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The Real Deal
2012 Retirement Income
Adequacy at Large Companies
RETIREMENT
YOU ARE HERE
About This Report
This study assesses whether employees of large companies are expected to have the financial resources to meet
their postretirement needs. Projected retirement needs for 2.2 million employees at 78 companies were compared
to the projected retirement resources they can expect to derive from their companies’ benefits programs and
government benefits. The results depict the “Real Deal” because they reflect real employee behaviors, real employee
accounts, and real benefit plans.
Concern about employees being adequately prepared for retirement is on the rise. Recent surveys report waning
confidence by employers, employees, and the government, because of factors such as:
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Defined contribution plans replacing traditional pensions as the primary retirement income plan;
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Investment market volatility that has adversely impacted defined contribution balances;
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Employee behaviors that fail to optimize employer-provided retirement benefits;
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Lack of retirement planning and failure to establish meaningful retirement income targets;
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Increasing life expectancies that make it harder for employees to accumulate sufficient assets to last
through their retirement years;
Reluctance by employers and employees alike to pursue opportunities to manage or insure risks;
Rising medical costs and declining employer-provided retiree medical subsidies impeding employees’
ability to accumulate retirement resources while increasing their retirement needs; and
Continuing concerns about the ability of Social Security and Medicare to deliver benefits at the levels
currently promised.
These concerns have created significant focus on retirement security in the media and in the halls of Congress.
For example, the ongoing discussions about national health care reform, defined contribution plan fee disclosure,
and lifetime income solutions highlight government recognition of the need for action.
This report will help organizations and their employees understand the projected outcomes and manage the
associated risks to retirement income adequacy. The results can serve as a benchmark for employers as they
measure the effectiveness and sufficiency of their programs.
This study is the fifth Real Deal study issued by Aon Hewitt. The study updates and enhances Aon Hewitt’s prior
Real Deal analyses (2010) while leveraging the findings from the Aon/Georgia State Replacement Ratio study (2008).
The Real Deal
2012 Retirement Income Adequacy
at Large Companies
Road Map
4
Study Highlights
11
Methodology and Assumptions
17
Summary of Key Findings
Baseline Case: Full-Career Contributors
31
Summary of Findings for Other Employee Groups
All Contributors, Noncontributors, and All Employees
Gender-Specific Results
Employer Plan Structure
43
Key Retirement Income Adequacy Risks
Investment Risk
Longevity Risk
Inflation Risk
Retirement Age
Inadequate Savings
Automatic Contribution Escalation and Automatic Enrollment
59
Appendix
Demographics
Participating Companies
Methodology and Assumption Details
Additional Hot Zones
Study Highlights
Retirement Income Adequacy
There is increasing concern over employees not having enough money to meet their retirement needs. Employees
face the risk of having to work longer than desired or decreasing their living standards. Employers face workforce risks
if employees are not able to retire as planned. And in light of growing deficits and economic difficulties, the country’s
social systems are at risk of becoming overwhelmed by retiring workers who are financially ill-prepared for retirement.
To confront these risks, several key questions need to be addressed:
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How much do workers need to retire?
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Will employees be prepared for retirement if they continue doing what they are doing today?
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What can employees and employers do to improve the outcomes?
Aon Hewitt’s Real Deal study answers these questions by studying the retirement resources and needs for 2.2 million
employees of 78 large US employers. The study projects employees’ retirement resources and needs assuming their
current behaviors continue. The report then analyzes the risks, measuring employer and employee actions to help
improve the outcomes.
The Real Deal study focuses on full-career contributing employees as the baseline. For this purpose, we define “full
career” as an employee with the potential to work 30 years or more with their current employer prior to retirement.
This allows analysis of the theoretical potential for delivering adequate retirement income through the plans and
savings behaviors of today’s environment, an analysis of projected risks, and possible solutions to help manage the
risks. Focusing on full-career contributing employees allows the study to analyze the effect of an employer’s retirement
benefits as if they were delivered through a full career, even if employees do not choose to work for a single employer
for this length of time.
The study also analyzes different segments of the population under multiple future scenarios. In doing so, the study
addresses which employees may fare best, how plan design influences behavior, and how different future scenarios
might impact retirement income.
Key Findings
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11.0 times pay: An average full-career contributing employee needs this much at age 65, after
Social Security, to expect to have sufficient assets to get through retirement.
85% replacement ratio: The pay replacement needed in the first year of retirement (foundation of
11.0 times pay through retirement).
2.2 times pay shortfall: An average full-career contributing employee is expected to have 8.8 times
pay in resources at retirement, leaving this shortfall.
Aon Hewitt
Results
The Real Deal study shows that more employees are on track to retire with adequate retirement income when
compared to prior studies. Projected retirement income shortfalls for the Real Deal full-career contributor population
have improved on average, although only slightly (now 2.2 times pay, down from 2.4). Some of the reasons for this
improvement include strong market returns in 2009 and 2010 (compared to the poor market returns of 2008, at the
time of our last study), and continued retirement savings by most employees. Almost 30% of employees are now on
track to retire comfortably at age 65.
The study projects that the employees who currently contribute to their employers’ savings plans and who retire at age
65 after a full career will, on average, accumulate retirement resources of 8.8 times their pay. These resources include
accumulations of employee savings in their employers’ defined contribution plans (4.1 times pay), accumulations of
employers’ additions to defined contribution plans (2.6 times pay), and defined benefit pensions (2.1 times pay). The
study does not reflect savings or other retirement assets outside of the employer-sponsored plans.
