According to Putnam’s Lifetime Income Score, households that defer 0% for retirement are on track to replace 54% of their income at retirement with Social Security, but only 16% without it. Households that defer up to 3% are on track to replace 56% of income with Social Security and 23% without it, and those who defer 3% to 10% can replace 84% of income with Social Security, but 50% without it.
Putnam also found that households with access to a defined contribution (DC) plan do not always participate. Of the 60% of households eligible for DC plans, 8% do not contribute to a plan. Of that 8%, 3% are not contributing but have a balance (lapsed contributors); and 5% have never enrolled in a workplace plan.
Those eligible but never enrolled will rely more heavily on Social Security than the average household (36% versus 32%) and less on retirement plan savings (16% versus 26%).
These numbers underscore the importance of plan sponsors and advisers encouraging participants to save at an adequate rate to replace income in retirement, especially with the uncertain future of Social Security. “At the end of the day, the real driver is, ‘Are you saving enough?’” Ed Murphy, head of defined contribution at Putnam, told PLANSPONSOR.