More than half a million dollars. That's the number -- the price tag for retiring at age 65 -- that startled the state workers attending a retirement seminar in Lincoln, Neb.

The state of Nebraska ended its 401(k)-style defined contribution plan for new hires in the early 2000s, but state workers already participating in 401(k)s were allowed to continue and they were the ones attending the seminar that FRONTLINE filmed.

"You're all staring at this paper and thinking, 'Holy cow, those are big numbers,'" said John Morey, the retirement investment expert running the seminar. Morey and other experts regularly and deliberately thrust workers into retirement's hard reality by showing them the shocking figures.

As companies abandon lifetime pensions in favor of 401(k) plans, more workers are coming to grips with the staggering amounts they will need to save on their own. And they're asking, "Why does retirement cost so much?"

The answer, in short, is that Americans are living longer -- so much longer that many of them will outlive their retirement savings.

Living Longer, and Paying for It

The driving force behind the growing cost of retirement is the fact that the baby boomers will spend more time in retirement than any previous generation. According to the Center for Disease Control, a 65 year old can now expect to live another 18 years, on average. American seniors are living 50 percent longer than they were in the 1930s, when Social Security set 65 as the benchmark retirement age.

For some retirees, realizing how long they will live after retirement is a shock in itself. "When my husband used to talk about retirement, I would get really upset. I finally realized that I was thinking of retirement as the last step before death," said Peggy Briggs, a 67-year-old Nebraska state retiree. "Living a long time can be the scary step if you don't have enough resources to stretch over that period of time."

Another complicating factor for women like Peggy Briggs is that their life expectancies average three years longer than men's, but according to a 2004 survey by the U.S. Census Bureau, the median salary for women is 24 percent less than that for men.

Health Care Costs

By living longer, Americans confront potentially crippling health care costs.

According to a March 2006 study by Fidelity Investments, a retired couple without employer-sponsored health insurance can expect to pay $200,000 for out-of-pocket health care costs like premiums and co-pays. Moreover, this number does not include significant costs like long-term care, which isn't fully covered by Medicare.

The key phrase when talking about retiree health care is "employer-sponsored." As has happened with lifetime pensions, the number of companies offering retiree health care benefits is declining. In 1988, 66 percent of companies with 200 or more employees offered employer-sponsored health insurance to retirees. By 2005, that figure had dropped to 33 percent according to a Kaiser Family Foundation survey of more than 2,000 employers.

Inflation

Health care costs are rising, and so is the cost of everything else. "It isn't voodoo economics," Morey told the Nebraska workers. "It just costs more and more to live every single year."

Assuming the current inflation rate of 4 percent, the cost of living will double in 19 years, meaning that an American retiring today will see the purchasing power of their retirement savings drop by half during their expected lifespan. And today's inflation rate is historically low; a higher rate of inflation would make matters worse.

While Social Security and many public sector lifetime pensions adjust for inflation, most private retirement plans do not. 401(k) plans pay out a lump sum at retirement, or retirees can purchase an annuity with their savings to last them their lifetimes. In either case, 401(k) are not adjusted for inflation; it is up to retirees to make their nest eggs last.

Frayed Safety Nets

Retirees will be grappling with these concerns -- longevity, health care, inflation -- at the same time that Social Security and Medicare are under threat. The projected insolvency dates for these government benefit programs are 2040 for Social Security and 2018 for Medicare, according to the 2006 Trustees Report for the two programs.

"There is no question Social Security and Medicare will be here in future years," said U.S. comptroller general David Walker. "But there is also no question that they are going to have to be reformed and that the reforms are likely going to mean that people will get less, not more, than the current program."

Changes are already underway. The retirement age at which Americans will qualify for full Social Security benefits is increasing from 65 to 67; Medicare premiums and co-pays are rising as well.

Summing It Up

According to the 401(k) plan records analyzed by the Employee Benefits Research Institute (EBRI), Americans approaching retirement have, on average, three times their annual salaries in their accounts. Without any other form of savings, these retirees will burn through their 401(k)s in just seven or eight years, leaving them facing 10 or 11 years, based on life expectancy, with nothing but Social Security.

In order to retire comfortably, experts generally conclude that retirees need 10 times their final annual salaries. According to retirement expert Morey, that figure accounts for an inflation rate of 4 percent, which has been the average since 1900. But what it does not include is the rising cost of health care nd the threat of reduction in Medicare and Social Security support.

"To be safe, I would make it 15 times [final salary]," said Morey. "That's where we get those big numbers with all those zeros." That means a worker making $50,000 a year before retirement would need to save $750,000, three-quarters of a million dollars, in order to retire.

For many Americans approaching retirement, it is a daunting figure. "You think that you're prepared," said Peggy Gillispie, a 55-year-old Nebraska worker who attended Morey's seminar. "But the closer it comes, it is just a little scary."