Figure 1
Retirement Resources Versus Needs
Baseline
Full-Career Contributing Employees
15.9
4.9
11.0
8.8
2.2
4.1
Defined Contribution Plan—Employee Portion
Defined Contribution Plan—Employer Portion
Defined Benefit Plan
Retirement Income Surplus/(Shortfall)
Private Retirement Needs
Social Security
Total Retirement Needs
2.6
2.1
Private
Resources
Shortfall
Private
Needs
Social
Security
Total
Needs
While significant, these resources fall 20% short of the average projected retirement needs of 11.0 times pay at
retirement for these employees. 11.0 times pay represents the retirement resources needed to maintain preretirement
living standards throughout an average life expectancy, after reflecting the expected value of Social Security benefits.
Retirement Income Adequacy at Large Companies: The Real Deal
5
In addition to the average 2.2 times pay shortfall, the following graph shows a somewhat broad distribution of results
among full-career contributing employees. 29% of these employees are expected to satisfy all of their financial needs
through retirement. At the other end of the spectrum, about 21% of employees are expected to have a shortfall of more
than 6 times pay at age 65. Individual circumstances such as retirement benefit plan details, individual savings plan
behaviors, income levels, and gender all help explain some of the variation in results.
Figure 2
Distribution of Retirement Income Surplus/(Shortfall) Multiples of Final Pay
Baseline
Full-Career Contributing Employees
Baseline Average = (2.2)
2 or Greater
17.3%
0 – 1.9
11.8%
(2) – (0.1)
15.7%
(4) – (2.1)
18.0%
(6) – (4.1)
16.4%
(8) – (6.1)
Less than (8)
11.8%
9.0%
Full-career employees represent only about half of the total Real Deal population. Projections for the other half of the
study employees, including mid-career hires and those not currently contributing to their defined contribution plans,
reveal significantly worse results. When analyzing all employees in the Real Deal study, the average shortfall increases
to 5.3 times pay. Only about 15% of all 2.2 million employees in the study have positioned themselves to have
sufficient resources to meet their needs if they retire at age 65.
Results for the general U.S. population would likely reveal even larger retirement income shortfalls, compared to the
results of this study. The Real Deal study uses data from large employers who generally provide larger retirement
benefits and more robust employee communication about the need for retirement savings than smaller employers.
Many circumstances have contributed to so many employees being at risk of having insufficient retirement income.
Inadequate retirement savings represent the most basic cause of the projected shortfalls. A 25-year-old whose employer
provides only a defined contribution plan needs a total annual contribution (employee plus employer) of approximately
15% of pay to retire at 65 with adequate resources. Employers without traditional pensions generally contribute about
6% of pay toward their employees’ retirement each year. That means employees need to save about 9% of pay in each
of the next 40 years in order to stay on track. According to other Aon Hewitt research, total contributions into defined
contribution plans, including employee and employer contributions, comprised 10.2% of pay on average. If employees
wait until age 30 to begin contributing, the total annual contribution needed increases to about 19% of pay,
highlighting the importance of starting early. Within the entire Real Deal study population, only 1 in 10 under age 30
have 15% of pay or more each year in combined employee and employer contributions.
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Aon Hewitt
Saving To Versus Through Retirement
To Retirement
Through Retirement
Total needs
85%
15.9 times pay
Social Security
29%
4.9 times pay
Private needs
56%
11.0 times pay
“To” retirement is the percentage of
preretirement income a person needs
in the year of retirement to maintain
their standard of living in that year.
“Through” retirement is the multiple
of pay a person needs at retirement
to keep their standard of living
throughout the retirement years.
To understand the findings, readers need to be familiar with how this study defines and calculates “adequate retirement
income.” The calculation starts by assuming a participant will want to maintain their standard of living after retirement.
Building on methodology established in the 1981 President’s Commission on Pension Policy, we updated assumptions
to reflect key findings from the Aon/Georgia State Replacement Ratio studies. Current income is adjusted for expected
changes at retirement: elimination of retirement savings, changes in taxes, and changes in expenditures, including
medical costs. Medical costs reflect the 2010 Patient Protection and Affordable Care Act (PPACA) provisions as they
stand at the time this report was published. This methodology produces an average need in the first year of retirement
of 85% of pay.
The amount needed at retirement age to cover retirement expenses through an average life expectancy (age 87 for
males, age 88 for females) is 15.9 times pay. This assumes the cost of goods and services will increase over time as will
medical expenses, due to inflation. Since Social Security will pay for some of these expenses, the employee will need
to have saved 11.0 times pay at retirement through their employer plans and their own savings.
How Can We Improve Results?
Employers and employees need comprehensive plans to adequately prepare for retirement. Successful employer
strategies will likely include, among other tactics, implementing and expanding automatic plan features, offering an
array of investment advisory help, and thoughtfully designing plans to motivate and drive optimal employee behavior.
Individual employees will need to consider the appropriate retirement age, savings rate, and income distribution
solution to achieve a comfortable retirement for their specific situation.
The Real Deal study assesses risks to employers’ and employees’ strategies, testing the impact of various potential
actions. Based on this work, the following actions seem most noteworthy given their potential to directly improve,
or substantially mitigate, the risks confronting employees’ retirement income adequacy.
