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Cohen points out that this replacement rate comes from all potential sources, including Social Security and personal savings, in addition to defined benefit (DB) and/or defined contribution (DC) plans. For example, if a worker with a $90,000 salary gets 40% of income from Social Security, he needs another 40% from other sources. Patricia Advaney, senior vice president of participant solutions at Diversified, says that because the standard estimate replacement ratio of 70% to 75% may be inadequate, workers should think about increasing their goal. “It’s a moving target, with questions about Social Security, the rising cost of health care and longevity,” she says. The industry has shifted from trying to give an exact number for target replacement income to suggesting a minimum 10% savings for retirement, including both employee savings and employer match. The Retirement Advisor Council says, regardless of target income, a consistent contribution to 401(k) and 403(b) plans in the range of 10% to 16% of pay over a 30-year or 40-year career is needed to achieve the appropriate replacement retirement income. In a research paper, “What’s the Right Savings Rate?”, Russell Investments contends that the total replacement income (TRI) 30 rule-of-thumb helps answer the question: “How much should participants save?” Saving 30% of the TRI rate each year—including personal savings, savings in an employer-sponsored retirement plan and any employer contribution—leads to about a 90% probability of meeting the income goal at retirement. This assumes a 40-year period of savings, Cohen notes. Numerous stories have appeared in the media about workers coming up short in saving for retirement. Many who may want to retire early, Scott thinks, will find that their savings are much less than what they will need. But that figure also depends on exactly how early they want to retire. “It’s really hard to just look at savings in their 401(k) and determine whether they are hopelessly far behind,” he says.
Cohen points out that this replacement rate comes from all potential sources, including Social Security and personal savings, in addition to defined benefit (DB) and/or defined contribution (DC) plans. For example, if a worker with a $90,000 salary gets 40% of income from Social Security, he needs another 40% from other sources.
Patricia Advaney, senior vice president of participant solutions at Diversified, says that because the standard estimate replacement ratio of 70% to 75% may be inadequate, workers should think about increasing their goal. “It’s a moving target, with questions about Social Security, the rising cost of health care and longevity,” she says. The industry has shifted from trying to give an exact number for target replacement income to suggesting a minimum 10% savings for retirement, including both employee savings and employer match.
The Retirement Advisor Council says, regardless of target income, a consistent contribution to 401(k) and 403(b) plans in the range of 10% to 16% of pay over a 30-year or 40-year career is needed to achieve the appropriate replacement retirement income.
In a research paper, “What’s the Right Savings Rate?”, Russell Investments contends that the total replacement income (TRI) 30 rule-of-thumb helps answer the question: “How much should participants save?” Saving 30% of the TRI rate each year—including personal savings, savings in an employer-sponsored retirement plan and any employer contribution—leads to about a 90% probability of meeting the income goal at retirement. This assumes a 40-year period of savings, Cohen notes.
Numerous stories have appeared in the media about workers coming up short in saving for retirement. Many who may want to retire early, Scott thinks, will find that their savings are much less than what they will need. But that figure also depends on exactly how early they want to retire. “It’s really hard to just look at savings in their 401(k) and determine whether they are hopelessly far behind,” he says.