retirement, retirement savingsDespite years of planning and building their retirement savings, baby boomers may be heading for retirement at the worst time in a generation or more, according to an analysis by Bankrate.

Boomers face financial challenges that could pose significant issues during retirement, especially in their later years. Some of the most pressing concerns include a loss of private sector pension funds, low investment returns, and Medicare budget cuts.

Loss of pensions

Previous generations—parents of boomers, for example—enjoyed pension plans that guaranteed them monthly income for life, even during retirement.

Today, private sector employers rarely offer pension benefits. Instead, they have shifted that burden to the employees, leaving many boomers without pensions on which they can rely.

Low investment returns

The loss of pensions might not matter much if investment portfolios were performing better. However, according to market data analyzed for Bankrate by Research Affiliates, 2013 retirees may have reason to worry about their investment portfolios.

The analysts at Research Affiliates note that in 1980, a person retiring with a portfolio worth $355,000 (60 percent of that in stocks and 40 percent in bonds) would get a 6.9 percent annual return over 30 years. Even if the retiree withdrew 4 percent every year, that portfolio would still have grown to $1.3 million by 2010.

That’s a considerable amount of money that could make it possible for that person to maintain his or her lifestyle during retirement.

That same portfolio likely wouldn’t perform as well for a person retiring in 2013. Currently, stock returns are about 2 percent lower than that 6.9 average. As investment money compounds over the years, this results in an enormous amount of money lost. Using current market yields to predict future market returns, Research Affiliates projects that someone retiring now with the same portfolio as someone in 1980 would run out of money in 25 years.

The stock market could rebound at any moment, and if that happened, it would make the portfolio more profitable. Unfortunately, people retiring in 2013 might never see the benefits of improved performance—at least not enough to make up for their losses.

Medicare budget cuts

The government hasn’t done much to alleviate the pains that baby boomers will experience during retirement. Congress seems to fight constantly over Medicare cuts, which means the program may not offer the same level of protection going forward that retirees currently have. Any cuts to Medicare could mean that retirees will have to spend more money out of their own pockets than expected.

How baby boomers can adjust to these realities

Baby boomers worried about retirement have good reasons to feel that way. The good news is that they do have some influence on how they save and spend money.

Those approaching retirement should invest as much as possible in Roth IRAs and 401(k) plans. Returns aren’t as high as they were 25 years ago, but a strategy of maximizing investments could help make up for some of that loss. That means spending less in other areas to ensure there’s enough to put away each month toward retirement.

In order to achieve this, many current and soon-to-be retirees will have to make significant cuts in their household budgets. They can do this by selling their homes to live somewhere cheaper; reducing the amount that they spend on retirement by, for example, cutting back on travel or unnecessary spending; and switching to the same “Depression Era” worldview—where saving money and watching spending was a priority—that their parents and grandparents had.

Baby boomers may not be used to this type of austerity, but they can learn and start making decisions that will improve their financial stability in the current economic situations.

Cuts to Medicare, non-existent pension plans, and lower investment returns will definitely have an impact on retirement, but many baby boomers also haven’t saved enough toward the cause. That makes the situation worse for the entire economy.

If boomers don’t have enough money to fund their retirements, spending could fall sharply. No one wants to talk about the possibility of another recession, but it’s an inevitable topic when looking at how the current situation will develop in upcoming years.

Some baby boomers might not get to enjoy their retirement years as they had hoped, but careful planning could give them the chance to at least live comfortably.

Jeff Rose is a Certified Financial Planner and Iraqi combat veteran. He blogs at Good Financial CentsSoldier of Finance and Life Insurance By Jeff.