Will most folks have enough money to retire comfortably? Will employer-sponsored retirement plans help do the trick? Probably not. A recent report from human resources consulting company Hewitt Associates found that just 18% of employees who have the potential to work at least 30 years and contribute to their employer's savings plans during that time will have enough money to meet their retirement needs.
According to Hewitt's "Real Deal" report on retirement income adequacy at large companies, the average employee contributing to a company-sponsored defined-contribution plans during their career can expect to accumulate retirement resources at 13.3 times their final pay at retirement. The problem, Hewitt says, is that it expects people will need 15.7 times final pay to maintain their pre-retirement lifestyle. That's a 15% shortfall.
Of that 15.7 figure, Social Security is expected to provide 4.7 times final pay. Employees need to get the remaining 11 times final pay from such sources as company-provided plans and personal savings. The 15.7 figure assumes annual inflation at 3% and rising medical costs greater than the overall inflation rate. It also assumes people want to maintain their pre-retirement lifestyle.
"You have to be careful about defining 'having enough' [money]," says Rob Reiskytl, who leads Hewitt's retirement plan strategy and design team. "That can be debatable on an individual level."
That said, Hewitt's study taps into a growing body of studies suggesting that too many Americans will be financially ill-prepared for retirement.
Hewitt's study comprises 2.1 million employees at 84 large companies. When it comes to gauging whether someone will have enough resources to meet retirement needs, the study assumes a lifespan of 86 years old for females and 84 for males. Planning for a longer life means a person would need more than 15.7 times their final pay at retirement, Reiskytl says.
He notes that people can help their cause by saving earlier, boosting contributions
to employer-sponsored retirement plans, and working longer. The benefits of working longer include extra savings and increased social security benefits.
"There are several mathematical solutions to this problem," Reiskytl says. "But it may be difficult in practical terms for many Americans to eliminate or reduce the [retirement savings] shortfall."