What's next for boomers

Bob and Peggy Khan, ages 49, 45: After 25 years in public service, Bob is eligible for a pension that will cover most of his pre-retirement income.

What's next for boomers

• 1. Cooling returns

• 2. The fastest growth

• 3. Rising taxes

• 4. Your career

• 5. Reliable retirement

The past 25 years: For decades you've watched your parents' generation retire happily on three basic sources of income: their company pension plans, Social Security and personal savings. That's what old retirement planning handbooks refer to as the "three-legged stool."

For your retirement, though, the metaphor probably doesn't stand up. Maybe it's because you bounced around from job to job in your career, never staying one place long enough to build a real pension. More likely it's that your employer never offered a pension or froze the one it had. Indeed, the share of private-sector workers covered by a pension has fallen from 39% in 1980 to just 18% today.

What's next: With pensions (not to mention Social Security) so wobbly, you may need a new furniture image for your retirement. Call it the four-legged bench. The fourth leg is an asset your parents wouldn't have dreamed of touching: home equity.

Even if home prices continue to slump for several years, rising values over the past couple of decades mean your home equity will probably account for a third to half of your net worth by the time you retire. That can be a terrific Plan B if your 401(k) comes up a tad short.

Indeed, if you include the value of home equity in retirement savings, most boomers 51 and older have enough to retire comfortably, says Williams College economist David Love.

Don't overlook your most underrated asset... If you have an old-fashioned pension, you may have an even richer Plan B. That's because most of your benefits accrue in your final decade of service. That makes this stodgy asset, one you've probably barely thought of, surprisingly valuable at your age, especially in an era of modest returns.

You don't have to tell Bob Khan, the 49-year-old chief of the Phoenix fire department, and his wife Peggy, 45. After 25 years as a fire fighter, Bob is guaranteed a pension that will pay 63% of his salary if he were to retire now. Granted, public-sector pensions tend to be more generous than private-sector plans, and his in particular is higher than the norm because of his pay as fire chief.

Today his pension is equivalent to a nest egg of roughly $2 million. Each year he stays on the job adds another $150,000 or so, a growth rate of 7.5%. True boomers, though, Bob and Peggy, who works for a pharmaceutical firm, regard the pension as a supplement to their savings. "It gives you an extra layer of financial security," he says. A nice, thick layer.

...or your biggest asset. If you want to tap your home equity in retirement, your choices are likely to grow in the years ahead. You might choose to cash out by selling your home and moving to a less expensive area. Or you might choose a reverse mortgage, an increasingly popular type of loan that lets homeowners age 62 and older live off their home equity without having to move.

Of course, such strategies work only if you've actually got equity to tap. That's why Janet and Greg Ashe plan to be mortgage-free on their three properties - currently worth $800,000 - by the time they retire. "The equity will be Plan B should we need it," she says. And that's a perfect example of the kind of thinking you'll need in the decades ahead. You can't rely on luck anymore. It's all about planning.