FORGET PLANNING FOR ONE RETIREMENT:

Chances are you should be planning for three. Thanks to Americans' longer life spans, many retirees can expect their postcareer years to cycle through distinct stages of work, play and rest. SmartMoney shows you how to navigate the new three-act retirement.

A 60TH BIRTHDAY CAN

be a sobering milestone. But Rebecca Moppins of St. Louis treated hers like the firing of a starter's pistol a signal to start shaping her ideal retirement. The first step: overhauling her work. After 29 years as a health-care administrator, Moppins negotiated a new role training staff at three hospitals. Working part time, with benefits, she got the chance to pursue her passion for teaching, and she won the flexibility to take a month off when her first grandchild was born.

Moppins's arrangement would fit some people's definition of a dream retirement. But it's only the first of three major phases that her postcareer life is likely to undergo and as she lives the first, she's planning the next two. This October, when she turns 65, she'll start chapter two, the leisure phase. She'll quit working and move to Dallas with her partner, David, building a home closer to their respective children while she devotes more energy to travel and gardening. And Moppins is also looking further ahead, toward a third chapter, talking with her kids about the logistics of assisted living. That exercise has been emotionally difficult, Moppins admits, but "that's a reality I deal with every day in my job. You can't think you'll be independent forever."

To someone in midcareer, retirement can seem relatively unvaried. But thanks to Americans' increasing longevity, the next wave of retirees can expect longer retirements than any previous generation. Sixty-five-year-olds who retire in 2015 will face 17 to 21 years of postcareer life on average, with more than one in four living 25 more years, according to the Social Security Administration. And 65 isn't everybody's retirement "magic number." A recent Merrill Lynch survey found that about 20% of baby boomers the 78 million Americans born between 1946 and 1964 already consider themselves retired, even though the oldest members of that cohort are just now turning 60.

With their postwork years potentially stretching across several presidential terms, retirees will face a more complicated future one that could look like Rebecca Moppins's. Instead of one transition from work to leisure, they'll undergo several. Every person's journey will differ, of course, but most will include three stages. First, work: a new job or volunteerism. Then play: focusing on family, travel and leisure. And finally, rest: a more sedentary period when convenience and access to health care begin to take precedence.

Transitions, of course, require patience, a period of adjustment and, above all, planning. But many working people are so focused on saving and investing for retirement that nonmonetary issues get pushed aside if they're ever considered at all. And there's a surprising paucity of help available to guide people through these changes. "There's no section in the Yellow Pages called "personal reinventor for the elderly,'" quips gerontologist Ken Dychtwald, founder of market-research firm Age Wave. Indeed, today's retirees find themselves at sea when it comes to everything from pursuing their ideal second careers to getting the most out of leisure time.

The "soft" issues aren't the only ones being neglected. Only recently has the financial-services industry begun to recognize that a 64-year-old with a consulting gig drains her savings at a different rate than her 72-year-old brother who's traveling six months a year. "A generation ago we'd mostly emphasize accumulating money," says Craig Brimhall, vice president of retirement wealth management at Ameriprise Financial. "Now we're asking how on earth do you spread the wealth over 30 years, in a flexible way?" Meanwhile, illness late in life is one of the biggest threats to that wealth, but planning for it remains dauntingly complicated. (For more on how to extend retirement assets, see the following story, "How to Invest.")

If you want to make sure that retirement's stresses don't outweigh its joys, it pays to sweat the details long before you retire. To find out what it takes to forge your own best path, we've talked to people living through each of retirement's major phases, and we've consulted experts who've helped others make the big transitions. As their stories show, the most reliable recipe for happiness in retirement is preparation: taking time away from your workaday life to fantasize about, explore and, above all, plan the three acts of your retirement drama.

Phase One:

Retiring to Work

Joseph Polito spent years looking forward to a life of leisure until he actually got one. When he retired in 2002 from a management job at an insurance company, he was ready to fine-tune his golf game and catch fish on the lakes near his home in Geneva, N.Y. But within a few months, he says, "I missed the challenges and the camaraderie, the way you have lunch with people and talk about the ballgame or the weekend." After an uncomfortable stint as a substitute teacher, Polito's contacts from his old career led him to a great new gig: working with adjusters who handle hurricane claims. Now 68, Polito travels frequently to a command center in Florida, and he feels he's giving back to the community by helping storm victims, something he missed as a manager. The paycheck, he says, is just "fun money." His job, originally supposed to last just 30 days, has now gone on for a year and a half, and Polito doubts he'll retire again for several more years.

