savings account is to take normal distributions after you reach retirement age. ... Read Full Answer >>
  5. How are spousal benefits calculated for Social Security?

    The amount of your Social Security spousal benefit depends on a number of factors, including your age, the maximum amount ... Read Full Answer >>
  6. How does divorce affect Social Security benefits?

    If you are eligible to receive Social Security retirement benefits on your own account, your marital status has no impact ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!