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.)

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