The only unusual thing about Polito is that he was thinking about retiring in the first place. The number of people over 65 who are working part or full time has inched steadily upward over the past decade. Baby boomers, meanwhile, seem even more likely to follow in Polito's footsteps: In a 2005 survey by Merrill Lynch, 76% of boomers said that their ideal plan for retirement included staying in the workforce. Granted, financial factors such as the rising cost of medical care and the decline of traditional pensions may be shaping people's thinking. The longer you draw a paycheck or benefit from other perks like 401(k) participation or health insurance the better you can build and preserve your retirement nest egg. But boomers across all income levels have about the same desire to keep working and their longing to stay active and meaningfully connected to the world outweighs concerns about their bank accounts.

In practice, of course, most people want to add more leisure to their routines when they retire; only 6% of the respondents in the Merrill survey wanted to keep working full time. Hence the growing appeal of "phased retirement" arrangements that let older workers continue their careers on new terms including, usually, reduced hours. The Society for Human Resource Management found that 25% of companies have made such arrangements for older workers, while another 24% plan to do so.

Companies aren't doing this just as a favor: Many desperately need to keep their retirees' expertise. According to the U.S. Census Bureau, the number of people ages 55 to 64 will grow by 75% between 2000 and 2020, while the size of the 25-to-54 age group will inch up only 5% which means that departing older talent will become increasingly hard to replace. That's why people who stay with their preretirement employers, or in their current fields, usually have the easiest time with the transition from work to, well, less work. It's easier to sell their bosses on the value of their skills and contacts all the more so if they have hard-to-replace backgrounds in science or engineering.

The road gets bumpier for retirees who want to jump into an entirely new career something many older workers fantasize about. Job retraining programs for older workers remain scarce, and potential employers can be skeptical of retirement-age workers who profess a willingness to start over. "Unlike someone who's worked in that field already, you don't have a platform," says Nancy Schlossberg, a retired psychology professor and author of "Retire Smart, Retire Happy." "Any power and status you had is gone." That's why it's worth planning the second career well before you walk away from the first one: Building new networks and devising a strategy for pitching your skills can be a matter of years, not months.

Of course, thousands of preretirees are getting a jump on new careers at those cradles of youth: college campuses. According to the Department of Education, more than 125,000 people 50 years old and over are attending school full or part time to earn graduate degrees. One of the most popular fields: training for the ministry, where experience and age earn respect. In 2004 a whopping 12,321 people over 50 were enrolled in schools accredited by the Association of Theological Schools, amounting to 17% of total enrollment, up from 10% in 1991. Tom Henderson already has his seminary diploma, and five years ago he switched from full to part time as a budget planner at Pepco, a regional utility, in order to devote more time to his calling as a Baptist pastor. Henderson says he and his wife, Barbara, a school nurse, are "still thinking like we're in our 20s. We don't embrace retirement as most people think about it." Today Tom heads the congregation at a small Baptist church near his home in Capitol Heights, Md., but he's thinking about working his way up to bigger flocks. After all, he says, preaching is "a lifetime pursuit."

Phase Two:

The Wonder Years

Here's how you can tell that retirees are reshaping travel and leisure: They're getting fewer discounts. By 2005 most airlines had stopped offering senior fares, in part because they no longer needed them to draw customers. At the Colorado resort Vail, where seniors used to ski for free, they now pay up to $1,700 for a season pass in part because they're more likely than any other age group to hit the slopes all winter. Elsewhere, older travelers are demanding more amenities. Retirees have driven the growth in higher-end ocean cruises and "soft adventure" trips like five-star safaris. They're also fueling the rise of the spa industry, drawn to its combination of pampering and therapy: 22% of people over 65 have received a massage in the past five years, up from just 8% in 1997.

Of course, their longevity and wealth will give future retirees more time for travel of all kinds. They could do worse than to emulate Richard and Corinne Kostukovich, 71 and 68, respectively. They've hit the road several times a year since Richard retired from teaching high school math. Their schedule is so full, Corinne says, "I don't know how we ever worked!" On tap for 2006: swimming and reef-peeping in Aruba, a visit to the California redwoods and a swing through Australia, New Zealand and Fiji. In between jaunts, the couple visit their cabin in McConnellsburg, Pa., where Richard hunts deer and fishes for trout while Corinne works on knitting and cross-stitching. "We have at least 10 more years" of robust health left, Richard figures, "and we plan to take full advantage."

