Dear Joe:

I have written to you before. The subject was Medicare, and how tricky it is to cover it. This time I want to say I really liked your column in Friday’s New York Times. You see, I cover Social Security and retirement income as well as health care—the two kind of go together. Increasingly, Americans are going to have a hard time paying for their health care as they get older, especially if proposals floating around Congress and in the think tanks materialize. I’m referring to the stuff that calls for seniors to have “more skin in the game,” which will make them pay more out-of-pocket when they get sick. No more first-dollar coverage for some of the most risk-averse people on the planet.

Seniors’ Medigap policies cover too much, according to some members of Congress and MedPAC, an independent commission that advises Congress. They want these policies to cover less, on the theory—or hope—that Medicare seniors will become savvier shoppers and visit a doctor only when they absolutely need to. If they go for care when they have a sore throat, that means—you guessed it—the money will have to come from their Social Security checks, or from whatever remains in their 401(k) retirement accounts. It will discourage the use of services and lower the country’s health care tab.

I am sorry to hear that your 401(k) plan has come up short. But you are not alone. Zillions of workers also thought they could take command of their own funds, invest them, and have tons of money at age 65. Remember all those rosy projections from Fidelity, Vanguard, and the late Merrill Lynch? Too many people drank the financial Kool-aid those firms poured. I have been around this retirement-income business for a good chunk of my reporting career, and remember when a pension actuary told me that 401(k) plans were “nothing but good”—if you had a good pension plan from your employer to go along with them, that is. If not, he said, they could be disastrous. They have become disastrous, as you wrote, and good employer plans have disappeared. Your phrase “faith-based retirement” is apt.

Alicia Munnell, who heads the Center for Retirement Research at Boston College, told us at CJR that before the stock market crashed a few years ago, Americans had on average $70,000 in their 401(k) plans. Perhaps they have a bit more now, but even so when you annuitize that amount and convert it to a monthly income to live on, it’s not much. Most people don’t know what their nest egg really means in actual dollars and cents to live on. Munnell crunched some numbers and found that if a 65-year-old man and his 62-year-old wife took a joint-and-survivor annuity in which the surviving spouse gets full benefits when the other dies, the monthly payment would be $338. If the man took a single-life annuity, his payment would be $100 more. This concept of annuitizing a nest egg bears repeating.

You yourself used some pretty grim numbers in telling us that sixty percent of workers age 55 and older have less than $100,000 in a retirement account. Like you, many withdrew money for other pressing needs during their working years. As for additional savings outside of retirement accounts, Munnell explained that those approaching retirement have virtually nothing—about $30,000 in financial assets.

That brings us to Social Security, which, as you know, is under attack from deficit hawks and others who say we must make some very hard choices in order to prevent increases in the payroll tax that funds the program. Since tax increases are not on the table at the moment, that leaves raising the age for collecting benefits, cutting cost-of-living raises, or eliminating benefits for “rich” people, whatever that means. The average Social Security benefit is only about $1200 a month, and if people have little else in the way of resources, it’s going to be tough to make ends meet. That’s where the faith part comes in.

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