Can you afford to retire?

Can your country afford to let you retire?

The answer to both questions is maybe. Nearly two-thirds of the 1,500 persons over 55 questioned by the American Association of Retired Persons in a poll released last week said their personal financial situation had become somewhat or a lot worse during the past two or three years.

Inflation is the chief reason. Four years ago the consumer price index was increasing at an annual rate of 4.8 percent. By January 1979 the rate was 8.5 percent. The index rose at an annual rate of 18 percent last March and now is rising at an annual rate of 12.7 percent. When inflation runs at 10 percent, the buying power of the dollar is cut in half in just seven years.

Social security benefits are linked to inflation, but only a small percentage of private pensions have cost-of-living adjustments, and the increases rarely keep pace with inflation. The average amount paid to retirees with fixed pensions has increased just 25 percent in the past six years, according to the Labor Department.

In addition, most individuals who save are taxed doubly: first on the income they earn, then on the income from the investment (which they bought with after-tax dollars).

As for the country, the doomsday scenario of intergenerational warfare -- in which young Americans battle old for a share of the pie -- is mentioned with increasing frequency. A study for the Urban Institute by Gary Hendricks and James P. storey projected that the elderly's share of the federal budget could rise to 32 percent by the end of the century and to 63 percent by the year 2025.

Other statistics indicate that the old increasingly could become a greater burden for the young. In 1950 every hundred people aged 18 to 64 supported 13 persons over 65. Today they support 18, and by the year 2020 that figure will be 24.

In addition, the Bureau of Labor Statistics two years ago predicted that the percentage of men over 65 still working would fall from 20.1 percent to 15 percent by the end of this decade, and the percentage of women from 8.1 percent of 6.2 percent.

Malcolm H. Morrison, an employment and retirement expert at Johns Hopkins University, warns in a forthcoming book entitled "economics of Aging: The Future of Retirement": "It is clear that a continuation of current retirement policies will result in very serious economic and social consequences for our society. The combination of demographic changes, high rates of inflation, efforts to control rising costs of retirement benefits, the early retirement trend and the interrelated effects of current pension system functioning, however, clearly will result in significant changes in retirement policies and programs in the years ahead."

To meet the demands of the growing numbers of persons reaching retirement age, some actuaries predict that Social Security taxes will have to be doubled by the end of the century, according to the Morgan Guaranty survey. The Social Security tax originally was 1 percent of the first $3,000 in wages; today it has increased to 6.13 percent of the first $25,900 for both employe and employer.

Employers have begun to introduce rewards for early retirement as a way of clearing the corporate forest of dead wood. The average amount of hourly wages employers must set aside for pension benefits has increased by 36 percent since 1974, according to the Labor Department. More than three times the number of workers are convered by private pensions today as in 1950, and the 1974 pension reform act has cauased benefits -- and costs -- to rise.

But a growing number of analysts believe the country has reached a turning point in retirement practice as well as in policy. As has occurred with so many other doomsday predicted in the past, the advent of the old-young clash may never arrive.

Many corporations and management consultants report a slowdown in "early retirement trend." In part the slowdown occurred because Congress raised the mandatory retirement age from 65 to 70 and in part because of increased longevity and better health. But inflation is probably the major factor. A few examples:

Bankers Life and Casualilty Co. in Chicago, which offers generous benefits, reports that during the past five yars at least 70 percent of all workers reaching 65 chose to keep working.

Hewitt Associates, also headquartered in Chicago, found last spring that 32 percent of white-collar workers in its survey of 9,000 persons reaching 65 chose not to retire.

A survey by the American Association of Retired Persons showed that 22 percent of those over 55 had decided to postpone retirement (this included one-third of those whose financial situation was somewhat or a lot worse), and 7 percent of those already retired had to go back to work.

The Work in America Institute of Scarsdale, N.Y., projects that more elderly will be working. The percentage of men over 65 still working may reach 25 percent by the end of this decade; as many as 13 percent of women over 65 will be on the job, depending on economic and other factors.

Paul Barton of the National Institute for Work and Learing, in his upcoming book "Worklife Transitions: The Learning Connection," observes that: "A careful look at the recent data suggests that perhaps something has begun to happen in the labor force that is different from what has been going on for several decades."

Bargon goes on to point out that, whereas during the 1950s and 1960s more and more workers over age 55 were electing early retirement, that trend has slowed. And in one case, it reversed for the first time.

Bargon bases his conclusion on Bureau of Labor Statistics data that show the percentage of men between age 55 and 64 in the workforce -- which had been dropping by 1 percentage point a year -- now is dropping at half that rate. At the end of last year 73 percent of men between 55 and 64 were in the workforce. One-fifth of men over 65 worked in 1976 as they do today. The percentage of women aged 55 to 64 who work declined steadily between 1955 and 1974; between 1976 and 1979, however, that percentage rose from 40.8 percent to 41.9 percent.

Though the year 2010 seems a long way off, if you now are 35 years old, it is your own retirement year that is being discussed. This should be an added inducement to take an active interest in planning your future.

If retirement practices appear to have reached a turing point, so has policy. Maalcolm Morrison lists six major studies being conducted by the federal government that may affect the retirement system profoundly. The object of several of these is to determine the level of adequate retirement income and how the provision of benefits should be financed without creating unacceptable burdens on government or the private sector.

Suggestions include increasing Social Security coverage, making pensions mandatory in the private sector, coordinating various benefits, raising the retirement age, reducing incentives to early retirement and increasing work incentives after retirement by allowing people to keep untaxed more of what they earn. Though the process will be gradual, the outcome undoubtedly will mean longer working careers or reduced benefits or both in the 21st Century.

Retirement income is a three-legged stool: Social Security, company pension and personal savings. The average person has no control over the first and little over the second but almost total over the third. (In the futurue, postretirement wages may become a recognized fourth leg, thus giving the retiree more control over his or her income.)

In its first interim report, the President's Commission on Pension Policy suggested that a person at the bottom of the economic ladder, earning $6,500 gross income before retirement, needed to receive 79 percent of his or her preretirement income to maintain the same standard of living. For a worker earning $50,000, the percentage of preretirement income needed to approximate postretirement income was put at 51 percent -- mainly because after retirement the wealthy retiree is in a substantially lower tax bracket than he was before.

Hendricks and Storey estimate that Social Security now replaces on average about 43 percent of preretirement wages -- ranging from 20 percent for a high-wage single worker to 73 percent for a low-wage, married worker. The rest must come from a private employe pension and personal savings.

In addition to a shift away from defined benefit plans (where the employer promises the worker a fixed amount upon retirement) to defined contribution plans (where the employer puts in a fixed amount and the worker gets benefits depending on how well the fund has been invested), due to uncertainties caused by inflation, the rising cost of administering corporate pension plans may spur a trend toward more individual pension plans. The number of Individual Retirement Accounts doubled between 1975 and 1978 to 2.7 million and contributions rose from $1.3 billion to $3 billion, according to the Internal Revenue Service.

Two years ago Congress created the Simplified Employee Pension in which the emplyer contributes to the worker's own IRA. This year the Senate Finance Committee approved a universal IRA allowing persons already covered by a company pensionn plan to make a $1,000-a-year tax-exempt contribution to a separate IRA or the company plan.

The trend in pension legislation, many experts feel, is toward placing more of the opportunity for pension planning -- as well as the burden -- on the individual. For this reason -- and because pension policy is on hold at the moment -- the bulk of this section will be devoted to financial planning.