Retirement Income Adequacy at Large Companies: The Real Deal
7
Employer Actions
1.Expand automation. The 64% of employers who offer automatic enrollment have 15% more employees on track to
achieve adequate retirement income compared to employers who do not offer automatic enrollment. Additionally,
53% of the employees who are enrolled in automatic contribution escalation programs are expected to achieve
adequate retirement income compared to 26% of those who are not currently automatically escalating their contribution
rates. Despite these positive results, employers could do more. Plan sponsors should consider automating their plans
using robust defaults. Automatically enrolling employees at 6% of pay (rather than 3%), combined with automatic
contribution escalation with a maximum savings rate default equal to IRS-legislated limits (rather than 6% or 10%),
can provide a strong foundation for adequate retirement income. Employers should also consider sweeping in eligible
non-participants, implementing “quick enrollment,” and encouraging automatic escalation through communication
initiatives.
Figure 3
Private Retirement Resources Versus Needs
Employees With and Without Automatic Contribution Escalation
Full-Career Contributing Employees
11.4
0.8
8.5
With Contribution Escalation
Private
Resources
Surplus
11.1
10.6
Private
Needs
2.6
Without Contribution Escalation
Private
Shortfall
Resources
Private
Needs
Private Retirement Resources
Retirement Income Surplus/(Shortfall)
Private Retirement Needs
2. Offer an array of investment advisory help. A recent Aon Hewitt and Financial Engines Study1 showed that
employees who take advantage of investment help can increase returns by as much as 2% or 3%. The Real Deal study
shows that just a 1% difference in future return on assets can increase retirement resources by 2 times pay. Employers
should consider offering investment advisory help through an array of alternatives to meet employee needs. These
include access to online investment advice, managed accounts, pre-mixed investment alternatives such as target date
funds, seminars, personal financial planning, and lifetime income solutions.
3.Design plans thoughtfully. Employers should consider the impact their plan design may have on participant
behavior. Many employees choose to save at the maximum match rate in their retirement plan. For example, if the
plan matches 100% on up to 6% of pay, many employees save 6% of pay, even though this is below the rate needed
to deliver adequate retirement income. The study demonstrates that if low-savings employees increase their savings
rate to the maximum match rate in their employer’s plan, they would still face an average shortfall of 1.5 times pay.
1 “Help in Defined Contribution Plans: 2006 Through 2010”, September 2011 by Financial Engines and Aon Hewitt.
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Aon Hewitt
Employee Actions
1.Retire later. The Real Deal analysis shows that deferring retirement to age 67 allows almost 50% of employees to
achieve adequate retirement income compared to 29% of employees when retiring at 65. Retiring later improves
the outcomes in two ways. It allows extra contributions and investment returns to grow for two more years. At the
same time, it reduces retirement needs by shortening the period over which resources will need to be spread.
However, many employees actually end up retiring before age 65 and often before they had planned to retire.
Early retirement both curtails savings opportunities and increases retirement needs.
Figure 4
Private Retirement Resources Versus Needs
Age 65 (Baseline), Age 62, and Age 67 Retirement
Full-Career Contributing Employees
13.5
11.0
8.8
2.2
Age 62 Retirement
Baseline
Private Shortfall
Resources
9.5
5.8
7.7
Private Shortfall
Resources
Private
Needs
Private
Needs
0.1
9.4
Age 67 Retirement
Private Surplus
Resources
Private
Needs
Private Retirement Resources
Retirement Income Surplus/(Shortfall)
Private Retirement Needs
2.Save more. As employers reduce their retirement benefit programs, employees need to increase their focus on
personal savings. Increasing the savings rate by just 1% of pay each of the next 5 years, and then maintaining that
higher savings rate until retirement, will allow the average employee to retire at age 65 with adequate income.
Increased savings drives significant improvement for younger employees, and somewhat limited change for those
closer to retirement. A median combined employer and employee contribution rate of 17% of pay produces
adequate retirement income for all current full-career contributors (some of whom have pension benefits).
Figure 5
Private Retirement Resources Versus Needs
Baseline and Escalation of Savings Rate 1% for 5 Years
Full-Career Contributing Employees
11.0
8.8
2.2
10.4
0.1
10.3
Private Retirement Resources
Retirement Income Surplus/(Shortfall)
Private Retirement Needs
Baseline
Private Shortfall
Resources
Increased Employee Savings
Private
Needs
Private Surplus
Resources
Private
Needs
Retirement Income Adequacy at Large Companies: The Real Deal
9
3.Manage income efficiently through retirement. A retiree self-managing the distribution of their retirement assets
will likely need to plan for a period longer than the average life expectancy or they will face a 50% risk of running
out of money. In order to cut the risk from 50% to only 20%, an employee must save an additional 2.4 times pay,
which would cover roughly six additional years in retirement. Many would argue group-insured lifetime income
products, with features such as minimum monthly benefits and preservation of principal, provide more efficient
protection than self-insuring against longevity risk.
Figure 6
Retirement Income Surplus/(Shortfall)
50th Percentile (Baseline) and 80th Percentile Life Expectancy
Full-Career Contributing Employees
Baseline
Longevity Risk
(2.2)
(4.6)
Conclusion
The results of this study provide an indication of how well employees at large companies are preparing for retirement.
Results have improved slightly compared to prior studies, because of factors such as strong asset returns and continued
employee savings for retirement.
The study indicates employees who save for retirement over long periods of time and who invest appropriately can
accumulate benefits that are reasonably close to what they might need to maintain their preretirement standard of living
during retirement. However, the study also indicates that approximately 70% of full-career contributing employees are
not on track to retire with adequate financial resources.
Specific future action steps should improve the projected results. Most importantly, employers can expand their use of
automation (to get more money in the system) and the defaults associated with automated features, help employees
improve their results through an array of investment advisory help, and pay careful attention to their retirement plan
design. Employee actions include targeting a realistic retirement age, saving at robust rates, taking advantage of financial
help when offered, and seeking lifetime income solutions. Other action steps, beyond the specific details of this report,
include minimizing leakage (e.g., retirement plan loans and withdrawals), and increasing retirement plan communications.
