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Nearly All Workers Expected to Fall Short of Financial Retirement Goals
May 4, 2010 — Four out of five workers are expected to fall short of meeting all their financial needs in retirement unless they take action to improve their savings habits or retire at a later age, according to a recent analysis.
The analysis from Hewitt Associates estimates that the average U.S. employee will need more than 15 times their final pay in retirement resources to maintain their current standard of living during retirement, and while this estimate hasn't worsened, meeting projected retirement needs has become a greater challenge for individuals, many of whom experienced decreases in their retirement accounts over the past two years.
According to Hewitt, when factoring in inflation and postretirement medical costs, employees will need 15.7 times their final pay in retirement resources to meet their financial needs, which is consistent with the company’s 2008 projection. Of the 15.7 times final pay, Social Security is expected to provide 4.7 times final pay, leaving employees responsible for accumulating the remaining 11 times final pay from other sources such as company-provided plans and personal savings.
The analysis found that 18% of employees who contribute to a defined contribution plan and work a full career are expected to achieve this goal. On average, these employees are on track to accumulate 13.3 times their final pay (including Social Security) leaving a shortfall of 2.4 times pay. In other words, they're expected to meet just 85% of their financial needs in retirement. Nineteen percent are expected to have a shortfall of five times final pay or more at retirement.
Workers who rely solely on a defined contribution plan to fund their retirement are projected to meet just 74% of their needs in retirement — compared to 91% for employees who are also covered by an active or frozen defined benefit plan.
"Employees have been able to recoup a good portion of the retirement assets they lost due to market volatility, but unfortunately most workers are still falling significantly short of meeting their retirement needs," explains Rob Reiskytl, Hewitt's leader of Retirement Plan Strategy and Design. "This is a wake up call for employees. While retirement may be a long way off, workers need to start actively saving or be prepared to dramatically reduce their overall spending in retirement. Ultimately, they're in control of most of the elements that will help determine their retirement outcomes."
About the Analysis
Hewitt's analysis examined the projected retirement levels of more than 2 million employees at 84 large U.S. companies.
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http://dreamlearndobecome.blogspot.com This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
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