Retirement jitters on the rise

Financial confidence plunges – for retirees and workers both – as US economy falters.

By Mark Trumbull | Staff writer of The Christian Science Monitor

from the April 10, 2008 edition

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A confluence of adverse forces – notably falling wealth and rising inflation – is making many Americans less confident about their well-being in retirement.

On Wednesday, an annual survey of Americans recorded the largest-ever plunge in retirement confidence in 18 years of polling.

It's not uncommon for long-term confidence to ebb and flow with changes in the economy, but the sharp drop reflects larger factors led by rising medical costs and an unusual plunge in home values.

That doesn't mean the outlook for retirement is completely bleak. But the sobering trends have several implications, analysts say:

• Americans will need to start saving more, and many current retirees may need to cut back on spending.

• Pressure may build for politicians to revamp policies, ranging from incentives for saving to big programs like Social Security, that affect retirement incomes.

• So-called "human capital," people's skills and ability to work, is suddenly even more important to long-term wealth. That, not houses, appears to be the reserve that many Americans will tap, as retirement becomes a blend of work and leisure.

"We're moving toward a different balance of work and personal life when one reaches their 60s and 70s," says John Challenger, chief executive of outplacement firm Challenger, Gray & Christmas in Chicago. "You may need to work for a long period of time."

One reason is financial necessity, but Mr. Challenger says there's a positive side, too: Many people want to keep active in the workplace as well as in their gardens or swimming pools.

Still, the current financial landscape is daunting.

When the high-tech stock bubble began bursting back in 2000, many people lost much of their 401(k) plan savings. Today, a weak US stock market (now at 1999 levels) is coupled with a plunge in the value of what for many is the largest source of net worth – homes. The two events illustrate workers' "inability to plan properly to handle retirement," Challenger says.

Indeed, Americans are getting a financial wake-up call on several fronts. In the newly released survey, the percentage of workers very confident about having enough money for a comfortable retirement posted its sharpest ever fall, dropping from 27 percent in 2007 to 18 percent in 2008.

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