The 3 Biggest Retirement Fear Factors

IT'S 4 IN THE MORNING and you're wide awake, tossing and turning — and not just because you overindulged in the cheese plate last night. Your mind is gnawing on questions about the future: Have I saved enough for retirement? Am I overexposed to the roller-coaster stock market? Am I going to have to downsize my living arrangements from beach house to beet farm?

This year, in a demographic milestone, the first of the baby boomers are cashing Social Security checks. And not surprisingly, a growing number of these midlifers are getting nervous about their future. During the past two decades, they've profited from two long booms, one in the housing market and one in the stock market. But now, as retirement looms, they're facing a shaky economy and a wobbly stock market — not to mention a swarm of ominous advertisements from brokerages and banks eager to win their business. (Ad spending by 10 of the top providers of retirement-planning services has jumped 250 percent in the past three years.) Small wonder that some boomers have begun to hit the panic button. This past spring's annual poll by the Employee Benefit Research Institute found that only 18 percent of workers were "very confident" they'd be able to have a comfortable retirement, down from 27 percent in 2007 — the biggest one-year drop in the survey's history.

Some boomers are going to be fine, of course, and some aren't — but overall, the perception seems worse than the reality. Several commentators, for example, argue that national statistics about "undersaving" don't reflect the growth in value of Americans' investments and other assets — leaving many investors feeling more pessimistic than necessary. Craig Copeland, a senior researcher with the benefit research institute, estimates that even given the economy and recent investment losses, one in four boomers are actually in "really good shape" to retire, and half of them "could go either way," depending on everything from the state of the economy to their own financial decisions.

That's the half, of course, most likely to suffer those sleepless nights. But is their insomnia really justified? To answer that question we looked at three of the warnings that dominate the retirement-planning world right now. Understanding how they do — and don't — apply may help to put you in the driver's seat when it comes to making your retirement work.

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Perhaps a kinder way to put it is that these tools are very conservative. One example: Some popular calculators assume retirees' investments will earn only 1 percent per year above inflation — even though large-company stocks have beaten inflation by nearly nine percentage points annually over the past 20 years. Other financial planners' rules of thumb are similarly skewed. One standard approach says that a couple needs 70 to 80 percent of their preretirement income to maintain their standard of living in retirement. In reality most couples' spending curve is much bumpier. Spending often soars right after retirement (the jet-set period) and drops precipitously after age 75 (the rocking-chair years). Some planners say the 70 percent figure doesn't make sense for other reasons: Retirees often face lower taxes, and most no longer have expenses that come with raising kids or holding down a job.

Kurt Ellenberger, a 45-year-old music professor in Lamont, Mich., heard from planners for years that he needed between $1 million and $2 million to retire comfortably. Since he expects to put a kid through college during his early 60s, he says he'd basically "given up" on having a great retirement. But his outlook changed after he found a software package that asked him hundreds of questions with an aim toward giving him a more detailed plan. It turned out he was actually oversaving: Among other things, he didn't fully understand how Social Security and investment gains would affect his retirement income. That gave Ellenberger the confidence to live a little more richly: When his wife, Rebecca, needed a car recently, he says they "bumped it up a level" and got her a used Mercedes.

Ultimately, since retirement can be as personal as a fingerprint, many experts say it's best to question your financial planner early to see if the assumptions going into her estimates match your reality. Generally speaking, the fewer questions your planner (or your software, or your online calculator) is asking, the less accurate the final outcome is likely to be.