US - The gap between retirement needs and employee savings behaviors is widening, a study by Hewitt has revealed.
When factoring in inflation and increased medical costs, Hewitt said on average employees would need to replace 126% of their final pay at retirement; a significant jump from the traditional targets of 70% to 90% pay replacement.
Hewitt explained employees who contributed an average of 8% of pay to their 401(k) plan could replace 96% of their pre-retirement income at age 65.
This would provide approximately 80% of what would be needed to provide the same standard of living during retirement, the consultants added.
In the case of employees who do not contribute, the number would drop to just 54%, equating to less than 40% of projected needs.
Employees could boost their projected retirement income replacement from 85% to 107% of final pay by contributing 2% more a year, equating to an average of 10% total contribution, to their 401(k) plan and retiring just two years later.
Hewitt said those employees offered a high level of employer subsidised medical coverage in retirement would see a projected retirement income shortage of only 12% of final pay if saving in a 401(k) plan.
This number would double to 25% for employees with only access to coverage and no employer subsidy,
Employees with low retiree medical coverage not contributing to a 401(k) plan would see a shortfall of 87%.
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