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Sandy Tracy, 61, of Darwin, Minn. retired from teaching three years ago. Tracy says she and her husband did all the right things to get ready. 

They contributed to 401k plans and have several individual retirement accounts. As they got older, Tracy says they pulled back on riskier investments and moved their money into more conservative funds.

Still, their nest egg is shrinking. They've lost $119,000 just since June.

"There's a little bit of irony in there, that hard work doesn't always pay off," said Tracy.

The bad economic news has thrown the couple's plans up in the air. 

Tracy's husband Dick is 60 years old, and is still on the job as a social worker. Tracy says they may have to postpone his retirement plan.  

"My husband would really like to retire in the spring, but I'm kind of trying to gently tell him he really needs to wait until he's 62, so that he's eligible for Social Security," Tracy said.

The couple's investment loss, along with the rising costs of food and fuel, is forcing them to make other choices. They'd planned on staying in the home they built 18 years ago, but they're now considering downsizing to something more affordable. 

Tracy says she's even considering going back to work, something she's reluctant to do. She worries that the souring economy will rob her of the retirement freedom she worked so hard for.

"You put that money aside expecting it to continue to grow, and so the thought of starting to withdraw it when it's at a lower value is certainly frightening," said Tracy. "The economic times have made it more anxious for us in terms of trying to figure out what to do."

Analysts say the value of retirement accounts in the U.S. has declined by about $1.6 trillion in just the past year. 

According to a new report from the Washington D.C.-based Urban Institute, a nonprofit organization that analyzes social and economic issues, the impact of the Wall Street meltdown has been significant on seniors.  

Co-author Richard Johnson says the crisis has turned back the clock on people's retirement plans. 

"The decline in the stock market has basically wiped out all of the savings that people made since 2005," said Johnson. "It's really hitting people who are closest to retirement hardest, because they're the ones with the most retirement savings and they're the ones with the least amount of time to recoup these losses."

As retirees watch their nest eggs dwindle, Johnson says many will have no choice but to go back to work. He says that may not be easy.

"If we're entering a deep recession -- and all the indicators are that that's about to hit -- and the unemployment rate is already started to increase, older people who have been out of the labor market, whose skills maybe have deteriorated somewhat, could find it challenging going back," he said.

Johnson says the trend of retirees re-entering the workforce isn't new. That number has been rising over the past decade, with about one-quarter of retirees heading back to work. 

Johnson says it's driven by rising health care costs and an erosion of retiree benefits. Many experts say the housing and stock market crisis will accelerate that trend.

Paul Anderson, Minnesota operations coordinator for Experience Works, a nonprofit organization that assists older, low-income people find work, says he's recently seen a significant increase in the number of retirees seeking employment. He says it's not just people who own stocks or IRAs who are suffering from the bad economy.

"We're working with people, sometimes in their 60s, 70s and even 80s, who are trying to get by on $400, $500, $600 a month Social Security, and finding they just can't buy the gas and pay the fuel and pay the medical costs on that limited income, even though when they first retired they thought they could," Anderson said.

Analysts say as more seniors stay in the workforce, it means they're not creating job openings. That means younger people who were expecting to move into those jobs may have a harder time finding work.

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