Retirement a complex issue

WASHINGTON – For millions of Americans, retirement security is an oxymoron.

Half of U.S. workers don’t have company-sponsored retirement plans. Another 20 percent still count on the type of traditional company pension that’s fast approaching extinction. The remaining 30 percent belong to 401(k) plans, which shift the burden and risk of retirement savings from employers to workers.

To make matters worse, the personal saving rate of Americans is at a historic low, averaging below 1 percent of disposable income. Many Americans are putting aside virtually nothing for retirement.

Many expect to live off Social Security, and for Medicare to cover medical bills. But those government programs are projected to run short of money soon, as 77 million baby boomers – Americans born from 1946 to 1964 – begin retiring in 2008. Federal Reserve Chairman Alan Greenspan warns that the government has promised boomers more health and retirement benefits than the economy can afford.

Virtually every program that Americans depend on for their retirement is broken, underfinanced or risky. That guarantees that many face an unexpectedly bleak retirement, or none at all. Even those counting on soaring home values to provide a nest egg could find that a mirage if the recent real-estate binge turns out to be a speculative bubble.

“As a nation, we are badly over-promised. Most of our retirement systems were put in place under very different demographic circumstances, and we haven’t adjusted them to reflect the new realities,” said Robert Bixby, the executive director of the Concord Coalition, a bipartisan group that’s devoted to balanced budgets and fiscal discipline. “I don’t know how it ends, but if you look out over the long term it certainly doesn’t look good.”

Here’s why:

About half of working Americans don’t participate in company-sponsored retirement programs, and most have scant personal savings. They’ll depend on monthly Social Security checks for retirement income. It’s rarely enough for a comfortable life. And most plans for fixing Social Security’s long-term funding shortfalls that are before Congress call for slowing the growth of benefits in the future.

Other factors will shrink whatever benefits there are. One is rising Medicare premiums, which are deducted from a retiree’s Social Security benefit. Medicare’s funding challenge is even greater than Social Security’s is. As boomers retire, they’ll strain Medicare’s finances more. Premiums are sure to rise, and take more from Social Security benefits.

Taxes may take a greater bite out of future benefits, too. Since 1983, annual Social Security benefits exceeding $26,000 for individuals and $32,000 for couples have been subject to income taxes. The benefit levels that are subject to taxation haven’t changed, while benefits have risen to maintain standards of living. That means more and more Americans’ benefits are being taxed; 27 percent of beneficiaries were taxed in 2004.