Hewitt Study Shows Four in Five Americans Not Expected to Meet All of Their Financial Needs in Retirement -- Employees Who Make Small Adjustments Can Dramatically Improve Future Retirement Income Potential
LINCOLNSHIRE, Ill., May 03, 2010 (BUSINESS WIRE) -- The average U.S. employee will need more than 15 times their final pay in retirement resources(1)to maintain their current standard of living during retirement, according to a new analysis from Hewitt Associates, a global human resources consulting and outsourcing services company. 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. As a result, four out of five workers are still 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.
When factoring in inflation and postretirement medical costs, Hewitt projects employees will need 15.7 times their final pay in retirement resources to meet their financial needs in retirement, which is consistent with Hewitt's prior projection in 2008. 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. Hewitt's analysis, which examined the projected retirement levels of more than 2 million employees at 84 large U.S. companies(2), reveals that just 18 percent 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 percent of their financial needs in retirement. Nineteen percent are expected to have a shortfall of five times final pay or more at retirement.
The situation is much bleaker for employees who are not covered by a defined benefit plan. On average, workers who rely solely on a defined contribution plan to fund their retirement are projected to meet just 74 percent of their needs in retirement--compared to 91 percent 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 outco
