February 20, 2008
A new study warns that most -- not many, most -- retirees will not be able to maintain their lifestyles in retirement because of rising health care costs.
A study by the Center for Retirement Research finds that 61% of American workers are at risk of not being able to maintain their standard of living after they retire.
Even if employees continue working until 65, fully 44% will not be able to maintain their desired standard of living, the study warned.
American retirees are considered to be at-risk if their combined savings along with Social Security and pension benefits tumble at least 10% short of the income needed to sustain the same standard of living they earned during their working years.
Gen Xers hardest hit
The risk was greatest for generation Xers born between 1965 and 1974 with 48% in danger of not keeping up with standards of living post retirement, according to the report.
Even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, 44 percent will remain at risk, the study found. More realistic assumptions regarding earlier retirement and reluctance to annuitize 401(k) balances or tap housing equity would put the percentage at risk even higher.
Previous studies have not addressed rapidly rising health care costs. When these costs are included explicitly, the percentage of households at risk increases dramatically, the report found.
As always, the percent at risk is greater at the low end of the income distribution. Gen Xers and other younger cohors are more at risk because of the combined effect of a contracting retirement income system and continually rising health care requirements.
The full report is available online.