The ability to improve retirement readiness in the U.S. will require a concerted effort by all stakeholders. There are many
ways for employers and employees to address the risks of retirement adequacy. Important future initiatives include
employers measuring and monitoring the projected results for their workforce, focusing on the key influencing factors
such as automation, investment help, and plan design, while increasing awareness and promoting employee action
through personalized communication. Ideal solutions will improve outcomes with little or no increase in employer cost.
10
Aon Hewitt
11
Methodology and Assumptions
40
Retirement Income Adequacy at Large Companies: The Real Deal
11
Methodology and Assumptions
The Real Deal study compares the projected retirement resources and needs of 2.2 million employees of 78 large
U.S. companies. Retirement resources are the assets each employee is projected to have at retirement. In this study,
retirement resources include assets employees can derive from participation in their current employer-provided
retirement benefit plans, plus the assets expected to be available from Social Security. Retirement needs are the
expected value of assets required at retirement for each employee to maintain their preretirement standard of living
during their retirement years.
Employees whose retirement resources are projected to meet or exceed their retirement needs are likely to have
adequate income during retirement. Those whose retirement resources are projected to fall short of their needs are
more likely to have inadequate retirement income. In this report, a positive difference between retirement needs and
resources indicates a surplus of resources, and a negative difference indicates a shortfall of resources.
This study expresses each employee’s retirement needs and resources as a multiple of their projected pay at retirement.
In this way, we are able to compare retirement resources and needs of employees retiring at different times in the future
and at different compensation levels. In this report, a single value of retirement needs, resources, or surplus/shortfall
represents the average of the results for every individual in the reported group.
The study also expresses baseline results in terms of replacement ratios for the first year of retirement. The replacement
ratio is the annual amount of resources or needs required in the first year of retirement as a percentage of projected pay
at retirement.
The remainder of this section summarizes how retirement resources and needs are determined and the assumptions used.
Refer to the Appendix section for a more detailed description of the companies included, methodology, and assumptions.
Retirement Resources
Total retirement resources are the single-sum value of amounts projected to be available to employees at retirement.
The study reflects retirement resources from three sources—employer defined contribution plans (both employee and
employer money), current employer defined benefit plans, and Social Security.
Resources are depicted with blue colors throughout this report.
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Defined contribution plans. The study projects each individual’s actual defined contribution balance as of
January 1, 2011, with future contributions to retirement age. We do this using actual contribution rate elections
(including automatic escalation elections) plus matching and non-elective company contributions (based on
current plan design). The study accumulates the account with investment earnings at an assumed preretirement
rate of return.
Defined benefit plans. The study projects to retirement age the pension benefit for each employee covered by a
defined benefit plan. This includes ongoing (open) defined benefit plans, as well as plans that have been frozen or
closed in the past five years. The projection reflects additional years of service and increasing pay levels as appropriate.
For cash balance or pension equity plans, retirement resources are the lump-sum value of the benefit. For traditional
final average pay or career average pay plans, retirement resources are the single-sum value of the projected benefit.
This value represents the amount of assets which, when combined with postretirement investment returns, provides
for a lifetime of the periodic payments promised by the annuity.
Aon Hewitt
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Social Security. The study projects an individual’s primary insurance amount payable at retirement assuming no
change in Social Security provisions. Retirement resources are the single-sum value of these benefits. This amount
represents the assets which, when combined with postretirement investment returns, provide for a lifetime of
expected Social Security payments (including anticipated future cost-of-living increases).
Because of the data limitations, this report does not include retirement income sources such as former employer
retirement plans, other personal investments, home equity, long-term care insurance, and spouses’ retirement income
benefits. To the extent an employee has other financial resources such as these, the results will change.
Retirement Needs
Retirement needs are the sum of money an average employee needs at retirement to last through all their retirement
years. Traditional studies, such as the 1981 Report of the President’s Commission on Pension Policy and the ensuing
updates in the Aon/Georgia State Replacement Ratio studies, are based on the idea an individual needs an income just
after retirement that will allow them to maintain their preretirement living standards. We define the retirement need as
the amount that would allow the employee the same amount of spendable income before and after retirement. The
study takes into consideration changes that occur at retirement—primarily changes in the level of taxes, the fact that
retirees no longer need to save for retirement, and changes in consumption patterns. Retirees may choose to reduce
their standard of living in retirement—but that is a personal decision. This study builds on the traditional approach of
assuming employees will want to maintain their preretirement standard of living.
Needs are depicted with green colors throughout this report.
The study determines needs as follows:
1.Estimate the amount of income a person needs in their first year of retirement to maintain their standard of living
(“to retirement”). This need is generally less than 100%, primarily because taxes are less in retirement and there’s
no need to continue saving. Taxes tend to decrease because retirees are typically no longer paying FICA taxes on
wages, Social Security benefits may be only partially taxed, and many retired individuals tend to fall into a lower
tax bracket than active workers. These factors offset the impact of health care expenses, which generally increase
at retirement. This study reflects the 2010 Patient Protection and Affordable Care Act (PPACA) as it stands as of the
writing of this report. This analysis reflects other expenditure changes at retirement, based on data from the
2008 Aon/Georgia State Replacement Ratio study.
2.Project how the retiree’s expenses will change each year after retiring. For this purpose, health care costs increase
with an assumed medical trend rate of 6.5% per year, and other costs increase with an assumed inflation rate of
3% per year. Thus, the standard of living replaced will remain constant over the retiree’s lifetime, and the
“replacement ratio” needed in each subsequent year of retirement increases with future inflation.
