US - Employment shifts, rising retiree medical costs and fewer retirement options are severely impacting retirement income in the US, demonstrates a study from Hewitt Associates.
Hewitt’s study, which examined the projected retirement income levels of nearly one million employees at 62 large US companies, shows a very mixed picture regarding employees’ ability to meet these goals, as retirement income levels are heavily influenced by the employer programmes available and by employees’ actions.
Those employees covered by the study who have an employer sponsored pension plan and participate in a 401(k) plan will, on average, be projected to replace 107.9% of their pre-retirement income at retirement.
However, Hewitt’s projections show that those employees who participate in a 401(k) plan but do not have an employer sponsored pension plan are likely to be less prepared, replacing only 80% of their pre-retirement income when they retire.
“This is a wake-up call for employees,” said Lori Lucas (pictured), director of participant research at Hewitt Associates. “Many workers still look at retirement in the traditional sense, retire at age 65 or earlier with a comfortable nest egg: a pension, 401(k) savings, social security and retiree health care benefits. They don’t realise that new retirement trends will severely impact this picture and shift much more responsibility to them to prepare and save for their retirement.”
The study also draws attention to the damaging effect of retiree medical costs on retirement income. According to the study, retiree medical costs may consume an annual amount equal to 20% of pre-retirement income for those employees who retire at age 65 with no employer subsidy.
The situation is more serious for employees who retire early. Because of the high cost of medical coverage before Medicare eligibility, a typical worker retiring at age 62 who does not have any subsidised retiree medical benefits is projected to replace only 59% of their pre-retirement income.
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