The Kostukoviches wouldn't be able to take advantage of their health if they hadn't been on top of their financial game. Underestimating the expense of the leisure years is one of the biggest mistakes people make when they're planning their retirement. "There's been this rule of thumb that you need 70 or 80% of your preretirement income to live on," says Ameriprise's Craig Brimhall. "But the world travelers can spend far more in a year than they ever did while they were working." The common-sense conclusion: The more you save now, the more likely that you'll be able to afford a globetrotting phase. "Dick started planning our retirement three years after we got married," Corinne Kostukovich says. She contrasts their good fortune to that of peers who seemed to have a "mental block" about retirement planning: "You have to get off your duff!"

As mobile as they often are, postcareer retirees are also changing the way they stay home. In a recent survey by market-research firm ProMatura, 38% of people between ages 55 and 64 said they were likely to change residences in the near future. Those movers may well follow the lead of current retirees, who are increasingly staying close to home or to their families. One relatively new segment of the housing market caters directly to this sentiment: "active adult" communities. Aimed at owners 55 and over, these developments offer low-maintenance condos and cottages with large common spaces, for entertaining and hosting the grandkids, and a lot of recreation facilities: hiking trails, tennis and bocce courts, indoor pools and billiard rooms. There are currently 1,250 such communities in the U.S., up from about 350 in 1995, encompassing about 500,000 homes, according to the National Directory of Lifestyle Communities.

Active-adult housing gives retirees a forum for bonding and socializing with peers. And while canasta with the neighbors may not be everyone's idea of a dream retirement, it does address one of the major pitfalls of a leisurely life: the sense of letdown that emerges once the retirement honeymoon period fades. The loss of social connections at work leaves many retirees feeling aimless and lonely. (Think of Jack Nicholson's postretirement rudderlessness in the movie "About Schmidt.") It's also not uncommon for marriages to undergo new strains when two spouses, long separated by their work or child-rearing routines, suddenly find themselves together 24 hours a day. The solution: structure, structure, structure. Volunteerism and community involvement, or keeping up with developments in your old field, can help ease the transition, says author Nancy Schlossberg. "Engagement is what matters most," she adds. "The specifics don't matter, as long as you've found a niche."

Phase Three:

Watching the Sunset

Tom McIlrath, a 67-year-old former physics professor at the University of Maryland, extended his working life longer than he'd planned by becoming the publisher of an academic journal; his wife, Valerie, 66, has stayed busy volunteering with the elderly. Now they're ready for quality time with their extended family. But they're also planning for a day when they may be much less active. The McIlraths have purchased long-term-care insurance in case they become unable to look after themselves. And more dramatically, they've moved into a condo in a "continuing care" community, or CCRC, in Gaithersburg, Md. If they ever need round-the-clock assistance, they'll be able to get it in the same facility where they now live independently. They're already seeing the benefits of the arrangement: Valerie, who recently underwent knee surgery, has been able to do her rehabilitation close to home in the community's health center. Fortuitously, Tom notes, the new apartment is "all on one floor."

Anxiety about health and financial well-being late in life is the dark underside of longevity. Older workers have become acutely aware of the dangers of outliving one's savings. In fact, 29% of baby-boomer households are providing financial support to at least one parent, according to the Pew Research Center. They've also watched family members endure diseases that require long-lasting, expensive care. One in 10 Americans over age 65 and nearly half of those over 85 suffer from Alzheimer's disease or other forms of dementia. Small wonder that guidance about paying for health care and social services now ranks among the top requests retirees are making to financial advisers.

Health worries strike retirees where they live quite literally. Granted, the odds are that most of us will live out our lives in our own homes. There are an estimated 18 million Americans who are 75 and over, but only 3.6 million people live in facilities that provide medical care. Still, those who do wind up in such places face potentially crippling expenses anywhere from an average of $35,000 a year for assisted living to $70,000 a year for nursing homes. Even at-home health care can drain a couple's savings, and Medicare and Medicaid offer little help with such expenses.

These hurdles partly explain the growing popularity of CCRCs. Virtually unknown three decades ago, there are now 2,240 licensed facilities in the country, 21% more than in 2000; the American Senior Housing Association estimates that about 598,000 people live in them. The advantages: relatively spacious private accommodations with plenty of amenities and on-site medical care if and when you need it. But the financial commitments can mount up fast. Getting in requires an entrance fee that can cost up to $400,000, and rent averages about $30,000 a year. If you leave the community, you may have to forfeit the entrance fee; otherwise, most of it reverts to your estate when you die.

