Managed Expectations

To achieve their great expectations for retirement, U.S. workers will need to manage those expectations and begin to save more, according to an analysis by Hewitt Associates. In retirement resources, the average U.S. worker will need nearly 16 times his or her final pay, finds Hewitt, which projects that a large majority of Americans are therefore not likely to meet all their financial needs once they cease working. Fortunately, the same analysis shows that employees who implement slight adaptations now can expect significantly improved prospects for their retirement income.

Examining the projected retirement levels of more than 2 million employees at 84 large U.S. companies, Hewitt finds that less than one-fifth of those who contribute to a defined contribution plan may expect even to approach providing themselves with the adequate financial solvency for retirement -- 13.3 times their final pay, including Social Security, which will provide 4.7 times their final pay if it remains available at the time of their retirement.

The upside to all of this, however, is that the situation is reversible, especially for younger workers. The average 25 year old, for instance, can expect to meet the goal of 16 times his or her final pay if he or she begins contributing 11 percent of his or her yearly pay now. (For the average 40 year old, the task is more daunting -- 17 percent of yearly pay is needed.) Additionally, those who increase their contributions by 1 percent each year will, over five years' time, find themselves on track to meet most of their financial needs during retirement.