By Anne Fisher
February 23, 2012

By Anne Fisher, contributor

FORTUNE — Anyone with a 401(k) had to feel cheered on Tuesday when the Dow sailed past the 13,000 mark for the first time since May 2008. But the stock market’s current strength may not do much to reassure the 53% of full-time employees in a recent Towers Watson survey who said they doubt they’ll have enough money saved to last them through retirement.

Another study, by the nonprofit Employee Benefits Research Institute, found that about one in five (20%) full-time workers expect they will never be able to afford to stop working.

“The Baby Boomers are the first generation of retirees in our history who will be worse off in their later years than the generation before them,” says Kevin Wagner, a longtime actuary and senior retirement consultant at Towers Watson in Atlanta. “I think what we’re seeing is the failure of our do-it-yourself retirement system.”

Back when most employees were covered by company-funded defined-benefit pension plans, Wagner notes, “people could retire comfortably at 60 or 65. Now, even people in our survey who said they were ‘somewhat confident’ about the state of their savings nevertheless plan to delay retiring by 3 to 5 years past the age they had targeted [before the recession].”

That’s worrisome for companies who want to retain young talent, but have trouble promoting Gen X and Gen Y workers past what human resources folks call the “gray ceiling.” With so many older workers reluctant to retire, “the channels for hiring and advancement are clogged,” says Wagner. “It’s reflected in the high rate of unemployment among young people.”

The issue is taking on a new urgency. Consider: When HR consultants Aon Hewitt polled 500 large employers last fall, the researchers found that a tiny 4% of them thought their retirement-age employees would be financially ready to leave. That’s a huge drop from the 30% of employers who thought so just one year earlier, in October 2010.

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So what are they doing about it? Besides offering more expert financial advice to help people set and meet their savings goals, many companies are now setting up retirement savings plans on autopilot: Employees are enrolled automatically, and they rarely bother to opt out. The Aon Hewitt study says 55% of large employers have already shifted to this type of plan (more than double the 24% who had automatic plans in 2006), and another 34% are getting ready to do so this year.

Another encouraging sign: Towers Watson found that, on top of having cut their spending, paid down debt, and started salting away more cash during the past two years, many of the 9,218 employees in the latest survey are, as Kevin Wagner puts it, “getting religion.” Seventy percent of them are setting new retirement savings goals and boosting the amount they save each month.

The trend is even picking up steam among employees in their 20s, 66% of whom say they expect to save “much more” for retirement. Especially popular among the younger crowd are target-date funds, which combine a mix of stocks, bonds, and other assets. They’re designed to minimize risk by gradually shifting more money out of equities, cutting exposure to market volatility, as the investor’s target retirement date gets closer.

According to research from EBRI and the trade group Investment Companies Institute, 52% of recently-hired employees in their 20s now hold target-date funds — raising the odds that, if the stock market takes another 2008-style free fall four or five decades from now, this generation won’t suffer the kind of retirement-busting financial trauma that their parents did.

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