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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401(k) study: Help can improve performance by 3 pct.

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The real secret to investing for a successful retirement is a globally diverisifed portfolio and disciplined rebalancing. Your retirement account should be managed much like a pension fund. Exclusively providing professionally managed portfolios will increase results and reduce anxiety.

REBALANCINGFailure to periodically rebalance a portfolio can also hurt returns. By rebalancing, investors adjust the allocation between stocks and bonds in their portfolios to ensure their investments reflect their appetite for risk. For instance, in a market where stocks surge, a portfolio can become too heavily invested in stocks unless the accountholder moves some of that money from stock funds into bonds or other assets.

Failure to rebalance after a market surge or drop leaves a portfolio at risk to underperform.


A large segment of 401(k) accountholders have historically been complacent about their investments, failing to do anything with their account for years.

“Rather than do something wrong they’re just not doing anything,” said Pamela Hess, director of retirement research at Aon Hewitt. “With all the volatility in the last few years, I think folks don’t know what to do and a lot are just doing nothing.”

More workers with 401(k) accounts are using some form of help, Hess said. An earlier study of 401(k) accounts indicated about 25 percent of workers used help with their investments in 2009. As of the end of 2010, about 30 percent of workers were using help.

Hess points out it, however, that still means about 70 percent of workers don’t get help.

“This study really quantifies the fact that he gap between doing things on your own and what you can get with professional help does in fact get substantially wider during periods of volatility and economic stress,” Jones said.

While acknowledging that some forms of help including managed accounts carry higher costs, Jones said the difference in performance outweighs the increased cost.

Managed account fees typically range from 0.20 percent to more than 1 percent of the account balance. Target-date fund fees can range from around 0.18 percent to more than 1.5 percent of assets.

Professionally managed accounts provide most employees with the best opportunity to successfully retire. This assumes the employees remains disciplined and consistently contributes to their account.

Please comment or call to discuss how this would affect you and your employees.

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