(MONEY Magazine) – Time was when retirement meant a gold watch, a solid pension and a sturdy rocking chair. No more. Today you're likely to wind up with a year's severance pay, a silver-plated money clip -- and, increasingly, no company pension. And scrap that rocker. You're more apt to fill your days pursuing sports, travel and perhaps even a second career. It's no wonder, then, that thinking about retirement can be both fun and fearful at the same time. On the one hand, you can look forward to a life of unprecedented freedom. "Retirement used to be thought of as the end of something, but now that people are retiring earlier, staying healthier and living longer, they have more choices than when they were working," notes Helen Dennis, a retirement specialist at the University of Southern California. On the other hand, you can readily foresee financial worries. "The good news is that nearly 1 million baby boomers are going to live to be 100; the bad news is that they're going to have to finance it," says Eileen Sharkey, a nationally known financial planner in Denver. However you think of retirement, yours clearly will be different from your parents'. Just look at the statistics. Average life expectancy: 76, up from 70 a generation ago. Availability of employer-financed pension plans: down 33% between 1985 and 1990, according to the latest available figures. Number of people ages 55 to 64 who aren't working: 44%, compared with 38% in 1970. Age at which people now under 55 will be able to collect full Social Security benefits: 66, beginning in 2005, up from 65 today. All these changes have created a new set of rules that you must follow to be sure of retiring comfortably with all the money you'll ever need. The stories that follow in this Money Guide will put you on the right course. Later on, we'll help you determine how much your retirement lifestyle will cost and when you should consider leaving work. We'll also show you how to assess a corporate severance or early-retirement package; the smartest way to invest your retirement stash; and the best places to live in your later years. But first get acquainted with the following six new rules of the game. As you read, you'll encounter profiles of people who are giving serious thought to retirement. Their stories and our experts'advice can help you plan your retirement better. (The profiles also give the experts' mutual fund recommendations; for MONEY's suggestions, see "100 Best Mutual Funds" on page 45.)

Rule 1: Expect to live 30 years or more in retirement. That's nearly the life expectancy of today's average 50-year-old and may be more years than he or she spent working. A half-century ago either one would have been lucky to reach 73. At the same time, the average retirement age has declined. Roughly 52% of workers now file for Social Security at age 62, up from 35% in 1978. There is an increasing chance, however, that a corporate buy-out -- even one aimed at employees of all ages -- could force you to rewrite your retirement plan. Some 29% of 870 major corporations surveyed by the American Management Association last year used so-called voluntary-separation packages to slash their payrolls during the 12 months that ended last June, up from 17% in 1990. The companies that used these programs included giants like IBM that were once regarded as lifetime employers; Big Blue alone has cut its work force by 37%, or 150,000 people, since 1985.

Rule 2: Don't count on much from your employer or the government. Financial planners often tell clients to think of retirement finances as a three-legged stool. One leg is Social Security, the second is your pension and the third is personal savings. Retirees once could count on all three legs to remain steady. Today, however, for many people two of those legs -- Social Security and employer-financed pensions -- are getting shaky. That means the third leg, personal savings, has to bear more weight. Social Security will replace about 42% of wages if your earnings during your career average $21,800 a year but only about 27% if your average salary is $60,600. And this most sacred of middle-class entitlements is steadily being chipped away. Starting this year, the portion of your Social Security payments subject to federal income tax will climb from 50% to 85% if your total income (including half of your Social Security payout) tops $44,000 for married couples and $34,000 for singles. The age at which you can expect to receive full Social Security benefits is also slated to rise, from 65 today to 66 in 2005 and 67 in 2022. With the Social Security trust fund's outlays projected to outpace revenues by 2025, many experts foresee further cutbacks in the next decade or so. Among the likely options: another boost in the age for receiving benefits or a cut in annual cost-of-living increases -- or both. "To be conservative, I encourage baby boomers to assume Social Security will not be there," says financial planner Kaycee Krysty of the Seattle accounting firm Moss Adams. Other experts take a less drastic approach. "If I were a baby boomer, I would look at what my parents are getting from Social Security and reduce that by 30%," says Sylvester Schieber, director of research for the Wyatt Co., a benefits consulting firm. If you're lucky, you'll be one of the 44 million workers, 40% of the work force, whose Social Security checks will be supplemented by traditional employer-paid pensions. These defined-benefit plans provide a fixed monthly payout, typically about 30% of your final salary if you work 30 years or more. But while such pensions remain intact at many corporations with 2,500 or more workers, the number of small and medium-size companies offering the plans dropped 41% between 1985 and 1990, according to the Employee Benefits Research Institute (EBRI), a public policy think tank. Even if your company still offers a defined-benefit pension, you may have reason to worry about its safety. Under-funding at federally insured pension plans totaled $53 billion in 1992, up from $38 billion a year earlier, according to the federal Pension Benefit Guarantee Corporation. While these pension obligations are federally protected if your company folds or can't afford to stay in business without terminating its plan, you may not recoup all your promised pension benefits; federal insurance is now capped at $30,682 a year.

