How to avoid your own retirement crisis

Various reports have weighed in on whether America is facing a "retirement crisis." One study found, for instance, that while just 8.8 percent of people currently age 65 and older are impoverished, 88 percent of Americans still believe the nation faces a retirement crisis. Sources of disagreement include whether the focus should be on current retirees compared to future retirees and how much income people really need for a comfortable retirement.

A recent report titled "Will the Financial Frailty of Retirees Increase?" from the Boston College Center for Retirement Research (CRR) provides the latest insights into this question. It concludes that most current retirees -- 90 percent or more -- are well positioned to withstand a financial shock that would create a hardship. They define a hardship as retirees who had to cut back on needed food or medicine during the last two years due to a lack of money.

The report also analyzes the financial security of future retirees and concludes that they might receive reduced retirement incomes compared to the current generation of retirees. It projects that "replacement rates" will drop in the future, depending on your income quintile. (The "replacement rate" is your estimated retirement income from all sources divided by your pay before retirement.) The CRR report estimates that replacement rates will drop by:

• 5 percent to 6 percent for people in the lowest-income quintile
• 5 percent to 9 percent for people in the middle-income quintile
• 16 percent to 21 percent for people in the highest-income quintile

The CRR report discusses the reasons for the potential decreases in future retirement income:

• Increased reliance on savings to generate retirement income and decreased prevalence of traditional pension plans
• Modest levels of savings accumulated by older workers
• The scheduled increase in retirement ages under Social Security and the increased taxation of Social Security benefits
• Increases in future Medicare premiums and health care costs

As a result of these events, future retirees may have less ability to withstand a financial shock compared to the current generation of retirees.

Policymakers will debate endlessly whether the retirement crisis is real, now or in the future, and what, if anything, should be done about it. Given the current political and economic climate, don't count on somebody else -- the government or your employer -- to bail you out of your own retirement crisis. You're the best person to address any challenges you'll face in the future.

The CRR report summarizes action steps you can take that can help improve your future retirement security:

• Working longer
• Annuitizing part of your retirement savings, so you have a guaranteed, lifetime income
• Taking out a reverse mortgage
• Downsizing and reducing living expenses

Let me add that taking care of your health is also essential because it will enable you to work longer and potentially reduce your medical bills.

Of course, some of these ideas may not work for you. But it's your job to determine which will help increase your financial security in retirement.

While some of these steps may be easier said than done, nevertheless, they point to the potential solutions to explore. Take the time now to learn about generating retirement income and protecting yourself against the risk of high medical and long-term care bills. It may be hard work, but it will help you enjoy your retirement years.