you think you are going to retire at 65, think again.
likely that you arenít going to have enough money
stashed away to make retirement work out for you. Only
two in five people working for large U.S. companies will
be ready financially to retire at age 65, according to a
study by human resources firm Aon Hewitt.
others will have to work longer if they want to maintain
the lifestyle theyíve been used to during their
working years. About half of people will be able to
retire with sufficient savings if they keep working
until age 68. But even working longer will fail many.
Aon found that about 16 percent wonít have enough if
they work to 75.
are disturbing findings, because the study focuses on
large U.S. companies, where employees typically fare the
best at getting ready for retirement. Large companies
tend to be among the few still providing guaranteed
pensions. They also tend to offer quality 401(k)s, and
give some guidance to employees baffled by building up
retirement savings. In general, small employers tend to
skip 401(k)s so workers must fend for themselves and
they do a poor job of accumulating savings.
about half of U.S. workers are employed where 401(k)s
are offered. Without workplace plans, most individuals
donít turn to individual retirement plans (IRAs).
if only two in five people at large companies will have
enough money to retire, thatís a dreary finding that
points to a brewing retirement crisis for the U.S. That
crisis clearly will be harsh on people who havenít
saved enough, but it could also carry a price tag for
people who have been diligent about saving if the
government ends up taxing people more to aid a
struggling aging population.
Hewitt figures that to retire with enough resources,
people should have, on average, 11 times their last
annual salary accumulated to cover retirement living
expenses. If, for example, a person was earning $75,000
a year when they retired, they would need about $825,000
for retirement. If the person was lucky enough to have a
guaranteed pension that would pay $30,000 a year, the
total value at retirement would be about $420,000, said
Aon Hewitt Associate Partner Grace Lattyak. She
multiplied the annual $30,000 payment by 14 to figure
the full value of the pension.
get to the $825,000 needed for retirement, the
individual would need to have an additional $405,000 in
personal savings from a 401(k), IRA or a combination.
who are many years from retirement will need to have
even larger nest eggs when they retire because health
care costs are rising faster than pay and people are
living longer, said Lattyak. Thirty-year-olds earning
$30,000 now are likely to need about 13.4 times their
annual salary the year they retire, Lattyak said.
are cutting out health care benefits and old-style
guaranteed pensions for employees. But large U.S.
company do contribute about 5 percent of a workerís
pay toward his or her 401(k) plan. To make sure savings
are adequate by retirement, Lattyak said the employee
should be saving 12 percent of pay each year to the
401(k), in addition to the contribution their employer
the person is 35 and hasnít saved anything, and has no
pension coming, that individual should start saving 20
percent of pay. At 45, if the person hasnít been
saving earlier, Lattyak said about 35 percent of pay
should be stashed away.
that nudge their employees to save, rather than waiting
for the employee to take the initiative to get going,
help their staffs end up with better results. Using whatís
known as "automatic enrollment", companies
immediately enroll employees in the 401(k) when they are
hired and deposit some of every paycheck in the
retirement savings plan for each employee.
Hewitt found that companies using automatic enrollment
increased participation in a 401(k) by 20 percent over
businesses that waited for individuals to take the
initiative. About 84 percent of employees contribute
when their employer enrolls them automatically.
companies go a step further. They use whatís called
"automatic escalation." Each year they
increase the percentage of pay slightly that each
employee automatically contributes into their 401(k).
With this approach, Aon figures 70 percent of people who
work for the same company throughout their work life
will have nearly adequate savings for retirement at age