Workers fear more cuts in retirement benefits

— -- The economic recovery has not made Americans feel more secure about their financial future. In fact, many workers fear more cuts in retirement benefits and higher out-of-pocket health care costs, according to a survey by Towers Watson, a retirement consulting firm.

As a result of their worries, more than half, 55%, of workers say they are willing to give up some of their future pay increases in order to have more guaranteed income in retirement, the survey found. And 50% say they would also trade a portion of their pay to ensure health care benefits.

"This may reflect their firsthand experience with financial market volatility, continuing worries about the economy and fears of future cutbacks to benefits," said Kevin Wagner, Towers Watson senior retirement consultant.

Americans are recognizing the realities they must face about their retirement, says Nevin Adams, co-director of EBRI Center for Research on Retirement Income. In 2011, workers were more pessimistic about having enough money for a comfortable retirement than at any time in the two decades that EBRI has conducted its Retirement Confidence Survey.

"We expect that the 2012 results, slated to be published in March, will echo those sentiments," Adams says.

Although older workers have little time to recover from the stock market crash before they retire, younger employees are the most worried about their retirement security, the Towers Watson survey found. In fact, among those who are 40 and younger, their willingness to pay more for a guaranteed retirement benefit has risen about 70% since 2009.

To help address such concerns, the Treasury Department recently proposed regulations that would make it easier for 401(k) plans to allow workers to put a portion of their retirement savings into an annuity when they retire. An annuity can offer more financial security because retirees would give a lump sum to an insurance company, which agrees to pay them a monthly amount for life.

But that can't address all the financial risk that workers face. More than half of employees, 64%, say rising health care costs are the primary reason they are concerned about retirement, the survey says.

Retirees pay much more for health care coverage — even as a supplemental policy to Medicare. "About a quarter of total retirement expenses will be on health care," says Bill Daniels, senior retirement consultant at Towers Watson.

A January report by the Insured Retirement Institute said that a healthy 65-year-old male can expect the cost of health care expenses, including premiums, for the rest of his life to total $350,000, and a 65-year-old woman can expect to pay at least $417,000.

Perhaps the only silver lining of the financial crisis, says Towers Watson, is that it has sharpened the focus of Americans on retirement security and health spending. And it has highlighted the value of security.