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Planning to retire means a plan for disaster

Maybe the best way to save for retirement is to actually start budgeting for a short bout of insecurity. Or lots of insecurity.

The looming pension cuts — on top of higher health care costs — facing city of Detroit retirees should give anyone reason to reconsider their retirement risks.

What would you do if you suddenly faced extra health care expenses of $400 or more a month? Or if you suddenly lost $600 a month, as some Detroit retirees faced by an annuity clawback will do, as the city works its way out of bankruptcy.

Sometimes, what looks like a healthy nest egg could easily be scrambled into an ugly mess.

To be sure, record highs for the Dow Jones Industrial Average in recent weeks make many consumers overall feel more comfortable about having enough money in retirement. Some people's confidence can rebound with stock prices.

About 18 percent of workers nationwide are now very confident, up from 13 percent in 2013, about having enough money for a comfortable retirement, according to a 2014 Retirement Confidence Survey released in March by the Employee Benefit Research Institute.

But here's the catch: The increased confidence was found almost exclusively among those with higher household income and strongly correlated with whether someone had a retirement plan or retirement savings.

Nearly half of workers without a retirement plan were not at all confident about their financial security in retirement.

Many workers had little or no savings for retirement.

Among workers providing savings data for the survey, about 36 percent said they had less than $1,000 in savings. Many of those households earned less than $35,000 a year in income.

Not having enough savings is only one side of the story.

Many seniors now also have more debt in their retirement years than they expected.

Older consumers are carrying more mortgage debt than they had in the past, according to data from the Consumer Financial Protection Bureau. Much of that mortgage debt is attributed to the refinancing boom — and the housing bust.

About 30 percent of homeowners age 65 and older carried a mortgage in 2011, the most recent data available. That's up from 22 percent in 2001.

For those ages 75 and older, the rate is 21.2 percent, up from 8.4 percent in 2001.

"A home can be a place of security for older Americans in their retirement years — a roof over their heads as well as a valuable asset," said Richard Cordray, director of the Consumer Financial Protection Bureau, in a statement.

"But as more seniors carry significant mortgages into retirement, they put themselves at risk of losing their nest eggs and their homes."

The median amount that older homeowners owed on their mortgages was $79,000 — up 82 percent from about $43,000 in 2001.

A dramatic drop in home values, and a slow climb back, cut into home equity and contributes to more financial insecurity, too. Older consumers can be at greater financial risk when they have built up less equity in their homes, which can be their primary or even only asset.

Delinquency and foreclosure are significant issues among a small group of older homeowners, according to the consumer watchdog group. Nearly 5 percent of homeowners ages 65 to 74 were seriously delinquent in paying their mortgages, meaning they were more than 90 days late or in foreclosure, in 2011. That's up from 0.85 percent in 2007.

What is clear is that it is not enough to simply create a bucket list of things to do in retirement. More of us need to re-examine our bills, spending habits and get a retirement rainy day fund. All too often, it does not work out as planned.

Obviously, it's tougher to get a job, overcome health issues and pay medical bills, as well as difficult to recover from an economic setback in retirement than when one is younger.

The consumer watchdog group suggested homeowners try to pay off the mortgage by retirement or early in retirement; avoid taking out a home equity loan or refinancing to dip into equity, and consider their expenses if they're retiring with a mortgage.

The crisis in retirement confidence is very much part of the discussion, as 10,000 baby boomers are to reach retirement age each day for the next 17 years.

While many may discuss delaying retirement, the average American is still retiring at age 59, said Mark Hug, executive vice president of product and marketing at Prudential Insurance of America.

Feeling nervous and ill-prepared about retirement is a common theme across many groups, including women and the lesbian, gay, bisexual and transgender communities, he said.

The key is not to give into the fear. Try to form a your own plan of adjustment for retirement expenses.