At the Principal Financial Group®, we define "retirement readiness" as the degree to which a participant is on target for meeting and maintaining income goals throughout retirement.
But how do employees know how much to save and how much income they may need in retirement?
Based on analysis conducted by The Principal®, employees may need to save at least 10 percent of their pay plus employer contributions over their entire working careers to have enough income in retirement. This assumes they may need about 85 percent of their pre-retirement income to maintain their current lifestyles after they retire. Each individual's situation is unique, though, so savings and post-retirement needs may differ.
Are your employees on track to reach their retirement saving goals?
To help maximize participant retirement outcomes, we believe plan sponsors should strive for a plan that has 90 percent participation, an average contribution rate of at least 10 percent plus employer contributions, and 90 percent of employees invested in diversified investment options.
To help your employees and your plan get there, we suggest three steps:
- Strategic measurement: Each year, we provide a plan-specific Retirement Readiness Report to plan sponsors that measures key metrics to help track the success of the retirement plan.
- Plan design changes: Principal® PlanWorks is our strategy of using certain plan features that work to help plan sponsors optimize participants' opportunities to become more ready for retirement.
- Goal-driven education: Our action-oriented education experience focuses on helping employees achieve a sufficient level of income during retirement. We start by helping plan sponsors combat participant inertia through our innovative quick enrollment materials and methods. Ongoing, we regularly provide participants engaging, easy-to-use, and in-the-moment tools and resources that encourage them to make choices that may lead to more sufficient levels of income during retirement, such as personalized Retirement Wellness Reports.
Help your employees get retirement ready
- How plan design may impact participation and contribution rates
- Participant Savings Rates & Income Replacement Ratios
- Our View on Retirement Readiness: How to Move from a "Popular" Plan to a Successful Plan
- Employers Say Retirement Plan Success Fueled by Tax Deferrals
- Replacement Ratio Tool Measures Retirement Plan Success
- Summary of 2011 Retirement Ready Survey
- Based on analysis conducted by the Principal Financial Group, August 2013. The estimate assumes a 40-year span of accumulating savings and the following facts: retirement at age 65; a combined individual and plan sponsor contribution of 12 percent; Social Security providing 40 percent replacement of income; 7 percent annual rate of return; 2.5 percent annual inflation; and 3.5 percent annual wage growth over 40 years in the workforce. This estimate is based on a goal of replacing about 85 percent of salary. The assumed rate of return for the analysis is hypothetical and does not guarantee any future returns nor represent the return of any particular investment. Contributions do not take into account the impact of taxes on pre-tax distributions. Individual results will vary. Participants should regularly review their savings progress and post-retirement needs.
- Assuming pre-retirement annual gross income of $40,000. Aon Consulting's 2008 Replacement Ratio StudyTM http://www.aon.com/about-aon/intellectual-capital/attachments/human-capital-consulting/RRStudy070308.pdf