In May, a Bell Investment Advisors survey of 500 people who were born in 1948 and have at least $1 million in investable assets found that one-quarter of respondents were changing their retirement plans and 40% were scaling back their more expensive lifestyles. Of those changing their retirement plans, 69% planned to invest more conservatively in money market funds and bonds while just 21% planned to invest more in stocks or stock mutual funds. That's not a recipe for funding a long-lasting nest egg.

"I can't tell you how hard it is to keep people on track and prevent them from making knee-jerk reactions," Helbert says. "But you're dealing with the emotion of fear because nobody wants to see their retirement account go down, and it's tangible when you go to the pump and pay $100 to fill up the gas tank. The best decision an investor can make is to keep the 401(k) deferral rate and the asset allocation the same and to not rebalance because of headlines."

"It's behavioral finance 101 that people react more heavily to bad news than they enjoy the good news and portfolio gains," says Jane Newton, a wealth manager at Regent Atlantic Capital in Chatham, N.J. "It makes investors of any amount of wealth anxious."

One of Newton's client niches is female Wall Street executives, a group with lots to worry about these days from the thousands of layoffs in the industry to company stock prices, which have gone down the toilet and taken many people's stock-based compensation with them. Add to the mix falling home prices in many New York metro towns populated by Wall Streeters, and Newton says, it adds up to a financial perfect storm.

Wall Street's woes are affecting clients even if they don't work on the Street. Among Newton's clients are a couple with a hefty portfolio who plan to retire in late summer. "One of their biggest concerns is what if we're in the beginning of a long slide in market performance," she says.

Using Monte Carlo simulation, Newton shows clients that they're prepared to handle worst-case scenarios. If they're still not comfortable, she suggests they postpone retirement by a year or put off buying their vacation home. "We're not here to play budget cop," Newton continues. "But we show them what retirement might look like through various statistical analyses."

Headwinds

People have long speculated about how the massive retirement of the baby boom generation will affect the financial markets as they sell their investments and live off their principal. Lord Abbett senior economist and market strategist Milton Ezrati says retirement demographics shouldn't hurt the markets over the next ten to 12 years because people who are saving a great deal will outnumber retirees by a big enough margin. But the demographics should begin shifting by about 2020, and by 2030 it's clear there will be more retired people than savers, which could put a dent in securities prices. "It will be a headwind against the appreciation once the baby boomers start to retire in earnest," he says.

When it comes to planning, Ezrati questions the wisdom of relying on "the two great myths of retirement"-that we should expect people to live to 80 or 85 years old, and that we should expect inflation to average 3% annually in the future. According to the U.S. Census Bureau, a 65-year-old man can expect to live to 81.4 years while a 65-year-old woman's life expectancy is 84.4 years. But Ezrati says the normal distribution of age demographics means that people have a 50% chance of living longer than average and a 20% chance of living for another seven or eight years. He says it's prudent to plan for retirees to live into their 90s.

Ezrati also believes people should plan more aggressively for expected cost-of-living increases. He says a modest average inflation rate of 3% during a projected 30-year retirement could cut real purchasing power in half in roughly 25 years. "Inflation is much more threatening to retirees because most will see their cost of living rise faster than the nation's average rate of inflation," Ezrati says.

U.S. Department of Labor statistics show that people 65 and older spend about 13% of their household budget on health care, including insurance premiums, or more than twice the national average. Considering that health-care inflation grows twice as fast as overall inflation, that can put the squeeze on retirees. Given that, Ezrati says retirement plans should factor in cost-of-living increases of 5% to 7% a year.