Workers May Have to Save More and Retire Later—Hewitt Associates
July 7, 2008
There’s a growing gap between the amount of savings U.S. employees will need in order to maintain their standard of living in retirement and what their employer-sponsored retirement accounts are projected to provide, according to a new Hewitt Associates study.
Hewitt estimates that after inflation, employees will need to replace, on average, 126% of their final pay at retirement. This is significantly more than the traditional targets of 70% to 90%. Rising medical costs, lengthening life spans and the declining prevalence of pension and retiree medical benefits have increased the burden on employees.
Most employees, however, are on track to replace just 85% of their income at retirement, according to the study. Those who do not contribute to 401(k) plans are projected to replace only 62% of their income.
But small changes in financial behavior may shrink the gap, Hewitt said. Employees who contribute to their 401(k) plan, retire at age 67, and save two percent more of their current income each year are likely to raise their projected retirement income replacement to 107% of their current income.
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