3.Calculate the single-sum amount a person needs at retirement to maintain their preretirement standard of living
throughout their retirement (“through retirement”), assuming resources grow at 5.5% per year during retirement.
The report also adjusts the amount determined in (3) to reflect that some of the retirees’ future expenses will be
covered by their Social Security benefit. We refer to the resulting needs, after Social Security, as “private needs.”
Retirement Income Adequacy at Large Companies: The Real Deal
13
Example: Male, Age 40, Current Salary of $60,000, Current Savings Rate of 6%
% of Pay
Pay at Age 65 Retirement
Decrease for Savings Rate
Taxation Difference
Postretirement
Non-Medical
Expenditures Difference
Pre-Medical Need in First
Year of Retirement
Medical Expenditures Difference
Need in First Year
of Retirement
$160,000
100%
$(9,600)
(6%)
$(17,600)
(11%)
$(3,600)
(2%)
$129,200
81%
$7,300
4%
$136,500
85%
Social Security
in First Year
of Retirement
$47,500
30%
Private Needs
$89,000
55%
Multiple
of Pay
Calculate the Present Value with 3%
Inflation and 5.5% Assumed Return on
Resources Postretirement until age 87
Calculate the Present Value with 6.5%
Medical Trend and 5.5% Assumed Return
on Resources Postretirement until age 87
13.6
1.7
15.3
Calculate the Present Value with 3%
Inflation and 5.5% Assumed Return on
Resources Postretirement until age 87
5.0
10.3
Defining Retirement Income Adequacy
We can analyze retirement income adequacy based on the surplus or shortfall of retirement resources versus retirement
needs. If retirement resources exceed retirement needs, then the individual can anticipate a retirement income surplus
through an average postretirement lifetime. Conversely, if resources are not sufficient to cover needs, then the individual
can anticipate a shortfall, and may need to consider actions to increase retirement resources prior to retiring, or reduce
retirement needs.
Surpluses and shortfalls are depicted with red colors throughout this report.
We acknowledge the active debate about what constitutes an adequate level of retirement income at retirement
and how much retirees may need throughout their postretirement lifetimes. Our analysis does not include all assets
individuals may have set aside for retirement, and it does not reflect every possible retirement need. We also realize
there may be a range of income levels individuals are willing to accept as being “adequate” in retirement.
Even so, this study provides a reasonable way to evaluate how effectively current employer-sponsored benefits and
Social Security might financially prepare employees to have adequate retirement income throughout retirement.
The Real Deal study is the most comprehensive assessment of its kind, using actual employee data, to determine if
employees might be able to retire comfortably with income to sustain them throughout their retirement years.
14
Aon Hewitt
Assumptions Used in Projections
The baseline assumptions for the analysis represent a reasonable basis for determining the likely retirement income
adequacy for a large population of employees. Outcomes could vary, however, based on actual events. The study
evaluates a number of alternative scenarios to test the sensitivity of the results versus the baseline assumptions and to
model the impact of various changes employees and employers could make in an effort to improve retirement income
adequacy. The chart below summarizes the baseline assumptions and alternative scenarios considered. Refer to the
Appendix section for additional detail.
Baseline Assumption
Alternative Scenarios
Covered employees
All full-career (hired by age 35)
employees currently contributing
(nonzero contribution rates) on
1/1/2011
Analysis of all employees, all
contributing employees, and all
noncontributing eligible employees
Retirement age
65
62, 67
Employee contribution rates
Actual individual rates, as of
1/1/2011, including scheduled
automatic increases
Actual individual rates, as of
1/1/2011, escalated by 1 percentage
point each year for 5 years; rate
necessary to obtain the maximum
employer match
Employer contribution rates
Contributions derived from
current plan formulas, both
matching and non-elective or
“profit sharing” contributions
Same as Baseline
Preretirement rate of return
7% annual (nominal) rate of return
(net of fees)
6%
Postretirement rate of return
5.5% annual (nominal) rate of return
(net of fees)
4.5%
General inflation
3% pre- and postretirement
4%
Employer’s retiree medical benefit
Access only, with retiree paying
100% of the group-rated cost of
coverage
Same as Baseline
Medical inflation
6.5% per annum
7.5%
Pay growth
4% per annum (inflation plus 1%)
5%
National wage base increase rate
3.5% per annum (inflation plus
0.5%)
4.5%
Plan fees
0.25% of assets per annum
Same as Baseline
Postretirement mortality
50th percentile life expectancy
from the RP-2000 table for healthy
annuitants projected to 2051 (i.e.,
approximately age 88 for females
and age 87 for males)
80th percentile life expectancy
from the RP-2000 table for healthy
annuitants projected to 2051 (i.e.,
approximately age 94 for females
and age 93 for males)
Retirement Income Adequacy at Large Companies: The Real Deal
15
17
Summary of Key Findings
This section summarizes the key findings of the
Real Deal report for full-career contributors.
This includes:
Retirement Resources;
n Retirement Needs; and
n Surplus/Shortfall
n Retirement Income Adequacy at Large Companies: The Real Deal
17
Baseline Case: Full-Career Contributors
This study focuses on the projected retirement resources and needs of “full-career contributors” at large employers.
