Unhealthy delusions

April 08, 2005

CONFIDENCE COMES naturally for many Americans. But these days, when it concerns financial security in retirement, that confidence appears so unfounded as to verge on the delusional. Anyone paying attention has to conclude that cuts in Social Security and Medicare benefits are likely. Employers have been dropping defined-benefit pension plans. Company-paid medical benefits for retirees are also becoming increasingly unusual. And Americans' personal saving rate has sunk to a near all-time low.

Most Americans report less than $25,000 in savings and investments, according to a new retirement-confidence survey by the Employee Benefit Research Institute, yet 65 percent of workers are very or somewhat confident about having enough money to retire comfortably. More than a third of those who've saved nothing even share such confidence.

The dissonance gets worse: Many workers -- uneasy about future benefits from Social Security and Medicare -- plan on not retiring until 65 and then working to supplement their income, but the institute found that the average worker retires at 62 and often not by choice. Moreover, only a quarter of all retirees end up working sometime during their retirement years.

Not surprisingly, Americans are behind in saving for retirement because their everyday expenses and debt are too high, the survey indicates. But the proverbial 800-pound gorilla in all this is health care. A major cause of high living expenses, unplanned early retirement and not working in retirement are medical problems, workers and retirees report. And here, too, Americans are out of synch with reality: While Medicare's financial problems are more pressing than Social Security's, workers report less uncertainty about its future. An earlier institute study found that a man who retires at 65 without employer-provided health insurance and lives till 80 would need at least $37,000 to $117,000 at retirement to meet typical medical bills beyond Medicare hospital coverage (but not including nursing home fees).

With 76 million baby boomers moving to the end of their careers, this is a train wreck in the making -- one that suggests that the urgent national debate right now ought to be more about Medicare's future than that of Social Security. Greater personal saving is needed, of course, but fixing long-term health care is just as much a key to retirement security.

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