From:
http://www.hydroquebec.com/advice_hot_water/index.html
The risks associated with hot tap water are twofold: burns and bacterial contamination.
To reduce the risk of burns from hot tap water, the temperature setting on the water heater can be turned down. But if the temperature is set too low, bacteria may begin to grow in the tank. Even at 60 °C – the setting on most electric water heaters – an estimated 25% of all water heaters are contaminated by legionella bacteria.
Legionella bacteria tend to grow in the lower temperatures at the bottom of water heater; such bacteria can cause a form of pneumonia. The organism is generally transmitted when people inhale contaminated water droplets from whirlpool baths, showers or building air conditioning systems. In Québec, about 100 people a year are hospitalized for pneumonia caused by contaminated residential water heaters.
In light of the statistics, it is not advisable to lower the water heater temperature to, say, 49° C. This would not only reduce the hot water supply by some 20%, it would also put your household at risk of contracting pneumonia.
The above is just one of many many websites on this issue.