Fall 2010
A New Rule of Thumb?
In recent years, experts have recommended that most people plan to have available 70 to 80 percent of their pre-retirement pay in order to maintain their standard of living in retirement. Recent research by Hewitt Associates LLC suggests a new perspective on this target.
Hewitt looked at projected retirement levels for more than two million employees who were participating in their employer’s saving plan and could work a full career (assumed to be 30 years) at that employer.
When inflation and post-retirement medical expenses were factored in, Hewitt projected that employees will need 15.7 times their final pay for financial needs in retirement. Social Security would likely provide 4.7 times final earnings, leaving workers to accumulate the remaining 11 times final pay from other sources, such as employer-sponsored plans and personal savings.
Analysis indicated that workers who contribute to a defined contribution plan and work a full career would expect to build retirement resources of an average of 13.3 times their final earnings upon retiring at age 65. This includes savings in defined contribution plans, employer contributions to defined contribution and defined benefit plans, and Social Security.
As a result, employees would be 15 percent short of the 15.7-times-final-pay goal. In other words, they can expect to meet just 85 percent of their financial requirements during retirement.
The Hewitt study is at here .
