Forget spending retirement in a rocking chair on the front porch.

Affluent recent retirees and Baby Boomers approaching retirement are more likely to be traveling the world than watching it go by, according to a recent report by the U.S. division of Toronto-based Sun Life Financial.

And this active lifestyle is probably going to take more savings sooner than expected earlier in retirement. Sun Life surveyed 2,000 people in January, half of whom were recently retired, half of whom were approaching retirement-and all of whom relied on advisers and had at least $250,000 invested. In the first five years of retirement, according to survey results, many retirees may actually spend more than they earned each year working.

"Retirement is not a flat line," said Mary Fay, senior vice president and general manager for Sun Life's annuities division, in Wellesley, Mass. The old rule of thumb that retirees should plan to live on a fixed annual income equal to roughly 80% of their annual salaries in the years leading to retirement is outmoded, she said.

In fact, early in retirement, many retirees will actually spend more than they earned in their penultimate working years, according to the survey. The top three objectives for those within the first five years of retirement were domestic travel, hobbies and international travel. Beginning a new career, starting a business, buying a second home and taking classes or pursuing a higher degree each also featured in the top 10.

"Boomers are eager to live their life to the fullest," Fay said.

Companies that want to cater to that lifestyle are going to have to develop products that allow flexible, not fixed, income to retirees.

For its part, Sun Life has launched "Income ON Demand," a first-of-its-kind guaranteed annuity income product open to those over 55. After 59-1/2, investors can begin taking payments, but they can also suspend payment when they don't need the drawdown, thereby "storing" the guaranteed income, to be taken as a lump sum later. For example, if a retiree at 65 defers his 5% annuity payment until he is 70, but then decides to take a trip around the world, he can tap into that stored income, taking a 25% payment.

"Conventional wisdom is beginning to change," Fay said. "Retirement is customized based on an individual's circumstances. There will be bumps along the way."

Planning for, and more importantly, negotiating such bumps, is something that concerns Boomers, said Tom Modestino, a senior research analyst with Cerulli Associates in Boston.

While 64% of already retired Sun Life respondents said they felt prepared for retirement, only 38% of those approaching retirement felt ready.

In part, that's because those new to retirement, or who are not yet retired, just don't know what retirement will cost them, said Laura Varas, a research analyst with Boston-based Financial Research Corp. And while perhaps 25% of retirees squander savings too soon, many more might be overly conservative.

Modestino cited a sense of worry about the future as a major driver of product development, especially in the face of increasingly unsecured Social Security and the rising cost of healthcare. Boston-based Fidelity Investments just released a study suggesting that the average 65-year-old couple retiring today will need $215,000 to cover medical expenses alone, chewing up at least half of their Social Security payments.

"How do you meet those income needs? Now that you've been accumulating and met some goals, you need to draw down that asset base," Modestino said. It's not an easy thing to do, and it's not an easy thing to make up for if you make mistakes," he said.

Varas' research shows that 20% of recent retirees have not drawn on their invested assets at all-neither dividends nor capital-and, instead, are living on cash savings, even if their adviser tells them otherwise.

"Tomorrow's retirees are going to have to learn to draw down their assets," Varas said. "There is a real strong learning curve, but the longer you've been retired, the more prepared you feel," she said.

Many companies, including Genworth Financial, MassMutual and Merrill Lynch, have tried to lessen the learning curve with programs of their own. For example, Total Merrill, which the New York-based company bills as something akin to a personal pension plan, but that acts something more like a monthly allowance, drawn from a retiree's own assets. Total Merrill also allows investors to essentially have their checkbooks managed, with regular bills paid automatically. Mass Mutual's product, on the other hand, slowly rolls investors out of equities and bonds and into annuities, hedging against the change of one's longevity causing them to run out of savings and other risks that come with age.

Other products include annuities with withdrawal benefits, Modestino said. And he expects more to come to market soon.

"Everyone has been jumping into the game," he said. Still, it's hard to decipher which product may work best. "The market is still in its infancy," he said. "It's too early to see how things like cost and performance will shake out."

(c) 2007 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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