With so much money at stake, anyone looking into any senior community for themselves or a parent should have a laundry list of questions, says Clare Absher, a registered nurse and president of the senior advisory group CarePathways.com. Ask a facility's nursing director about staff turnover: Ideally, the average tenure should be at least two to three years, the longer the better. If a facility is resistant to taking on someone who's already ill or infirm, Absher says, "that's a red flag." Check to see whether the home is accredited at Web sites like www.jcaho.org or www.carf.org; accreditation isn't mandatory, but it's a good sign. Lori Solomon of Accent on Seniors, a company that matches older people with appropriate housing, adds another tip: Don't blindly follow recommendations from your doctor. "Their medical expertise doesn't always translate," she cautions.

To make sense of the math and evaluate specific policies, see the calculators here

Toni Featherstone crunched the numbers a few years ago and decided to buy a policy. At 57, the Gainesville, Va., resident seems decades away from needing care indeed, she just beat several friends to the finish line in a local fundraising walk. But she had her daughter in mind: "I didn't want her to have the burden of caring for me." And if Featherstone eventually needs the coverage, it may lighten her own burden.

How to Invest

Even after you leave the 9-to-5 grind behind, your portfolio should continue to grow. Here's how to pay for retirement and still earn a solid return on your savings.

Your retirement will be different from your father's, and not just because you own fewer cardigan sweaters. Your golden years will last longer, you'll be more active, and you'll spend more on everything from travel to health care.

If you follow the road map in the previous story, you'll pursue a multistage retirement path that will require a multistage approach to investing. In the first stage, "retiring to work," you'll begin with some income from either a scaled-back career or a new side job. That steady cash stream means you'll need less income from your portfolio, allowing you to invest aggressively, for growth. "If you retire at 60, you could still have 20 or 30 years ahead of you," says Stewart Welch III, a financial planner with The Welch Group in Birmingham, Ala. "That means you're still a long-term investor."

Once you enter the "wonder years," or the second stage of retirement, in which you shrug off work altogether, you'll need more portfolio income but that doesn't mean a hard turn into bond territory. Keep in mind that we are coming off a 20-year bull market in bonds in which investors were rewarded with both income and the capital appreciation that came from falling yields. As interest rates fell, older, higher-yielding bonds became more valuable. Now that long-term government bonds yield less than 5%, there's simply not much further to go. Retirees today need a strategy that's a bit more sophisticated particularly if they want their money to last through the third, or "sunset" stage of retirement, which is unfortunately rife with high health care costs.

One thing to do even before you leave the working world, no matter how much eye-rolling it may prompt: Make a budget. "Too many people look at retirement as this big block of time that will happen sometime in the future. But the second they actually retire, they realize they don't know anything," says David Darst, a financial planner with Morgan Stanley. "You need to know how you plan on living, and you need to plan on living longer."

And that leads to what financial planners charmingly refer to as "longevity risk": the possibility that you'll run out of money before you die. "Most people start retirement with a portfolio that isn't big enough," says Shiv Mehta, head of asset allocation for ING Investment Management. For those still in their working years, the message is clear: Save more. (Check out the table above to get a sense of how much others in your income bracket have stashed away.) As you approach retirement, you'll need to reconcile your budget with your portfolio. If you expect your annual expenses to be, say, $50,000, computer simulations estimate you need at least $1.25 million to have a near certainty you won't run out of money. Depending on a host of variables, including your life span and market performance, you may not have to take a big bite out of the principal. If you want your nest egg to last a lifetime, mathematical models show that you can't withdraw more than 4.5% a year and that assumes your portfolio is invested at least 60% in stocks, according to Norm Mindel, an adviser with Genworth Financial in Schaumburg, Ill.

Welch recommends a clever strategy that gives retirees both short-term security and long-term growth. He suggests they invest five years or more of living expenses in high-quality bonds, some of which will mature every year. For example, you would buy $50,000 worth of one-year bonds, $50,000 worth of two-year bonds and so forth. This bond-laddering strategy ensures that retirees will have income every year, plus access to the principal as each bond or group of bonds matures. You then might sell some stock to purchase another year's worth of living expenses set to mature in five or so years. If your stock portfolio suffers a bad year or two, you hold off selling stocks and shorten the ladder; if you have outsize gains in any given year, it's wise to lengthen the ladder. It also allows you to gradually increase your income by adding years to the ladder as you progress to the second stage of retirement. The rest of the portfolio, meanwhile, can be growth-oriented, invested entirely in stocks.

If you're still worried about covering your living expenses for life, Genworth's Mindel advocates that retirees buy an immediate annuity with a big enough payout to cover such costs as health-insurance deductibles, property taxes and basic living expenses. A 75-year-old man who invests $300,000 in an annuity today would get a monthly payout of $2,760, according to Vanguard. It often pays to wait until your second or even third stage of retirement before you purchase an annuity, because for any given investment, the payout is larger for an older buyer.