NEW YORK (Money Magazine) -- Daniel Fish, a New York City lawyer who specializes in helping elderly clients, keeps a small collection of blank birthday cards in his desk drawer. The number 100 is on the front of each one. (Hallmark says it sells 85,000 such cards a year.)

"I'm just waiting for the 105s to come out," says Fish. Shouldn't be long. The Census Bureau estimates that by 2050, there will be more than a million centenarians in America. Millions more of us will make it into our nineties.

Carol and Phil White. Retired: 1999. They have a pension worth $50,000 a year and are unlikely to see any Social Security benefit cuts.

Andrea and Christopher Edmonds. Planned Retirement: 2023 - 2033. To ensure a big enough nest egg, they're taking on more risk now.

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A woman retiring at 65 today, in fact, has a one-in-three shot of living to 90, and the odds for future retirees will be even better.

Which is to say, from a financial planning point of view, that your odds are getting worse. Every additional year that you and your spouse live in retirement means another year of providing for yourselves without a paycheck. And it's increasingly likely that you'll do it without regular income from a pension, and perhaps also with a smaller (inflation-adjusted) Social Security payment and stingier government health benefits.

That puts more pressure on you to save now, certainly. But the truth is, even if you make it to 65 with more than $1 million, for retirement to work out as you hope it will you must be good and a bit lucky as you draw down your savings.

You'll have to do a bang-up job managing your money for 25, 30, maybe even 40 years. And it will help, by the way, if the market doesn't plunge early in your retirement (when you've got a lot of time to spend down your kitty but no way to replenish it) and if you can stay relatively healthy. Tall orders, those.

"People don't think about longevity risk," says Jeffrey Brown, an economist at the University of Illinois. "You should think at least as much about making wealth last as you do about how to build that wealth in the first place."

With the benefit of good advice and smart decisions, you can handle the money challenges of old age. But you need to think about these issues not just as your family's financial planner but as a voter and a taxpayer.

Under our country's retirement "system" - actually a pasted-together jumble of government programs, tax breaks, employer benefits and individual effort - many of America's 78 million baby boomers will fail. Inevitably, we're headed toward a consuming political debate about how much of the planning burden each of us should have to shoulder on our own and how much should be handled collectively.

And it won't just be a fight over tax dollars. The financial services industry is eager to create a profitable market for products that address the phase of life when you're drawing down your savings. (Some of these will help, while others will surely be overpriced or not very useful.)

This will be a wide-ranging conversation about everything from how 401(k)s should work to what Medicare will cover. But ultimately the debate will be about helping older Americans solve two complex puzzles.

When you imagine your retirement, you might picture something like your parents', except maybe a little better. That's how things are supposed to work, right? In fact, you'll be retiring in a very different country than your folks did - even if all of you live in, say, Portland, Ore.

Retiree Carol White, 59, is a citizen of Pension Nation. She started working for the local Oregon phone company during college. After the old Bell System was broken up, she first found herself on AT&T's payroll and later ended up at Lucent Technologies, the AT&T spin-off.

She was building up a pension nearly all that time and was able to retire seven years ago with full benefits of about $50,000 a year for the rest of her life. (Not for nothing did they call it Ma Bell.)

That money helped to finance a retirement dream: She and her husband Phil spent a year in an RV visiting all 48 contiguous states and even wrote a book about their adventure. That pension check alone isn't enough to retire on, but the past several years would have been scarier without it.

"We lost about $150,000 in the stock market crash," says White. "But we were able to keep our investments intact, and they are coming back."

Twenty years ago, 62 percent of Americans with some form of retirement plan had only a traditional, or defined-benefit, pension like White's, according to Boston College research.

Today that number is down to 19%, while 63% have only 401(k)s or similar plans that make no income promises.

If all you have for retirement is a 401(k) with a tiny balance, it's easy to be envious of White. But traditional pension plans aren't perfect. They penalize people who switch jobs, and they aren't fail-safe. Ask a retiree from Bethlehem Steel or United Airlines.

But all this merely underscores the point: As employers become less willing to promise lifetime income, workers need other reliable sources of money for retirement.

The 401(k) has only partly solved the problem, and its failings are serious. Some 401(k) participants take on too much risk, while others fail to contribute enough; and too many plans offer lousy investment choices.

And those are just the problems in the saving phase. At drawdown the vast majority of 401(k) participants are left with a lump sum. That means people who have always lived on a regular paycheck have to learn to carefully dole out this money for the rest of their lives, even into great old age.

"People often do a good job of managing money up to about 85, and then at some point it just gets really hard for them to do it," observes Olivia Mitchell of the Pension Research Council at the University of Pennsylvania. What makes this harder is that you can't be sure how long you are budgeting for. You could spend too much and end up broke at 90 or live like a miser and die loaded at 72.

It's a problem not just of length of time but of timing. If you stay in stocks and they decline sharply in the first few years of retirement, as you are drawing upon your assets to live, it can be hard to claw your way back.

