(MONEY Magazine) – For most working people, retirement ranks just behind death and taxes as one of life's certainties. Yet while eight out of 10 middle-aged Americans think they can make it financially after they retire, only 18% of them feel highly prepared for that day -- down from 30% who expressed similar confidence in 1988. And the proportion of Americans ages 55 to 64 who think that they are not ready financially to retire has climbed to 23%, up seven points in a year.

The declining faith of middle-aged Americans in their ability to retire in comfort was uncovered in Merrill Lynch's third annual survey of 400 adults ages 45 to 65. The national poll, conducted last December by the Wirthlin Group, was released exclusively to MONEY. (The error margin is five percentage points.) Looking ahead to the day they stop working, the respondents said their main worries were inflation and rising health-care costs. Fully 93% voiced concern about health care, up from 86% a year earlier. Indeed, a startling 97% of the group closest to retirement, people 60 to 64, fear that they won't be able to pay their medical bills, up from 87% last year. And 85% of all the people polled, virtually the same proportion as in the last survey, worry that nursing-home costs could ruin them or their families financially. Nine out of 10 poll respondents think they will need financial help in retirement from their children or the government, up from 79% a year earlier. Worse yet, 83% fear their income will fall short of their needs; in the last ! survey, 74% felt that way. Such worries are widespread. ''All of my retirees say they want to make sure their money lasts as long as they do,'' says Donald Haas, a financial planner in Southfield, Mich. ''They don't want to become dependent on their children.'' That concern leads people to save more as they approach retirement. The survey found that middle-aged Americans in general set aside 12% of their income, twice the national savings rate. Moreover, those polled who earn $50,000 or more save an average of 14%. What might cause Americans to stash away more for retirement? Tax incentives, said 66% of those surveyed -- a sentiment shared by a growing number of politicians, as reflected in President Bush's proposal for a tax- deferred family savings program and the call by Senator Lloyd Bentsen (D, Texas) and Senator William Roth (R, Del.) to bring back the fully deductible IRA. But considering the size of the budget deficit, there may be only a slim chance that either incentive will be enacted this year.