Do-It-Yourself Retirement
Corporate and government policies were once the bedrock of the American retirement system, but that's increasingly less common as companies ditch their pension plans and retiree medical benefits, while Social Security and Medicare face uncertain futures.
Consider the following: According to the Employee Benefits Research Institute, only 10% of workers participated in pension plans in 2005, a sharp decline from 62% in 1979.
On the flip side, 63% of workers participated in 401(k) plans in 2005, a huge jump from 16% in 1979. A survey from the Kaiser Family Foundation and Hewitt Associates found that from 1988 through 2006, the number of private employers with 200 or more workers that offered retiree health benefits dropped almost in half, from 66% to 35%. And Social Security isn't what it used to be after changes in the calculation rate reduced the reported inflation rate to where some people think it underestimates actual cost-of-living increases.
It's all part of the trend of privatizing retirement-shrinking the roles of corporations and the government and transferring more responsibility into the laps of individual Americans. In his recent book, The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream, Yale University political science professor Jacob Hacker calls it the "personal responsibility crusade."
Or simply call it "do-it-yourself retirement." Self-directed 401(k) plans are replacing pensions. There's a push to get people into consumer-directed health plans, such as health savings accounts, where consumers manage their medical expenses. In 2005, the Bush administration tried-and failed-to partially privatize Social Security.
"What we're seeing is the shifting of a lot of risk on people," says Hacker, who specializes in social policy and health-care reform issues. "The risks don't stop at the shores of the upper middle class, particularly when it comes to health care."
According to Hewitt Associates, the average annual cost of health insurance for an American family jumped 33% between 2000 and 2004. Also in that vein, research from Fidelity Investments found that a 65-year-old couple retiring today will need roughly $225,000 to cover health care costs in retirement, which is up about 40% from 2002.
"For our clients close to retirement, the big unknown in their minds is potential health-care costs," says Newton from Regent Atlantic. "I can't tell you how many clients who, after we've shown them they'll have more than enough money, are still worried."
Hacker cites McKinsey studies showing that the biggest financial shocks in retirement are caused by health issues. Hacker, who serves as an independent academic advisor on health-care issues to presidential candidate Sen. Barack Obama, says calls for people to work longer is only part of the solution to mitigating retirement risks.
"There's a lot of talk about how people should wait later to retire to shore up their own finances and to help government programs remain solvent," he says. "But the other side of the obligation line is for corporate and government leaders to start thinking about how we would engineer such a shift."
Working: The New Retirement
Retirement traditionally was supposed to be about relaxation and travel, about endless rounds of golf or games of gin rummy. But for a growing number of retirees and those approaching their golden years, retirement is now about-or will be about-work.
In June, 16.5% of people age 65 and older were either working or looking for work (in other words, not officially retired), which is up from the all-time 60-year low of 10.8% in 1985, according to the U.S. Labor Department's Bureau of Labor Statistics. Among those aged 65 to 69, the June figure was 30.9%, compared with the all-time low of 18.4% in 1985.