Bleak retirements for 150 million?

By MarketWatch

What's the best way to motivate Americans to save, invest and prepare for retirement? Some behavioral-finance experts suggest using a carrot. Others suggest using a stick. And still others suggest using a combination of carrot and stick.

As for me, I suggest the use of statistics. Consider just a sampling of the numbers that were released last year:

IRAs and 401(k)s

There is $4.23 trillion in individual retirement accounts, but that figure hides the fact that relatively few Americans contribute to IRAs and that even when they do, the amounts are small.

Only 14% of U.S. households contributed to IRAs in 2006, according to the Investment Company Institute. You might think that's not so bleak given that working Americans are presumably saving for retirement using employer-sponsored plans, such as a 401(k), a 403(b) or the federal Thrift Savings Plan. But again, the numbers are somewhat depressing.

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There are nearly 100 million Americans age 21 to 64 with full-time, year-round jobs. But of that number, just 60%, or 58.4 million, work for an employer that sponsors a retirement plan, and only 52.7%, or 50.8 million, participate in a retirement plan.

That means roughly half of all working Americans don't participate in a retirement plan or don't have an employer-sponsored plan in which to participate. It also means that a huge number of adult Americans -- by my estimate, 150 million of a potential 200 million -- aren't saving for retirement in any meaningful way, if at all.

Retirement risks

According to the Society of Actuaries' 2007 Risks and Process Retirement Survey, about 50% to 60% of retirees worry about three things: the cost of health care, the effect of inflation on their nest eggs and not being able to maintain a reasonable standard of living for the rest of their lives.

Those worries are justified given the lack of savings in America. But what's really bothersome is the degree to which those who aren't worried should be.

Consider, for instance, health-care costs. Fidelity Investments estimated last year that a 65-year-old couple retiring then would need $215,000 set aside just to pay for medical expenses over 20 years. And if that isn't depressing enough, other estimates are even higher.

Paul Fronstin of the Employee Benefit Research Institute, for instance, said a 65-year-old couple retiring now would need, assuming average life expectancy of 82 for men and 85 for women, more than $300,000 set aside to pay for health-care costs (premiums and out-of-pocket expenses) in retirement. That would rise to more than $550,000 if the couple lived to age 92.

Continued: Retirement expenses

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