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Putting plans to retire on hold

Nancy Davis, a 59-year-old senior marketing manager for a law firm in San Diego, had hoped to ease into her retirement after her son finishes college in two years.

But “I may be 70 before I retire at this point,” she said, after watching the markets take their toll on her 401(k). “It's very unnerving.”

For millions of Americans approaching retirement, events of recent weeks are delivering a clear message: Not so fast. With nest eggs shrinking, housing prices still falling and anxieties about their financial future growing, the oldest members of the baby boom generation are putting the brakes on plans to leave the office.

“We'll see more and more people postpone” their retirement dates, says Helga Cuthbert, a certified financial planner in Decatur, Ga., who spent a good part of last week fielding telephone calls from nervous investors. “Their expectations about the future and the kinds of returns they would get were simply unrealistic.”

As discouraging as that message might sound, it's exactly what many baby boomers need to hear, according to financial planners and researchers. Most people underestimate how much money they will need for retirements that could easily last two or three decades, and are leaving the work force with nest eggs that are likely to expire long before they do.

Consider: Less than one-quarter of workers age 55 and older – just 23 percent – have savings and investments totaling $250,000 or more, according to a study published in April by the Employee Benefit Research Institute in Washington. About 60 percent have less than $100,000.

The average retirement age in the U.S. is 63 – but most investors don't recognize the benefits from working even just two or three additional years, financial advisers say. According to research from T. Rowe Price, the Baltimore-based mutual-funds company, a 62-year-old with a $100,000 salary and a $500,000 nest egg will see his annual retirement income from investments and Social Security rise by 6 percent for every additional year he remains in the work force.

Working longer “gives people time to build up their 401(k) balance, can result in a bigger benefit from Social Security, and reduces the amount of time people will have to depend on their savings,” says Alicia Munnell, director of the Center for Retirement Research at Boston College and author of a recent book about the value of extending time in the work force. “The arguments in favor of working longer are overwhelming. We just need to convince people.”

Patrick Hayes, a 58-year-old physician in Columbus, Ohio, was hoping to retire in two years. “But I'm watching my funds getting smaller and smaller, and I keep hearing this is the worst thing since the Depression,” he says. “It's particularly tough if the market gets hit in your early years of retirement. If you're about to retire and something like this happens, maybe you should stay working.”

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