Advisors working in the retirement arena have traditionally had to deal with gaps in clients' expectations. They often want to leave work before they have amassed sufficient wealth to do so. But last year, reality began to set in, according to a study by MetLife. Workers age 55 to 70 expected to work until age 70. And, those over 66 planned to work until age 76. More years working means more income to save and invest, of course, and fewer nonworking years to deplete that nest egg. It also allows workers more time to recover some of the major and extensive losses in their portfolios from the past two years.

And for those already retired, some decided to seek part-time jobs to augment their portfolio distribution payments.

The labor market, however, has thrown a monkey wrench into those admirable plans and put many seniors in a major bind. Those hoping for even part-time work may have difficulty finding a job, while those who planned to stay in their current jobs may find those positions eliminated.

This presents a Catch-22 for many employees who are too old to avoid the layoff boom and too young to retire. Those are the workers who could find themselves with no job, and few prospects, just when they need it the most. Consider this scenario. An employee who started working with a company in his early twenties, with 30 years of service, is only in his early fifties-a full decade or more short of typical retirement age. And with life expectancies reaching into the eighties, those who choose retirement at this point could potentially live for another 30 years or more of life-nearly as long as they spent working.

Responses from employers underscore this possibility. More than three-quarters of employers said they had cut costs in response to revenue declines over the past year, according to a 2009 survey from the Families and Work Institute.

Specific cost-cutting measures by those companies included laying off employees (64%); freezing hiring (61%); reducing or eliminating salaries or bonuses (69%); or eliminating nonessential travel (57%).

Employers opting to lay off workers or offer early retirement packages often select employees with more years of service, since wages and benefits are typically less expensive for workers with less tenure.

In fact, applications for retired worker benefits grew 21% for the fiscal year ended Sept. 30, 2009, according to the Social Security Administration. That is higher than the anticipated increase of only 15%. Moreover, those benefits from Social Security often do not cover the gap between retirement income and the needs of retirement.

Plus, for those under 59 1/2, there will be penalties to pay, plus taxes. Even those who accept an early retirement package with plans to find another job will have a tough time. According to the Labor Department, it takes older job seekers longer to find a new position than younger workers.

Will Work for Pension

The Wall Street Journal reported late last year that the number of jobless age 55 to 64 had almost tripled since the beginning of the recession, while the total number of unemployed workers had only doubled.

Finding a job in this economy may require relocating, which has its pros and cons. Someone moving from the East or West Coast to the Midwest may find that the cost of living, including significantly lower home prices, can help them save more and stretch their dollars further in retirement. Not everyone is willing or able to relocate, but those who are able to could seriously benefit from such a move.

For those who decline an early retirement offer in hopes of continuing to grow their pension, think again. Depending on the employer's pension plan, they may actually be reducing their pensions by remaining on the job as current low interest rates force down the pension's buying power and inflation eats away at it.

Severance and early retirement offers come quickly and end just as fast, often with a window of just 15 to 45 days. Ideally, those employees should already have had an in-depth analysis of their retirement cash flow needs and income resources to help them make that decision.

Unfortunately, most haven't. Last year, Wells Fargo conducted a survey of pre-retirees, age 50 to 59, and retirees age 55 to 77. Of the more than 2,100 responses, nearly two-thirds had no formal plans for retirement saving or spending. Only 25% of the pre-retirees had a written retirement plan and of those, only 52% said they had updated their plan during the market downturn.

The Sweet and Sour

Clearly, many older workers who are caught in this Catch-22 need a solid investment plan that helps them avoid eating into the principal they've accumulated. But at the same time, their plan needs to have the potential to grow enough to cover inflation. Many advisors have recognized the opportunity in this market for doing 401(k) rollover and pension analyses for clients and prospects.