The changing face of the economy and the fact that people are living longer has some baby boomers and their financial advisors redefining the traditional concepts of retirement.

As the first big wave of boomers dive into this next phase of their lives, some experts are abandoning the term "retirement" altogether and redefining it as a third stage of life, longevity planning or lifestyle planning. The next few years will be a time of experimentation and innovation for boomers who are going to have to work these new scenarios out for themselves, according to the experts. Boomers have even been called the "guinea pig generation" by some, but that does not necessarily mean it is a bad situation.

"If the boomers are going to leave their fingerprints on the future in any way, it is that they are the first to have a consumer-driven retirement," says Joe Coughlin, founding director of the MIT AgeLab. "The baby boomers are the first to have to piece their financial future together on their own without the certainty of defined benefits and with the uncertainty of being sandwiched between the needs of care giving and living longer. The financial industry is going to have to make these solutions up as they go along to meet the new needs of older boomers."

The changes that are demanded can bring good things, according to John Diehl, CFP and senior vice president of The Hartford. "I am optimistic. The yacht is not the goal of retirement anymore. Advisors need to be talking about the issue of living longer and the products and strategies that will be emerging such as methods to provide sustainable lifetime income streams and preparing for long-term health and lifestyle expenses."

Those nearing retirement are facing more uncertainty, creating widespread insecurity, which was the name of a recent Hartford study entitled Social Insecurity: A Discussion of Retirement in America, in which both Diehl and Coughlin took part."This is a great opportunity for financial advisors. Most people do not even know what is available to them, and they may not know what not retiring in the classical sense combined with longer life means to their financial planning," Coughlin adds.

The time when people worked for a company for a specified number of years and then retired to pursue leisure activities was short-lived in American history anyway. Before the mid-1900s, work revolved around agrarian interests or small businesses and people worked until they were forced to stop.

"For our grandparents, there was no need for inflation adjustments in their planning, because they did not have a continuation of retirement," explains Servando (Sam) Llanio, with Constellation Financial Advisors in Towson, Md. "They had savings, retired for a while and then died in their mid-70s. It was a limited scenario in which the old pension plans and savings worked. Then you had a number of years where people defined retirement as leisure and no work in the classical terms. Now, one-third of a life may be spent in retirement, which means you need income-for-life models."

The longer life span may call for a portfolio of laddered bonds and holding some dividend-paying stocks to hedge against long-term inflation. Annuities can be taken out much later in life with ten-year payouts. Many retirees delay taking their Social Security as long as possible, which gives a guaranteed 7% to 9% bonus on the payments from the government. "Many people do not want to retire at 62 or 65 because they want to continue to feel useful," Llanio adds.

Now, with longer, healthier life spans, many people are looking to an entirely new phase of life when they approach their mid-60s. "We can change the face of retirement," advises Gary Gilgen, CFP, a senior financial advisor for Rehmann, one of the largest accounting and financial services firms in Michigan. Gilgen is the director of financial planning for the firm. "We have to take the focus off of investment returns during retirement and focus on cash-flow sources for the long term and balancing debt management levels with cash-flow management throughout their longer life expectancies. That is true if you are making $30,000 or $1 million a year.

"At Rehmann, after we analyze the client's situation, the client may realize he or she cannot retire at 62 like they had planned. They may have to work longer, contribute more money to retirement income sources, consider cutting back on expenses, take more risk in investments, consider different financial products available to them and/or do a combination of these things," Gilgen adds. "I don't think the word 'retirement' should go away, but we need to step back and look at it differently by providing varying sources of income streams. The days of just counting on Social Security and/or a pension are long gone. Advisors need to refrain from trying to sell a product or products and look at the clients' needs first, then come up with the solution for them."

The changing landscape for retirement began to become apparent even before 2008, but that is when many retirees changed from "being confident and feeling they could leave something for the next generation, to being humble," observes Peter Maris, CFP, principal at Resource Financial Group in Wilmette, Ill. "They are becoming aware they may outlive their finances."

Maris and others now use Monte Carlo analysis tools, which can show where people are financially, where they want to be in a number of years and how they can get there. "The way to get the conversation started with a client is to ask about their feelings," he says. "For some clients, the advisor may have to educate them to the reality of their situations. Most people do not want to retire and then have to struggle financially-they want financial dignity."

