Reflecting the growing concern over health care costs and economic issues, American workers’ confidence in being able to afford a comfortable retirement dropped dramatically in the past year. So concludes the Employee Benefits Research Institute, Washington, which released the results of its annual Retirement Confidence Survey during a press briefing on April 9.

The percentage of workers who are very confident about having enough money for a comfortable retirement decreased sharply, from 27% in 2007 to 18% in 2008, the biggest one-year drop in the 18-year history of the EBRI survey. Retiree confidence in having a financially secure retirement also decreased, from 41% to 29%. Decreases in confidence occurred across all age groups and income levels, the report noted, but were particularly acute among young workers and those with lower incomes.

“It’s disheartening but understandable that retirement confidence has gone down,” said Mathew Greenwald, president of Mathew Greenwald & Associates, Washington, D.C., which co-sponsored the survey. “But it’s my view that much of the confidence observed in previous years was false confidence. Perhaps now people are getting more realistic, which hopefully is a precursor to more effective financial preparation for retirement.”

The percentage of respondents who are “very confident” about having enough money to take care of basic expenses decreased to 34% in 2008 from 40% in 2007 for workers and to 34% from 48% for retirees. Respondents also expressed reduced confidence in the government’s ability to meet its commitments to entitlement programs.

Twenty-six percent of workers are confident Social Security will be maintained at current benefit levels, down from 31% in 2007. And, while worker confidence in Medicare remains stable, retirees are now about half as likely as in 2007 to be very confident in Medicare’s ability to maintain current coverage levels, the report says.

“Given reduced confidence in being financially secure in retirement and the declining confidence in the government’s two main entitlement programs for retirees, one would expect workers to change their behavior and start doing more themselves to accumulate enough for retirement,” said Greenwald. “We’ve seen some adaptation, but we haven’t seen enhanced accumulation. And our survey suggests the reasons why.”

In recent years, he added, the survey’s authors observed two related developments: (1) a rise in the labor force participation rate of baby boomers ages 55 and older; and (2) an increase in respondents who say they expect to work to higher ages. In 2008, the average worker expects to work to age 65; and 20% of respondents said they expect to work into their 70s. Ten years ago, Greenwald noted, the median expected age of retirement was 62, not 65; and less than 7% of respondents planned to work into their 70s.

“But two things must be remembered: A longer working life is not something that everyone who wants it gets,” said Greenwald. “Half of the retirees we surveyed said they retired before they planned to, most often because of health problems and disability, or else due to a company downsizing, closure or other factors beyond their control.”

Health costs have become a big concern for retirees. Among retirees who left the work force earlier than planned, more than half (54%) say they did so because of health problems or disability. Almost half of retirees (44%) say they have spent more than expected on health care expenses. More than half of retirees (54%) say they are now more concerned about their financial future than they were right after they retired, a 14% increase from a year ago (40% in 2007).

Greenwald said that most respondents make a “faulty assumption” about how much work they will be able to do upon retiring. The survey has “consistently” found that about two-thirds of people expect to work after they retire, but only about one-quarter of retirees actually do. The unreasonably high expectation about post-retirement work “may be a factor that stops people from saving all they can or should.”

By contrast, Greenwald observed, respondents underestimated how much money they will spend in retirement. Fifty-eight percent of workers expect to spend less in retirement than they did before they stopped working. But less than half of the retirees polled have reduced spending in retirement. Among the factors cited for the increased spending: high health insurance costs; and increased expenditures that accompany pent-up demand for leisure time and travel.

The survey found that about half of workers (47%) say they and/or their spouse have tried to calculate how much money they’ll need for a comfortable retirement, up from 29% in 1996. Forty-four percent who calculated a goal changed their retirement planning; and almost two-thirds (59%) starting saving or investing more.

Conducted in January 2008, the Retirement Confidence Survey polled 1,322 (1,057 workers and 265 retirees) ages 25 and older in the U.S. Boomer respondents constituted 35% of the total.