Some companies have replaced traditional pensions with defined-contribution plans such as 401(k)s, which rely heavily on worker savings. Between 1985 and 1990, the number of 401(k)s offered as workers' main retirement plans climbed 263%, according to the EBRI. Moreover, 53% of workers with traditional pensions are now covered by supplementary defined-contribution plans, up from roughly 33% in 1980. "There's been a philosophical shift from the view that the employer will take care of you to one where the employer will give you some retirement savings plans so you can take care of yourself," says Anna Rappaport, a managing director with benefits consultants William M. Mercer. The 401(k)-type plans work well if you change jobs frequently, because you can take your retirement savings with you, provided you've worked three to five years for your old employer. Traditional pensions aren't as portable and penalize job hoppers because benefits depend on years of service. But a 401(k) is less secure than a traditional pension, which pays you a fixed amount each month, no matter how the markets perform. Reason: A 401(k)'s rate of return and your account's ultimate value are not guaranteed and partly depend on how astutely you invest. Also, 401(k)s tend to be invested too conservatively and earn lower investment returns than traditional pensions do. And many people spend their 401(k) savings when they change jobs, instead of hanging on to the money until retirement. Worse, companies tend to put less money in 401(k)s than in traditional pension programs. "Employer contributions to defined-benefit plans run 10% to 12% of pay," says Seymour LaRock, executive editor of Spencer's Research Reports on Employee Benefits. "But in generous 401(k)s, employee contributions and employer matches might total 7% of pay." The chief reason is that younger and lower-paid workers can't afford to put much money in 401(k)s, and the lower the amount, the less companies contribute.

Rule 3: Plan on taking more responsibility for your future. "People have to realize that they -- and they alone -- create their quality of life in retirement," says Securities and Exchange Commissioner J. Carter Beese Jr. Yet the evidence suggests that most workers aren't saving enough. Overall, America' s 77 million baby boomers between the ages of 30 and 48 are socking away just a third of what they need to maintain their standard of living in retirement, according to a study by Princeton economist B. Douglas Bernheim for Merrill Lynch. Frequently, people put off saving for retirement so they can more easily achieve other goals, such as educating their children. The longer you wait, however, the more you jeopardize your future well-being. Let's say you're a 40-year-old with $20,000 in savings. If you put $2,000 a year in a 401(k) or other tax-deferred account, you'll accumulate $220,000 by age 62, assuming you earn an 8% annual return. Wait five years longer to start saving, and you'll have just $176,000.

Rule 4: Protect yourself against inflation. Although prices are expected to increase a mere 3% this year, you can't afford to gamble that inflation won't be higher than it is today when you retire. Furthermore, even at today's modest levels, price increases eventually take a big bite out of your benefit check. Over 15 years, 3% annual inflation will shrink the value of a $2,000-a- month pension by more than a third, while 4% inflation will cut it nearly in half. Most company pensions don't rise with inflation. Roughly a quarter of 545 large firms surveyed by Greenwich Associates have never increased retirement payouts, while another 28% haven't boosted benefit checks in at least seven years. "Pension erosion because of inflation is a major league issue," says Roger Hindman, author of the Price Waterhouse Retirement Planning Adviser (Pocket Books, $5.99). "Early in retirement, a pension and Social Security might meet 60% to 80% of your needs. But in 12 or 15 years, as inflation eats into the value of your pension, they may provide only 40% of the income you need."

Rule 5: Keep your investment expectations realistic. Over the past decade, earning double-digit annual returns has been a snap. Stocks in Standard & Poor' s 500 index returned a yearly average of 14.9% during the period, while bonds of roughly five years to maturity gained 11.4%, according to Ibbotson Associates, a Chicago investment research firm. Over the next five years, however, pension plan sponsors expect the S&P to return an average of only 8.8% annually and professionally managed bond funds just 6.8%. This means you'll have to save more to keep your retirement comfortable. In addition, you can't afford to play it too safe in investing your stash. Today, 27% of 401(k) assets are invested in low-risk, low-paying guaranteed investment contracts (GICs), according to Greenwich Associates. The better choice: stocks or stock mutual funds, which will provide bigger returns over time and keep you ahead of inflation. (For more on making your retirement money grow, see "The Only Way to Invest for the Future" on page 34.)

Rule 6: Expect to keep on working. It's a mistake to think of retirement as a sudden and absolute exit from the work force. As many as half of all retirees take less demanding jobs to smooth their move from careers to permanent retirement, according to Christopher Ruhm, an economist at the University of North Carolina at Greensboro. By working in retirement, you enable your savings to compound, and you delay the time you'll need to tap them, perhaps until age 62 or 65. Even more retirees are expected to work in the future. While executives at nearly two-thirds of 300 medium-size and large companies polled by William M. Mercer Inc. believed the average salaried employee could afford to retire today at 65, just 47% thought that would be true by the year 2000. One reason: company early-out offers are forcing many employees to retire before they have built up adequate savings. Still, retiring in comfort is clearly attainable, even in your mid-fifties. All you have to do is pay attention to the new rules outlined here and then follow the advice we lay out for you in the stories that make up the rest of this Guide.