An option is to transfer some of their risk to products such as an annuity with a special rider providing a guaranteed income for life. "One of the things that can throw a monkey wrench into planning is the increasing cost of long-term care. In addition, long-term health care insurance premiums are anticipated to rise as much as 44% in 2011," warns Maris. "We have to educate clients to the reality that we are all going to have to spend a little less, because we are going to live longer."

Maris, who says most of his clients "are gray," runs their financial analyses based on their living to be 100. Long-term care insurance also is considered a key by Jeff Motske, CFP, president and CEO of Trilogy Financial Services in Huntington Beach and Calabasas, Calif. Motske teaches other advisors how to establish a successful practice.

"If you have a couple in their 60s now, chances are one of them will live to be 90," Motske says. "They need long-term care to take care of one of them if there is illness so that the spouse is not left destitute. The client also may consider tapping into life insurance death benefits if they have to cover big expenses.

"The point is, you have to ask the questions to discover how your clients feel. If they do not know, you start to probe," he advises. "The goal is to get them to relax financially so they can move to the next chapter in their lives."

Planning for a linear rate of return on investments during retirement has fallen by the wayside in recent years, replaced by a changing nature of income more likely to fit the client's longer life, say some advisors. Kimberly Foss, CFP, CPWA, president of Empyrion Wealth Management in Roseville, Calif., also uses Monte Carlo planning tools. She specializes in helping older clients and women in transition. "With this tool, we have a much more concise ability to know what a client's terminal net worth will be and we can zero in on a realistic basis to determine the client's probability of outliving his or her money," she says.

Different advisors approach the solutions in varying ways. In her planning, Foss includes a rate of inflation of 3.5%, a point above the current level. Adding a mixture of stocks and bonds that produce a blended rate of return of 6%, to be conservative in the anticipated rate of total return, proves to act as a hedge in unforeseen expenses as well.

"Then we try to plan for absorbing whatever unexpected costs might come up in the next 20 to 30 years," she adds. "We are sure not to deviate off the original plan, but to review it frequently to see what has changed and how to maintain the right direction for the client. This provides a foundation to plan for the next 20, 30 or 40 years and allows clients to financially make their own decisions in retirement.

"It is imperative to be proactive for inflation. Keeping short-term bonds for slow and steady income and hedging against inflation should interest rates rise. In addition, considering international stocks to diversify globally with an eye to dividends," she says.

Foss also suggests clients might step down from full-time work, first to three-quarters time, then to one-half time and after that one-quarter time. This fits with the feelings of Diehl that retirement can be made easier if there is no abrupt change in lifestyle or finances.

Older investors' tendency to shy away from risk may mean some expectations have to be lowered, but Foss notes that the costs of a lifestyle will also change with increased longevity.

"During the first few years of retirement, people may actually spend more than they did when they were working because they have more free time. Then, as the client approaches the 75 age range, health starts to decline and there is less desire to do as much, so costs taper off."

A problem some planners uncover is that even though the finances of retirement have been considered all along, in many couples only one person is aware of the details and leaves his or her spouse in the dark. Once both are educated, says Ron Courser, CFP, president and founder of Ron Courser & Associates in Grand Rapids, Mich., he is ready to talk about the future with them.

"I never use the word 'retirement.' I ask them what they want to do with the second phase of their working lives," Courser explains. "Most of my clients are over 50 and have already made a lot of adjustments and done a lot of planning. Many want to stay active and work one or two days a week. They want to exchange the expertise they have gained with newer workers."

Myriad investment opportunities are available. Courser says alternative investments such as privately held or non-traded real estate have advantages, as do fixed index annuities, which will not get hammered when the market goes down. There are also investments in large utilities.

"Some of my clients want to get back into the market in a big way, and I ask them if they understand the risk they are taking after all we have been through. I feel positive about the long-term outlook, but I think we have two more years of real volatility left because there are still underlying problems in the financial world.

"My advice to retiring clients is that we are still in a winter season, and the wise person prepares for that. If I am wrong and the Dow goes up, we can make adjustments," Courser adds. "Our job as advisors is to constantly monitor the situation and see if what we did yesterday still makes sense today. A buy-and-hold strategy is not the soundest approach anymore to managing retirement assets."