Five retirement savings numbers you and your employees need to know

WASHINGTON, DC - APRIL 13:  U.S. Sen. Rand Pau...
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Since the decline of the defined benefit plan, ie, pension plans, employees have become responsible and accountable for their own retirement future. These rules will help everyone reach their financial goals.

1. 30%
The percentage of all workers who have $0 in retirement savings. It is a strong measure of the ineffectiveness of the current retirement plan system for retirement plan accumulations. At the other end of the spectrum, million-dollar retirement accountbalances are a true rarity, comprising less than 1% of all account balances at one leading retirement plan provider.

2. 40%
The percentage of all workers currently not saving for retirement at all. Though less shocking than the retirement savings figure, this number might be even more significant. Suppose this group represented the bottom 40% of worker incomes (it doesn’t.) A significant number of those individuals would not have a sufficient portion of their retirement covered by Social Security to retire, so additional retirement savings would be critical for them.

If the 40% figure covers any appreciable segment of middle-income participants, it represents a true figure of retirement desperation, since such individuals are not poor enough to have significant income replacement from Social Security, but not rich enough to not need a high (70%) income-replacement level.

 

3. $250,000
The average savings shortfall a U.S. household will have at retirement. This figure actually includes Social Security, so it is all the more amazing. Where is the average family going to come up with an extra $250,000?

 

4. $52,000
The amount the average household needs in after-tax income for retirement. While Social Security will provide some of this income, the rest will be an accumulation of retirement savings, including voluntary and employer-provided retirement savings, if any exist. I am no math wizard, but even with Social Security, at least $1 million in accumulated retirement savings would be needed to provide this average household after-tax income. An extremely small portion of workers achieve such a savings. Thus, very few workers, except those with little income to replace, have adequate retirement savings, period.

 

5. 9.6%
The smallest recommended retirement savings rate for workers, taking into account Social Security. This figure may sound daunting, but keep in mind that it does not consider employer contributions to a retirement plan.

Past generations had no need to deal with these numbers because of defined benefit pension plans. Their employer took care of everything. Times have changed and employees need to become accountable for their own retirement future.

Please comment or call to discuss how this affects you.

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