Comfortable retirement a fading dream for many

Ruth Britton enjoys her part-time work as a college instructor. But, at 69, there are plenty of other things the Greenbrae resident would like to do - volunteer, write, take classes, travel.

The problem is, with the cost of living rising and the value of her investments falling, Britton can't do without the money she gets from teaching. She's already put off retirement several years. Now, she says she may have to stay on the job four or five years more.

"When someone asked me a few years ago when I would like to retire, I said 68, and here I am going on 70," Britton said.

For more Americans, the dream of a comfortable retirement is fading.

The trend marks one of the great social transformations of the postwar era. For four decades following World War II, an increasingly affluent society afforded a growing number of older people the chance to leave their jobs and enjoy a secure retirement. Social Security, private pensions and, beginning in the 1960s, Medicare allowed tens of millions of seniors to live decent lives without punching the clock.

About a generation ago, the tide began to turn. Guaranteed monthly pensions gave way to 401(k)s that handed workers rather than employers the lion's share of responsibility for funding retirement. And health care costs began eating up ever-larger portions of seniors' income.

Quitting not an option

Today, for millions of older Americans, quitting their jobs is no longer an option. That's cold water for the leading edge of the Baby Boom generation, just now moving into its retirement years.

"I was a typical Baby Boomer. We pretty much didn't think about it," said Redwood City resident Michael Adler, 56, who works as a facilities manager for a South San Francisco biotechnology company. "Now I'll probably have to wait until I'm 72 (to retire), unless my company's stock takes off."

The stay-at-work trend has accelerated in the last year as the economy has stalled, eroding savings, home values and wealth. Government data show a higher proportion of seniors working now than at any time in the last three decades.

In April, 16.6 percent of people age 65 or older were in the workforce, compared with a postwar low of 10.8 percent in 1985. Among those in the 65-to-69 age bracket, fully 30.7 percent were working or looking for jobs, up from 18.4 percent in 1985.

The shift is affecting even the affluent. A nationwide survey earlier this year of 60-year-olds with $1 million or more in assets commissioned by the Oakland financial planning firm Bell Investment Advisors found that 11 percent of those who responded said they were postponing their retirement.

"For my parents, the golf course image was the golden prize," said Jim Bell, the firm's founder and president. "I don't think that's true anymore."

Other studies confirm that Americans have turned gloomy about what will happen to them as they age.

A survey earlier this year by the Employee Benefit Research Institute in Washington, D.C., found that only 18 percent of those who responded felt very confident about having enough money for a comfortable retirement, down from 27 percent in 2007. That was the largest drop ever recorded in the 18-year history of the group's survey.

Of course, many people keep on working later in life because they enjoy what they do, especially those in creative occupations or jobs with lots of autonomy, such as writers, lawyers and artists.

"I want to do something," said Jan Ferrera, 70, a Stanford University administrative employee. "I see peers of mine who left at 65, and that's not the life I want."

At the same time, though, people holding jobs that are boring, physically demanding or closely supervised often are eager to move on.

"People value the idea of a period beyond their work life," said Yale University political scientist Jacob Hacker, who has studied U.S. pension and health care policies. "Retirement was the victory of the affluent society over the need to be a cog in the machine your whole working life."

The forces that have made financial security elusive for so many older Americans are rooted in fundamental social and economic shifts of the last 30 years.

Seniors after World War II

After World War II, seniors shared in the growing wealth of American society. Social Security benefits became more generous. Private employers, especially such big manufacturers as General Motors, offered substantial pensions and health care plans to their retirees. Medicare began in the mid-'60s, removing anxiety about medical costs.

"There were big increases in income and a decline in poverty, especially among the elderly," said Murray Gendell, professor emeritus of demography at Georgetown University in Washington, D.C. "Conditions were conducive to early retirement."

In 1978, Congress enacted a law that allowed workers to take part of their pay as tax-free deferred compensation, opening the way for 401(k) programs. Unlike traditional pensions, 401(k) "defined-contribution" plans allow employees to put set amounts of money into investment accounts. The amount of money they have when they retire depends on how much they set aside and how well their investments perform.

Employers love 401(k)s

Employers love 401(k)s because workers shoulder the primary responsibility for funding them. By the middle of this decade, 73 percent of private sector workers were covered by defined-contribution plans, while 37 percent had traditional "defined-benefit" plans, according to the Employee Benefit Research Institute.

The rise of 401(k)s set up what amounted to a class system, with workers assuming the risk of funding their retirement, experts say. Employees who put lots of money into their plans and made wise investment choices ended up in great shape. Those who didn't fund their plans adequately or whose investments did poorly were stuck.

"These changes in retirement plans are pushing people to stay in the workforce," Yale's Hacker said. "I'm struck again and again by how inadequately the 401(k) revolution is appreciated."

At the same time, rapidly rising health care costs prompted employers to cut back or eliminate retiree medical benefits, even as the gaps in Medicare coverage widened. Among private employers with 200 or more workers, 33 percent offered some kind of health benefits to retired employees in 2006, down from 66 percent in 1988, according to the Kaiser Family Foundation.

Social Security also has become a little less generous in the last decade. Benefits' cost-of-living increases are tied to the consumer price index. The method used to calculate the index has changed in recent years in ways that have reduced the reported inflation rate. Many economists say the index now understates how fast living costs are rising.

Meanwhile, the bursting of the housing bubble and the fall of the stock market have added to the pressure on older workers.

"A lot of people were counting on their stock holdings as income," said Emy Sok, an economist with the U.S. Labor Department's Bureau of Labor Statistics. "Once these took a big hit, they may have felt they had to work longer for fear of outliving what they'd saved."

Similarly, Sok noted, the housing bust has deprived people of home equity they might have tapped to fund retirement.

What it all adds up to is that workers have to plan early and be disciplined if they hope to have a comfortable retirement.

"The world is different now. It has become much more individualistic," Bell, the Oakland investment adviser, said. "It's on your shoulders to pay attention."