"During the saving phase, you can always decide to work a few more years," says Boston College retirement researcher Anthony Webb. "But later you can't undo the choice of quitting a well-paid job."

So what do you do? Right now the national policy seems to be that you should save so diligently and invest so successfully that you have a lot of room for error. That's a message White's 39- year-old daughter, former stockbroker Andrea Edmonds, has heard loud and clear.

She and her husband Christopher, 38, have stashed $300,000 in IRAs and taxable accounts, with an emphasis on volatile initial public offerings, and they've also jumped into the real estate market. The family now owns three places around Portland, plus a vacation home, with combined equity (at today's prices, anyway) of around $230,000.

"I think we're on track," says Andrea. She concedes that they take a lot of risk but figures that's balanced by their diversification into different assets. The Edmondses enjoy investing on their own and hope that it will give them the chance to retire early.

But not everyone can - or should - do as they do. The family is relatively affluent and gets advice from a small army of professionals.

Plus, Andrea puts in 15 to 20 hours a week managing and researching real estate. She and Christopher will also have to continue managing their risks as they draw down their savings.

If, as a society, we decide the key to retirement is for everyone to take on more risk, we're also deciding it's okay if a lot of us end up losing.

Getting to know (the right) annuities So where besides a pension can you get money for life? There's Social Security, of course. But that was never meant to be more than a safety net, and the system is under pressure. There's a good chance that politicians will reduce benefits before today's younger workers collect.

The best substitute for a pension income is an unglamorous and mostly unloved product called an immediate annuity. It's essentially life insurance in reverse. You permanently hand over a lump sum, and in exchange the insurer promises a regular check until you die. (You can also buy policies that pay your spouse after your death.)

You "lose" the bet if you die early, and you win big if you live to a ripe old age. Either way, you can benefit from the peace of mind that comes from having a source of certain income. Illinois economist Brown says annuities may not make sense if you're sick or can live off of Social Security and pension payments.

"Pretty much everyone else should consider them," he says. So far, though, few people are buying. Many have trouble with the idea of parting with a big pile of money they may one day need for an unexpected cost (such as a medical crisis) or that they'd want to leave to heirs.

And annuities aren't free: When the insurer calculates what to pay you, it takes some money out for sales costs, overhead and, of course, profit.

You'll also get dinged by something called adverse selection. The small number of people who buy annuities tend to be healthy and wealthy, which means they live longer.

That in turn means insurers charge more (that is, pay you less) to cover their risk. Still, as more pensionless boomers retire, products that offer a lifetime income are bound to get hotter. And that alone might make annuities better.

"There will be increasing competition that will work to the advantage of the customer," says Boston University economist Zvi Bodie. You can already see glimmers of the coming marketing push: Axa Equitable is running prime-time TV ads for annuities (the ones with the talking gorilla).

Trouble is, the insurance industry as a whole has a spotty record of selling the right annuities to the right people. Far more popular than immediate annuities are a rather different beast called deferred variable annuities. These are mutual-fund-like investments combined with insurance; they have tax advantages for some investors, and they can offer lifetime income too.

But they often come with a baffling array of features, fees, surrender penalties and sales charges. Securities regulators complain that seniors too often get locked up in risky VAs by unethical salespeople. So it may be that the government needs to nudge boomers toward the most appropriate annuities.

Insurers have their own favorite idea: a tax break. This could certainly get some people off the fence. But don't forget that a tax break would cost the government money at a time when it is already spending the notional trust fund of the Social Security system. Social Security is itself a kind of annuity, and an incredibly important one for lower- and middle-income Americans.

If you think protecting that program is job one, you should be skeptical of tax breaks.

There are other ways to encourage annuitization, though.

Economist Teresa Ghilarducci of the University of Notre Dame suggests that the government could require at least partial annuitization of 401(k)s and other retirement plans.

People who value the control that 401(k)s have given them would hate this, of course, but it would help solve the adverse-selection problem of annuities.

Here's a simpler idea: Make buying annuities easier. Right now, only one in four 401(k) plans offers annuitization as an option. Current pension law makes it legally risky for employers to do so.

"I practiced pension law, and we always advised employers not to offer an annuity," says Pamela Perun of the Aspen Institute's Initiative on Financial Security.

Congress could change the rules to make it easier for employers to tie annuities into 401(k)s, but that's not all it could do. It could set high standards for the policies that plans offer.

Or employers might be required to offer a choice of annuities from different insurers so employees can easily compare costs and diversify. (Some plan providers are already starting to do this.)

Boston College pension experts Alicia Munnell and Annika Sundén have suggested making annuitization the default option for people leaving 401(k)s. You would go into an annuity unless you deliberately chose to "opt out."

So more people would do the right thing just by doing the easy thing - that is, nothing.

"Health care is the most terrifying part of retirement," says Andrea Edmonds. "It's in flux, and when I hear my parents and grandparents talking about it, I have no idea what they're saying with all this Part A, Part B and supplemental."

