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Retirees tighten the belt, but still struggle

As the rebound in the U.S. economy helps boost income and spending among working-aged households, older Americans relying on retirement income are having a hard time paying the bills.

Despite steady belt-tightening as they age, retirees' incomes just aren't keeping up, according to a review of the latest data by the Employee Benefits Research Institute. On average, retired households spend about 80 percent of what working households spend, but their earnings are only 57 percent of what working households take home.
Not surprisingly, retired Americans spend a rising portion of their income on medical expenses as they get older. Health care cost consume roughly 13 percent of spending by those 65 and older -- more than double the 5.3 percent of spending for those 45 to 54 and just 4.0 percent for those under 25, according to the Bureau of Labor Statistics. That rises to about 20 percent of total spending for those ages 85 and over, according to the EBRI.

With government health care spending soaring, Congress is wrestling with various proposals to contain costs. That doesn't bode well for retirees who already face higher health care bills than younger households. 

Failing health consumes more of their income, but it also limits activity for older Americans. If you get sick, your doctor bills go up. It also means you can’t spend $5,000 to go on a cruise. That explains much of the decline in their spending, according to the EBRI. (Spending is higher among households with long-term care insurance, who have more money available.)

As of 2010, the annual median household income for working families was $53,548, some 76 percent higher than the $30,480 median income for retirees over 50, according to the EBRI. Though retirees spent 21 percent less than working families, those cutbacks weren't quite enough to make ends meet. Some demographic groups, including singles, blacks, and high school dropouts, are "outspending their resources in retirement," according to the researchers.  

The ongoing squeeze on retirees spending hasn't gone unnoticed by younger Americans. Roughly two-thirds told a recent Gallup survey that a lack of adequate retirement savings was their premier financial concern (that's up from 53 percent in 2001). Lack of adequate retirement savings topped other financial worries, including paying for medical costs for a serious illness, saving enough for college or being able to pay the rent or credit card bills.

Those fears are warranted, according to a separate study by EBRI. The group's latest assessment of American's retirement planning, the Retirement Readiness Rating, found that nearly one-half, 47.2 percent, of younger baby boomers are at risk of not having enough savings to pay basic retirement expenses' and uninsured health care costs. The percent at risk drops to 43.7 percent among older boomers, but then increases slightly to 44.5 percent for Generation X.

For those who are actively saving, average balances have been improving since the stock market collapse in 2008. But those accounts are still considered far short of what's needed to provide for a secure retirement without big cuts in spending.

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