The recently released study by Aon Consulting and Georgia State University found that many retirees would need more money than ever before because retiree spending is actually increasing and saving continues at an anemic pace. Aon and Georgia State have been doing the study since 1988.
For example, researchers said employees with $60,000 in pre-retirement income needed 67% of that sum for a comfortable retirement in 1997; they now need 75%.
“Employees need a little more help telling them what they do need for retirement,’ Ron DeStefano, an Aon actuary who helped author the report, told PLANSPONSOR.com . “There is a need to have as much put away as you can. With this (report), amounts (needed for retirement) are going to be much higher.”
The Aon/Georgia State results are particularly intriguing because they differ from the traditional wisdom used in developing personal finance and retirement savings goals. For example, financial planners have traditionally said that people will need about three-quarters of their pre-retirement income because retiree spending tends to go down.
Results Differ Across Demographics
The Aon/Georgia State study makes clear that the specific amount individuals will need for retirement depends heavily on their demographic group. For example:
- taxation of Social Security benefits — or lack of it — plays a key role in how retirees fare. For example, middle-income retirees would generally see their taxes drop drastically as payroll taxes click off and a big chunk of their remaining income becomes exempt from income tax.
- marital status plays a significant role. For example, in the lowest income levels, pre-retirement taxes are higher for singles than for married couples. So when taxes stop, there’s a bigger impact on singles and the amount needed for retirement is less than for a couple.
The study used data from the Bureau of Labor Statistics’ consumer expenditure survey, which has data on some 5,000 working singles and families and more than 3,000 retirees