Fact is, few people give much thought to how they'll pay their medical costs in retirement. Most of us have a vague idea that we'll get federal Medicare benefits in old age; fewer of us realize that Medicare pays for only about half of total medical costs, according to the Employee Benefit Research Institute. And nobody knows what Medicare will be able to afford to pay years from now.

"We're about to see what it's really like to have an unsustainable program," says EBRI's Paul Fronstin.

To get costs in line with revenue over the next 75 years, the system's trustees estimate, Medicare Part A spending (which pays for hospital stays) will have to be cut in half. Or taxes will have to go up. The only real way for you to be ready for these costs is to save for them.

But there's one health-care risk that's even trickier for individuals to cope with: ending up in a nursing home.

Medicare pays for this only under specific, limited conditions. The out-of-pocket costs are huge - averaging $180 a day nationally but more like $300 in pricey zip codes - and they come at a time when you're vulnerable and probably not flush with cash.

There is an insurance solution for nursing-home risk - long-term-care insurance - but it's even more imperfect than annuities. And unpopular too. The adverse-selection problem doesn't so much raise prices as lock people out; seniors often can't medically qualify.

It's easier and cheaper to buy when you're young, but if you are 40, you may not make a claim on your policy for 40 or maybe 50 years. Can you be certain you've bought the right coverage, considering how different health-care standards and costs may be a half-century from now? Will you always be able to make payments?

There's also this wild card: You might be able to get the government to pay for much of your care. About half of nursing-home residents are covered by Medicaid, the program for low-income Americans.

But relying on Medicaid is hardly the soft option. Nursing homes try to limit their Medicaid population when they can; it's hard to predict how tough they'll be when you need care. You also don't know how generous or stingy the program will be by then - and there's already a push under way to roll it back.

The new Deficit Reduction Act makes it harder to qualify as poor enough because seniors will be penalized for money they transferred or gave away in the five years before applying.

That number used to be three years, and penalties were less painful. Steve Moses of the pro-insurance Center for Long-Term Care Reform says this was necessary to make it harder for the rich to abuse a system designed for the poor.

"Attorneys are telling well-todo people it's stupid to pay for long-term care," he claims. Fish - the lawyer with the birthday cards - is frank about the fact that he helps clients get on Medicaid while keeping as much of their assets in the family as the law allows.

But he counters that the program is the only safety net for middle-class seniors facing financial catastrophe. "The greatest fear of my clients isn't paying for one year in a nursing home," he says. "It's the openended liability of an even longer illness."

This isn't going to be a matter of making a few tweaks everyone can agree on. But there's broad consensus on this much: The system as it stands is neither logical nor equitable.

If you think the so-called death tax is unfair, consider the Alzheimer's tax. Richard Kaplan, co-author of Elder Law in a Nutshell, notes that Medicare covers hospital treatments for a smoker with emphysema, but Medicaid won't pay the long-term-care bills of someone with Alzheimer's until she's spent down her assets.

"You have this bizarre discrimination based on disease," Kaplan says. "The irony is that emphysema is the disease that could have been prevented."

Moreover, the patient who pays for her own long-term care may be subsidizing the Medicaid recipient in the next bed. The system pays low rates, so nursing home operators say they charge others more to stay in business.

"Private payers spend $60 to $70 a day to pay for someone else," says Douglas Struyk, president of the Christian Health Care Center in New Jersey, talking about his facility.

One way to make the system more rational, says Kaplan, would be to incorporate nursing-home care into the Medicare system. But given Medicare's bleak financial prognosis, for it to expand, Americans must be willing to make a new commitment to a national health-care system for the elderly.

Could happen: The impeccably Republican George W. Bush has added a prescription drug benefit to Medicare. Notre Dame's Ghilarducci argues that this is a "classic situation where we ought to consider social insurance" because long-term care is so complicated to insure individually.

The other idea - and the one that's been winning lately - is to get people to buy long-term-care insurance. It's a matter of carrots and sticks.

The stick would be to cut middle-class access to Medicaid even further.

The carrot would be simpler and improved insurance. Long-term-care policies are so varied in what and how much they cover that it's tough for consumers to compare prices.

In a study for the AARP Public Policy Institute, analyst Bonnie Burns recommends some form of standardization. For example, insurers might be required to offer, among other options, a policy like the one government employees can buy.

Federal law already takes a stab at improving insurance options. It allows states to create "partnership" long-term-care policies that let patients who have exhausted their insurance benefits switch to Medicaid while protecting their assets. Four states already have these, with mixed success so far.

Another new law provides favorable tax treatment for some combinations of annuities and insurance, like an intriguing policy proposed by Mark Warshawsky, a pension expert who recently left the Treasury Department. The idea is to defeat adverse selection by combining risk pools.

Sicker people who want the long-term-care benefit would be able to get it because they'd offset the longevity risk of healthy people who want the lifetime annuity. These policies might attract those who resist annuities for fear of not having enough ready cash to pay for a nursing home.

Clearly, getting more Americans ready for drawdown isn't going to be simple. That's natural. As we're all likely to find, living into old age isn't always easy either. But it beats the alternative.

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