Keeping the nest intact

The first step in many retirees' Plan B is rethinking the plans they made for their retirement lifestyle. Muriel Burrows, 83, and her husband of 23 years, Albert Kee, 85, have had that reckoning. Even before the market took a toxic turn, the Scotia, N.Y., couple had downsized from a house to a condo. With Burrows' nest egg now shrunk by 30 percent and Kee's down more than 8 percent, they've postponed vacations and major purchases. They're cutting charitable contributions, birthday presents, and cash gifts to their blended family of 10 grandchildren and one great-grandchild. "We did what everybody says you're supposed to do," Burrows says. "It worked for a long time, but it's not working anymore."

In recent years, some financial advisers have recommended that retirees—and all investors—increase their exposure to stocks. The rationale: As we live longer, the growth potential of stocks might help ensure that we don't outlive our money. That is usually good advice, but retirees who accepted that line of thinking are paying a steep price today. Although 51 percent of retirees in our survey reported losing at least 20 percent of their savings, aggressive investors—those who owned more stocks or other risky investments—were twice as likely as conservative investors to have reported losses of 30 percent or more. Thirty-two percent of retirees reported becoming more conservative investors since last fall's equity rout.