How much do your 401(k) plan participants need to
- 8x final pay at age 67 - Fidelity
- 8x final pay - USA Today
- 9.4x final pay at age 67 - Aon Hewitt
- 10x final pay - Frontline Special on PBS
- 11x final pay at age 65 - Aon Hewitt
- 12x final pay - T. Rowe Price
- 13.5 final pay at age 63 - Aon Hewitt
- 18x final pay - EBRI
- 20 to 25x final pay at age 65 - many financial advisers
- 25x final pay - to ensure an annual withdrawal rate of 4%
With such a wide range of opinions, it can be hard for participants to know what to aim for. Consider discussing the following factors during your
1. Lifestyle. The amount an individual needs in retirement is highly dependent upon the lifestyle that he/she intends to lead. It has become common to retire and not adjust standards of living. This expectation results in a higher final balance target.
2. Health and health care. Those employees who struggle with health issues now will likely struggle to an even greater extent in retirement. If
3. Longevity. Does long life run in the family? If so, suggest targeting a
4. Long-term care. Coupled with longevity is concern about the need for
5. Lack of family. Some individuals never had children and some may have moved away from their families and lost touch. If an individual can expect to be all by himself/herself, targeting a higher balance is probably wise.
How are most participants doing? Recent studies have found that 50% of workers are not on track to save enough to retire without reducing their standard of living. A study by Vanguard published in
Communicate these facts in your next employee education session so that your participants can make adjustments as soon as possible.
Robert C. Lawton is president of Lawton Retirement Plan Consultants, LLC (