As someone who has reviewed hundreds of retirement-related studies, I admit to being quite jaded with respect to retirement statistics: Various versions of "people are not saving enough", with no one telling me what I do not already know. However, I have to admit these figures - excerpted from pbs.org - caught even me off guard. See if you are as shocked as I was by these five statistics:
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 account balances are a true rarity, comprising less than 1% of all account balances at one leading retirement plan provider.
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.
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?
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.
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.
For example, if your employer contribution is 5%, you will only need to save 4.6%. In addition, the savings are pretax, so the after-tax pay reduction is even less than 4.6%. Yet many workers don't even save 1%, and as discussed above, 40% are not saving currently, and 30% have never saved.
What should plan fiduciaries take away from these figures? They should be certain to dedicate a portion of their due diligence process to examining their plan utilization statistics. They need to work with their vendors to increase voluntary participation and voluntary savings rates, as applicable, and to measure the results of efforts. If those efforts are ineffective, more drastic measures, such as auto-enrollment or mandatory contributions, may warrant consideration.
Michael Webb, TGPC, AIF, CEBS, is vice president of retirement plan services at Cammack LaRhette Consulting. For 20 years he has provided retirement plan operational compliance consulting services.
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