By Kevin G. Hall,Knight Ridder Newspapers

WASHINGTON – For millions of Americans, retirement security is an oxymoron.

Half of U.S. workers don’t have company-sponsored retirement plans. Another 20 percent still count on the type of traditional company pension that’s fast approaching extinction. The remaining 30 percent belong to 401(k) plans, which shift the burden and risk of savings to workers.

To make matters worse, the personal saving rate of Americans is at a historic low, averaging below 1 percent of disposable income. Many Americans are putting aside virtually nothing for retirement.

Many expect to live off Social Security, and for Medicare to cover their medical bills. But those government programs are projected to run short of money soon, as 77 million baby boomers – Americans born from 1946 to 1964 – begin retiring in 2008. Federal Reserve Chairman Alan Greenspan warns that the government has promised boomers more health and retirement benefits than the economy can afford.

Virtually every program that Americans depend on for their retirement is broken, underfinanced or risky. That guarantees that many face an unexpectedly bleak retirement, or none at all. Even those counting on soaring home values to provide a nest egg could find that a mirage if the recent real-estate binge turns out to be a speculative bubble.

“As a nation, we are badly over-promised. Most of our retirement systems were put in place under very different demographic circumstances, and we haven’t adjusted them to reflect the new realities,” said Robert Bixby, the executive director of the Concord Coalition, a bipartisan group that’s devoted to balanced budgets and fiscal discipline. “I don’t know how it ends, but if you look out over the long term it certainly doesn’t look good.”

About half of working Americans don’t participate in company-sponsored retirement programs, and most have scant personal savings. They’ll depend on monthly Social Security checks for retirement income. It’s rarely enough for a comfortable life. And most plans for fixing Social Security’s long-term funding shortfalls that are before Congress call for slowing the growth of benefits in the future.

Other factors will shrink whatever benefits there are. One is rising Medicare premiums, which are deducted from a retiree’s Social Security benefit. Medicare’s funding challenge is even greater than Social Security’s is. As boomers retire, they’ll strain Medicare’s finances more. Premiums are sure to rise, and take more from Social Security benefits.

Taxes may take a greater bite out of future benefits, too. Since 1983, annual Social Security benefits exceeding $26,000 for individuals and $32,000 for couples have been subject to income taxes. The benefit levels that are subject to taxation haven’t changed, while benefits have risen to maintain standards of living. That means more and more Americans’ benefits are being taxed; 27 percent of beneficiaries were taxed in 2004.

The Social Security retirement age is rising slowly for everyone born since 1943, to 67 for those born in 1960 or thereafter. For millions of boomers, this amounts to a benefit cut compared with earlier retirees; Americans today retire at 64 or younger, on average. Claiming Social Security benefits before reaching the official full retirement age results in lower monthly checks.

Employers aren’t likely to pick up the slack, warned Craig Ueland, the chief executive officer of the Russell Investment Group in Tacoma, Wash., a global money manager.

“If you think your company is providing for your retirement security, you have another think coming,” Ueland told a conference of business editors in Seattle earlier this month.

Retirement reality, he said, is that major corporations “are not going to accept this burden.” In fact, for about 20 years companies have been shifting the burden of retirement savings to their workers.

Two decades ago, at least 1 in 3 working Americans was guaranteed a company defined-benefit pension, which provided a fixed portion of his or her final salary as a pension in retirement. Today, 1 in 5 U.S. workers has such a plan.

“Company pensions belong to a different age, the industrialized age and unionized workers. . . . That world is not going to return, and we are in a state of transition, where basically people have to fend for themselves,” said Zvi Bodie, a finance professor at Boston University.

In 1985, there were 112,000 defined-benefit plans. Today there are about 31,000, as employers switched to defined-contribution plans such as the popular 401(k). In those, pretax deductions are taken from a worker’s paycheck and invested in stocks and bonds. Companies typically match some portion of the deductions, but they’re off the hook for retirement promises.

This month, United Airlines defaulted on its pension plan. United owes nearly $10 billion in liabilities from its pensions, which cover some 120,000 workers. The largest default ever, it served as a wakeup call for the 44 million workers who are still in defined-benefit plans. Delta Airlines may not be far behind.

The responsibility for paying United’s pensions will fall on a federal agency – the Pension Benefit Guaranty Corp. – that already is running a $30 billion deficit. It assumes the liabilities of defaulted pension plans, but honors pension promises only up to $45,614 a year, or about $3,800 a month. That means United’s pilots, specialized laborers and career administrators who were promised more are out of luck.

The Pension Benefit Guaranty Corp. says 75 percent of eligible U.S. companies fail – like United – to put aside enough money to honor their pension promises. More than 2,000 company pension plans have gone bust in the last 20 years, 192 last year.

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President Bush wants to protect workers by requiring all companies with defined-benefit plans to fund them fully within seven years or face steep penalties.

Many big companies oppose his plan. Dorothy Coleman, vice president of tax policy for the National Association of Manufacturers, said Bush’s plan imposes a timetable that could force financially strapped companies to end their defined-benefit plans.

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With government and employers retrenching, the burden falls on individuals.

“Most Americans going forward are going to be relying solely on 401(k) plans as their source of retirement income to supplement Social Security,” said Alicia Munnell, the director of the Center for Retirement Research at Boston College.

But most Americans are ill-equipped to make retirement-investment decisions.

“People make mistakes every step along the way,” said Munnell, author of the book “Coming Up Short: The Challenge of 401(k) Plans.”

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Across every age group, workers don’t put enough aside in their 401(k) plans. Munnell found that in 2001, working Americans aged 35 to 44 averaged $24,000 in retirement savings, when they should have already set aside $59,000 or more.

The problem grew worse with age. Americans aged 45 to 54 averaged $37,000 in 401(k) plans or individual retirement accounts (IRA’s), but should have accumulated a minimum of $155,709 by then. And workers aged 55 to 64 averaged $42,000 in retirement investments, when they’ll need at least $289,000 to get them through retirement, Munnell said.

More than a quarter of workers who are eligible for 401(k) plans don’t participate, a high number but progress since 1988, when 43 percent didn’t. Only eight percent of workers put the maximum allowed into their 401(k) plans, the center found.

“There is a lot of room for people to contribute more,” Munnell said.

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For more information, see the following Web sites:

-Center for Retirement Research, www.bc.edu/centers/crr

-Worry Free Investing, www.worryfreeinvesting.com

-AARP, www.aarp.org/money

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(c) 2005, Knight Ridder/Tribune Information Services.

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GRAPHIC (from KRT Graphics, 202-383-6064): 20050519 RETIREMENT

AP-NY-05-20-05 1404EDT