Cathie Ramey
RedwoodAge.com

The percentage of workers financially unprepared for retirement has jumped by nearly a third in the past eight months, largely due to soaring health costs, according to a leading index.

The National Retirement Risk Index now suggests 61 percent of workers are at risk - a 17 percent increase from last July, according to the Center for Retirement Research at Boston College, which developed the index with funding from Nationwide Better Health.

The index compares income before and after retirement to establish a "replacement" rate which is measured against a target. Households that miss the target by more than 10 percent are considered at risk. 

Center director Alicia Munnell said health care costs were the "wild card" behind the sudden rise. She said prior updates cited factors like lagging Social Security replacement rates, the shift to 401(k)s from pensions and rising life expectancy.

The big jump adds to growing concerns that 77 million boomers will be forced to adopt lower standards of living in retirement, although boomers aren't the only group at risk. 

"The index also shows that risk will rise for younger workers and low-income households," said Munnell. "The number could be considerably higher once long-term care costs are taken into account, and if households do not plan rationally."

Paul Ballew, Nationwide's senior vice president for analytics, said "medical expenses have increased 43 percent in the last five years and will likely increase at a higher rate compared to overall consumer spending." He noted health care now accounts for a fifth of all consumer spending - double the percentage of 1970.

Ballew said other research confirms "most consumers are less prepared today for their retirement years compared to five, 10, or 20 years ago."

Hard to Save
Uncertain economic times find American families struggling to save for retirement. A weakening economy,  the rising costs of fuel and the mortgage crisis have left many wondering what the future will hold.

"The personal savings rate in the US today is essentially zero," said Ballew. 

He cited data from the Employee Benefits Research Institute that shows 44 percent of people are "guessing" how much savings they'd need to live comfortably in retirement. It's generally estimated that retirees need 65 to 85 percent of their pre-retirement income to avoid a decline in their standard of living.