Most Americans unprepared for retirement

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NEW YORK (CNNMoney.com) -- A majority of American workers will not be able to maintain their current standard of living after they retire, according to a report released Tuesday.

The Center for Retirement Research (CRR) estimates 61% of households are "at risk" of being unable to live the way they would like and pay for their health care when they get old.

CRR considers consumers to be "at risk" if their savings, Social Security and pension benefits combined will fall at least 10% short of the income needed in retirement to support the same standard of living they enjoyed while working.

Previous reports have considered health care to be a cost that retirees factor in by "rearranging their basket of consumption" - that is, spending less on consumer goods.

CRR's study assumes that people want to spend the same amount on goods in retirement that they do now and that they consider health insurance and the added health care costs associated with growing old to be an additional expense.

"People take the notion of health care for granted," said Andrew D. Eschtruth, associate director for external relations at CRR. "The basic assumption of this report is that retirees think they will eat the same kind of foods, travel the same - or more - and buy the same clothes."

If that's the case, then there is cause for concern. Health care costs continue to increase dramatically, far outpacing wage increases year over year.

Additionally, out-of-pocket health care costs for most consumers rise significantly upon retirement. The report assumes that people recognize the burden of health care costs once they retire; however, those retirees to whom the added expense comes as a surprise will have to reduce their spending on consumer goods and spend much more on health care.

Many workers do not have a realistic estimate of how much they will need to spend on health care when they retire, according to a 2007 study by the Employee Benefit Research Institute (EBRI).

The study shows that 84% of employees estimated they and their spouse will need to accumulate less than $250,000 for retiree health costs, 32% of whom thought they would need less than $100,000.

But according to the EBRI, couples will need to save about $300,000 in retirement to cover health expenses, assuming they live to average life expectancy and Medicare benefits remain at current levels. For those who live to 95, that amount jumps to $550,000.

Why are people so inadequately prepared? With the shift from traditional pension plans to 401(k)s, the burden of preparing for retirement has shifted from employers to the employee.

Some workers aren't saving enough to prepare themselves for their golden years. Also, 30% of employees simply fail to sign up for 401(k) plans, according to insurance company Nationwide.

"A lot of people say, 'Oh yeah, my company told me to sign up for my 401(k); I'll do it tomorrow,' and they forget to sign up," said Eschtruth.

As a result, the government passed the Pension Protection Act in 2006 to encourage businesses to automatically enroll employees in their retirement plans.

But there are steps beyond saving that people can take to make make retirement planning easier and more affordable.

"Good physical health matters a great deal," said Paul Ballew, senior vice president of consumer insight and analytics at Nationwide. "Physical and financial health are connected, as being healthy lessens your chance of having high, unexpected medical expenses."

Households planning for retirement are also encouraged to seek professional advice.

"Save early and often, and take advantage of what's available to you," said Ballew. "But also speak to a professional who can help you achieve an adequate investment strategy for your golden years."