These are employees who started with their current company by age 35, with a potential career of 30 years or more
at age 65, and are currently saving in their defined contribution plans. Focusing on this group allows us to analyze the
effect of an employer’s retirement benefits as if they were delivered through a full career. The report uses roughly one
million full-career contributing employees as a baseline; not because we expect employees to stay with the same
employer for 30 years or more, but because this approach avoids possible skewing of results due to lack of information
about benefits earned during prior employment. Mid-career hires or short-service employees cannot show the full
effect of retirement programs, as our data does not consistently reflect all benefits provided throughout their
full careers.
Retirement Resources
Replacement Ratio in
First Year of Retirement
Multiple of Pay
at Retirement
Defined benefit
16%
2.1
Employer defined contribution
20%
2.6
Employee defined contribution
31%
4.1
Private resources
67%
8.8
Social Security
29%
4.9
Total resources
96%
13.7
The average level of privately held retirement resources for the full-career contributors is 8.8 times pay at retirement,
or 67% of pay replaced in the first year of retirement. These resources consist of defined benefit plans and defined
contribution plans (employer- and employee-funded). In addition, the average employee can expect a Social Security
annuity of 29% of pay in the first year of retirement, with an expected total value of 4.9 times pay.
The replacement ratio calculations shown here assume level future dollar withdrawals from defined contribution
accounts, to illustrate a typical pattern of installment payments designed to draw all assets from the accounts by the
average life expectancy. We recognize employees may choose other withdrawal patterns, such as the “4% rule”
(or others), but those results are not shown here. The defined benefit and Social Security replacement ratios represent
the annuity a retiree would expect to receive in their first year of retirement. While the resources are significant at
the time of retirement, their value quickly erodes by inflation since only Social Security includes automatic
cost-of-living increases.
18
Aon Hewitt
Figure 7 shows the distribution of total retirement resources for full-career contributing employees. This figure illustrates
that the levels of retirement resources are broadly distributed, with the majority clustered around accumulation levels
between 10 and 16 times pay at retirement.
Figure 7
Distribution of Total Retirement Resources Multiples of Final Pay
Baseline
Full-Career Contributing Employees
Baseline Average = 13.7
18.0 or Greater
13.9%
16 – 17.9
12.0%
14 – 15.9
17.7%
12 – 13.9
21.1%
10 – 11.9
18.8%
8 – 9.9
Less than 8
11.9%
4.4%
Private resources tend to vary by age and income levels, as shown in Figure 8. The majority of retirement income
comes from defined contributions plans; therefore, younger employees who are already participating in their defined
contribution plans have the potential to accumulate significant resources through their careers. Conversely, older
employees may not have begun saving as early in their careers and may have been more significantly impacted by
recent market volatility.
Additionally, defined contribution resources generally increase by income level as employees have additional means
and ability to save. However, levels of retirement resources drop off as some participants reach tax-qualified plan limits.
Unlike in defined contribution plans, the resources from defined benefit plans increase by age because older employers
are more likely to have been covered by defined benefit plans. Almost 80% of employees over age 55 have some
defined benefit resource, compared to only 20% of employees under age 30.
Retirement Income Adequacy at Large Companies: The Real Deal
19
Figure 8
Projected Private Retirement Resources
Defined Benefit and Defined Contribution Resources
Full-Career Contributing Employees
Age
2011
Limited
Pay
Under
$30,000
$30,000
to
$39,999
$40,000
to
$49,999
$50,000
to
$59,999
$60,000
to
$69,999
$70,000
to
$79,999
$80,000
to
$89,999
$90,000
to
$99,999
$100,000
to
$149,999
$150,000+
Total
0 – 24
25 – 29
30 – 34
35 – 39
40 – 44
45 – 49
50 – 54
55 – 59
30,601
$23,040
9.5
11,808
$34,488
10.6
8,403
$44,824
12.1
6,068
$54,910
13.1
4,776
$64,863
13.7
2,500
$73,979
13.7
795
$84,151
13.9
369
$94,666
13.9
462
$120,090
12.8
118
$177,811
11.2
65,900
$37,863
10.9
34,820
$24,078
8.1
30,571
$34,850
8.7
25,265
$44,969
10.0
20,628
$54,839
10.8
18,396
$64,981
11.7
15,046
$74,745
12.2
9,266
$84,597
12.8
5,568
$94,613
12.8
8,253
$116,970
