Participant Savings Rates & Income Replacement Ratios
It's critical these days to help employees understand the importance of saving more and sooner for retirement. One way to help plan participants do this is by showing them if they are on track toward reaching their retirement savings goals.
At the Principal Financial Group®, we believe employees need to save at an estimated savings rate of 11-15% (a combination of individual and employer contributions over an entire working career)[1],[2] in order to replace 85% of their incomes at retirement. (Eighty-five percent is the percentage the retirement industry generally uses as a target income replacement ratio.)[3]
For more information, on how the saving rate of 11-15% can potentially help participants be ready to retire, see the full Participant Savings Rates & Income Replacement Ratios (PDF: 277 KB) report.
- [1]
- Our view on Retirement Readiness: How to Move from a "Popular" Plan to a successful Plan, the Principal Financial Group, September 2011. The estimate assumes a 40-year span of accumulating savings, as well as the following facts: Retirement at age 65; Social Security providing 40% replacement of income; annual market returns of 7%; annual inflation of 2.5%; annual wage growth of 3.5% over 40 years in workforce. The assumed rate of return for the study was 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.
- [2]
- Research with Financial Advisors, June 2011, conducted by Harris Interactive on behalf of the Principal Financial Group. When looking at all responses in the survey, the median is the middle of the responses given.
- [3]
- Assuming pre-retirement annual gross income of $40,000. AON Consulting 2008 Replacement Ratio Study. http://aon.com/about-aon/intellectual-capital/attachments/human-capitalconsulting/RRstudy070308.pdf
While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
Insurance products and plan administrative services are provided by Principal Life Insurance Company, a member of the Principal financial group® (The Principal®), Des Moines, Ia 50392.
