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Aon Retirement and Investment Blog

Will Your Employees Be Retirement Ready?

According to current trends, only one in three workers today will have saved enough to retire comfortably by age 67. Do you know how your employees stack up? When will they be able to retire with adequate retirement resources?

The Real Deal: 2018 Retirement Income Adequacy at U.S. Plan Sponsors study provides powerful insights into retirement savings behavior and the investment experience of U.S. private-sector plan sponsors. The 2018 study offers insight into the overall retirement readiness of U.S. workers, and is a benchmark for employers across 28 different industries as they measure the effectiveness and sufficiency of their programs.

According to this study, in order to maintain their preretirement standard of living over an average life expectancy, workers who participate in their employers’ benefit plans for their entire career typically need to accumulate retirement assets (in addition to Social Security) worth about 11.1 times their final pay for an age 67 retirement. (This varies by participant and could be different for your workforce.)

When the study compares projected resources to projected needs, roughly one out of five workers (19%) is expected to have a surplus at retirement. Another 15% may have resources that are close to, but do not exceed, their needs. These employees will likely fall close enough to their targeted needs to allow them adequate retirement income with minor adjustments to their postretirement spending or with supplemental income from assets outside their employers’ plans. However, that leaves a majority of workers who are projected to fall short and will need to save more, delay their retirement, significantly adjust their standard of living in retirement, or some combination. What percentage of your workers are on track to save enough for retirement?

Between their own savings and the amount their employer provides in retirement benefits, the average employee needs to save 16% of pay for retirement each year (assuming the employee starts at age 25 and retires at age 67). Your employees look to you for guidance on how much to save. Is your plan design structured to encourage higher savings rates? Do you offer contribution escalation and set the escalation target rate at an appropriate level for retirement income adequacy? Do you allow savings in Roth accounts and health savings accounts so your employees can maximize tax efficiency?

The study outcomes are based on middle-of-the-road market performance and rational, efficient investor behavior from plan participants. However, any number of factors can adversely impact a participant’s long-term investment performance, from excessive fees to unwise decisions. Just a 1% lower rate of return over a participant’s career reduces average projected retirement resources by 1.1 times pay, representing a 15% reduction in private resources. Are your investment defaults, alternatives, and fees appropriate? Do your employees have access to investment help (e.g., guidance, advice, managed accounts)?

The age at which an employee retires also significantly impacts their expected retirement adequacy. The Real Deal study found that age 70 is the median age at which full-career contributors are projected to have resources that meet their needs. However, the industry in which an employee works can significantly affect their retirement readiness. The median age of retirement adequacy within The Real Deal varies by industry from age 67 to over age 75. The market dynamics driving these industry differences come down to employee pay, benefits, and savings rates.

Read more about the 2018 study findings—download the report at www.aon.com/therealdeal

Through a company-specific Real Deal analysis, Aon can help you and your employees understand how to achieve their retirement goals, based on your specific population and the benefits you offer. To take a look at your employees’ retirement adequacy or the efficiency of the investments in your retirement plans, reach out to Grace Lattyak (grace.lattyak@aon.com; 415.486.6931), Rob Reiskytl (rob.reiskytl@aon.com; 925.807.0843), Saif Choudhury (saif.choudhury@aon.com; 312.381.1327), or your regular Aon investment or retirement consultant.
Source for all details and graphic in this document: Aon’s The Real Deal: 2018 Retirement Income Adequacy at U.S. Plan Sponsors, published by Aon October 9, 2018
Rob Reiskytl is a Partner and leads Aon’s Retirement Strategy and Design Team.
Grace Lattyak is an Associate Partner in Aon’s Retirement practice in San Francisco.
Saif Choudhury is a Senior Consultant with Aon’s Investment Policy Services team in Lincolnshire.
Melissa Hollister is a Retirement Consultant on Aon’s Real Deal retirement readiness team.

“Content prepared for U.S. subscribers, but available to interested subscribers of other regions.”

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