12.5
1,896
$190,829
11.4
169,709
$53,792
10.2
23,495
$24,149
7.0
26,255
$35,092
7.3
24,849
$44,897
8.4
20,611
$54,860
9.2
18,146
$64,911
9.5
16,355
$74,880
10.1
13,786
$84,866
10.6
11,467
$94,783
11.0
23,841
$118,241
11.3
8,078
$194,586
11.0
186,883
$68,414
9.2
15,378
$23,829
5.8
18,976
$35,166
6.1
18,859
$44,829
7.1
18,133
$54,922
8.0
16,239
$64,913
8.3
15,202
$74,848
8.6
12,932
$84,895
9.1
11,100
$94,949
9.5
31,458
$119,724
9.8
13,965
$198,337
10.3
172,242
$79,858
8.3
6,737
$24,139
6.4
10,833
$35,374
6.1
14,309
$44,842
6.7
12,931
$54,910
7.8
12,080
$64,898
8.0
10,867
$74,870
8.4
9,947
$84,947
8.7
7,872
$94,891
9.2
25,790
$120,644
9.4
16,421
$202,358
9.7
127,787
$90,161
8.2
4,186
$24,304
6.8
7,129
$35,474
6.6
10,393
$45,154
7.2
10,238
$54,895
7.8
10,017
$64,974
8.1
9,940
$74,895
8.3
8,970
$84,899
8.4
7,479
$94,935
8.8
24,263
$121,501
9.0
17,524
$201,404
9.1
110,139
$97,424
8.3
2,955
$24,732
7.0
6,184
$35,500
6.8
9,566
$45,222
7.3
10,338
$54,994
7.7
9,746
$65,016
7.8
9,556
$74,967
8.1
8,372
$84,958
8.3
7,332
$94,925
8.4
23,495
$121,598
8.8
16,855
$200,504
8.8
104,399
$98,540
8.2
1,867
$24,897
6.6
4,854
$35,481
6.5
6,854
$45,249
7.0
7,497
$54,908
7.1
6,999
$64,938
7.2
7,401
$74,898
7.3
6,246
$84,967
7.6
5,633
$94,949
7.7
17,061
$121,141
7.9
10,533
$199,147
8.2
74,945
$95,794
7.5
Employee Count
Average 2011 Limited Pay
Private Retirement Resources as Multiple of Pay
60+
1,285
$24,680
5.9
2,249
$35,328
5.5
2,810
$45,312
5.8
3,211
$55,085
5.7
3,224
$64,984
5.8
3,021
$74,887
5.8
2,499
$84,823
6.1
2,322
$94,948
6.2
6,560
$121,420
6.5
4,091
$198,303
6.8
31,272
$92,457
6.1
Total
121,324
$23,845
7.7
118,859
$35,072
7.6
121,308
$44,967
8.2
109,655
$54,901
8.8
99,623
$64,941
9.1
89,888
$74,838
9.3
72,813
$84,862
9.5
59,142
$94,871
9.6
161,183
$120,271
9.5
89,481
$199,653
9.3
1,043,276
$77,423
8.8
Under 5.00
5.00 to 7.99
8.00 to 9.99
10.00 to 11.99
12.00 to 13.99
14.00+
“Hot zone” graphs divide the population into boxes by two criteria, such as age and service. Each box contains data
relevant to the hot zone. The retirement resources hot zone above includes the following data: employee count,
average 2011 pay, and retirement resources as a multiple of pay at retirement. Each box is shaded based on the
bottom data component, such as retirement resources as a multiple of pay at retirement. For example, in the
retirement resources hot zone, if average retirement resources as a multiple of pay for a group are between 10 and
11, the coloring is yellow. As retirement resources decrease, the box coloring becomes “hotter” (cool = green,
average = yellow, hot = red).
20
Aon Hewitt
The study results further explain the distribution of resources by age and income by looking at savings behavior
across these variables in Figure 9. Employees are contributing to their defined contribution plans at an average rate
of 7.4%, and employers are providing matching or other contributions at an average rate of 4.7%, for a 12.1% total
annual contribution into defined contribution accounts. When employers do not sponsor a defined benefit pension plan,
they tend to provide larger annual defined contribution amounts (5.2%) compared to those who also offer a pension
plan (4.4%). Total contribution rates steeply increase with both age and income levels, representing both an ability to
save more with higher pay levels and an increasing sense of urgency for retirement savings as employees
approach retirement.
While these contribution amounts may seem significant, they are still projected to fall short for most employees.
We can attribute these shortfalls to several risk factors, including:
Inadequate employee savings rates;
n Insufficient employer contributions;
n Inefficient investment choices and inappropriate risk levels;
n Loans and/or hardship withdrawals; and
n Employees starting to save for retirement later in their careers.
n Retirement Income Adequacy at Large Companies: The Real Deal
21
Figure 9
Average Contribution Rates
Full-Career Contributing Employees
Age
2011
Limited
Pay
Under
$30,000
$30,000
to
$39,999
$40,000
to
$49,999
$50,000
to
$59,999
$60,000
to
$69,999
$70,000
to
$79,999
$80,000
to
$89,999
$90,000
to
$99,999
$100,000
to
$149,999
$150,000+
Total
0 – 24
30,601
3.5
4.2
11,808
4.4
4.6
8,403
5.0
5.3
6,068
5.5
6.3
4,776
6.2
7.1
2,500
6.6
7.8
795
6.7
8.3
369
6.9
8.4
462
6.9
9.4
118
6.6
10.4
65,900
4.4
5.1
25 – 29
34,820
3.4
4.3
30,571
3.9
4.6
25,265
4.4
5.1
20,628
4.7
5.7
18,396
5.3
6.6
15,046
5.8
7.3
9,266
5.9
8.0
5,568
6.1
8.1
8,253
6.2
8.8
1,896
6.3
11.1
169,709
4.6
5.8
30 – 34
23,495
3.4
4.5
26,255
3.8
4.6
24,849
4.3
5.1
20,611
4.5
5.7
18,146
4.8
6.2
16,355
5.2
7.0
13,786
5.3
7.6
11,467
5.6
8.1
23,841
5.8
8.9
8,078
6.1
