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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.

Based on analysis conducted by the Principal Financial Group®, employees may need to save at least 10% of their pay plus employer contributions over their entire working careers to have enough income in retirement.[1] This assumes they may need about 85% of their pre-retirement income to maintain their current lifestyles after they retire.[2] Each individual's situation is unique, though, so savings and post-retirement needs may differ.

For more information, on how the saving rate of at least 10% of their pay plus employer contributions can potentially help participants be ready to retire, see the full Participant Savings Rates & Income Replacement Ratios (PDF: 277 KB) report.


[1]
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%; Social Security providing 40% replacement of income; 7% annual rate of return; 2.5% annual inflation; and 3.5% 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.
[2]
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

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.

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