10.9
186,883
4.7
6.4
Employee Count
Average Total DC Employer Contribution Percentage
Average Total Employee Contribution Percentage
22
Aon Hewitt
35 – 39
15,378
3.5
5.0
18,976
3.7
4.9
18,859
4.0
5.4
18,133
4.4
5.9
16,239
4.5
6.3
15,202
4.8
6.9
12,932
5.0
7.7
11,100
5.2
8.4
31,458
5.5
9.2
13,965
5.9
10.6
172,242
4.7
7.0
40 – 44
6,737
3.5
5.8
10,833
3.6
5.4
14,309
3.8
5.8
12,931
4.2
6.4
12,080
4.4
6.8
10,867
4.4
7.3
9,947
4.6
7.9
7,872
4.8
8.7
25,790
5.0
9.5
16,421
5.6
10.6
127,787
4.5
7.7
Under 2.0
2.0 to 3.9
4.0 to 5.9
6.0 to 7.9
8.0 to 9.9
10.0+
45 – 49
4,186
3.6
6.5
7,129
3.7
6.2
10,393
4.0
6.6
10,238
4.3
7.2
10,017
4.6
7.7
9,940
4.6
8.1
8,970
4.5
8.4
7,479
4.8
9.1
24,263
5.1
9.7
17,524
5.5
10.4
110,139
4.7
8.5
50 – 54
2,955
3.7
7.1
6,184
3.9
6.8
9,566
4.2
7.3
10,338
4.5
8.0
9,746
4.8
8.7
9,556
5.0
9.2
8,372
4.9
9.7
7,332
4.9
10.1
23,495
5.2
10.8
16,855
5.4
11.4
104,399
4.8
9.5
55 – 59
1,867
3.6
7.6
4,854
3.9
7.5
6,854
4.3
7.9
7,497
4.7
8.7
6,999
5.1
9.5
7,401
5.2
10.2
6,246
4.9
10.5
5,633
5.0
11.1
17,061
5.3
11.6
10,533
5.4
11.6
74,945
4.9
10.1
60+
1,433
3.8
7.9
2,410
4.0
7.8
2,999
4.6
8.5
3,403
5.0
9.5
3,398
5.2
10.5
3,204
5.4
10.9
2,673
5.3
11.4
2,493
5.2
11.4
6,994
5.5
11.9
4,384
5.5
11.7
33,391
5.1
10.5
Total
121,472
3.5
4.7
119,020
3.9
5.1
121,497
4.2
5.8
109,847
4.6
6.5
99,797
4.9
7.2
90,071
5.1
7.8
72,987
5.1
8.4
59,313
5.2
9.0
161,617
5.4
9.9
89,774
5.6
10.9
1,045,395
4.7
7.4
Social Security provides another key retirement resource for employees, particularly for those at lower income
levels as shown in Figure 10. Social Security provides from 2.3 times pay to 7.2 times pay, depending on income level.
The amount provided ranges from less than 25% to almost 50% of total projected needs for employees at various
income levels.
Figure 10
Distribution of Social Security Retirement Resources By Current Pay
Baseline
Full-Career Contributing Employees
7.2
6.3
5.8
5.5
5.0
4.6
4.3
4.1
3.4
2.3
Under
$30,000
$30,000 –
$39,999
$40,000 –
$49,999
$50,000 –
$59,999
$60,000 –
$69,999
$70,000 –
$79,999
$80,000 –
$89,999
$90,000 – $100,000 – $150,000 or
$99,999
$149,999
Greater
Retirement Needs
To Retirement
Through Retirement
Total needs
85%
15.9 times pay
Social Security
29%
4.9 times pay
Private needs
56%
11.0 times pay
“To” retirement is the percentage of
preretirement income a person
needs in the year of retirement to
maintain their standard of living
in that year.
“Through” retirement is the multiple
of pay a person needs at retirement
to keep their standard of living
throughout the retirement years.
As defined in the Methodology section of this report, the study calculates the amount needed at retirement as the
amount of assets required for an individual to maintain their preretirement standard of living throughout retirement.
The average projected needs for full-career contributors are 15.9 times pay at retirement, or 11.0 times pay after
reflecting Social Security.
Retirement Income Adequacy at Large Companies: The Real Deal
23
The study determines the multiple of pay needed at retirement by first calculating the required replacement ratio in
the first year of retirement, including changes in retirement savings, taxes, and expenditures as measured by the
Aon/Georgia State Replacement Ratio study. In the first year of retirement, an average employee needs to replace
85% of pay to maintain their preretirement standard of living. Figure 11 shows the needs in terms of replacement ratios
by age and income level.
As with resources, needs vary greatly by age and service levels. At younger ages, future medical trend will outweigh
increases in salary, increasing needs. Similarly, at lower income levels medical costs require a higher percentage of
resources than at higher income levels.
Figure 11
Projected First Year Total Retirement Needs
Replacement Ratio
Full-Career Contributing Employees
Age
2011
Limited
Pay
Under
$30,000
$30,000
to
$39,999
$40,000
to
$49,999
$50,000
to
$59,999
$60,000
to
$69,999
$70,000
to
$79,999
$80,000
to
$89,999
$90,000
to
$99,999
$100,000
to
$149,999
$150,000+
Total
0 – 24
30,601
83.9%
103.3%
11,808
84.7%
97.2%
8,403
81.0%
90.6%
6,068
78.1%
85.8%
4,776
75.5%
82.1%
2,500
74.5%
81.3%
795
74.5%
81.3%
369
73.7%
81.2%
462
76.6%
83.9%
118
77.3%
83.9%
65,900
81.9%
96.0%
25 – 29
34,820
83.3%
100.0%
30,571
84.5%
95.7%
25,265
82.1%
90.7%
20,628
79.4%
86.5%
18,396
77.7%
83.7%
15,046
76.9%
82.9%
9,266
75.8%
81.8%
5,568
75.5%
82.1%
8,253
77.0%
83.7%
1,896
80.0%
86.4%
169,709
80.7%
90.4%
30 – 34
23,495
81.9%
96.7%
26,255
83.3%
93.3%
24,849
82.1%
89.8%
20,611
79.9%
86.2%
18,146
78.6%
83.9%
16,355
77.8%
82.8%
13,786
77.2%
82.5%
11,467
76.4%
81.8%
23,841
77.5%
83.3%
8,078
80.7%
86.4%
186,883
79.9%
87.6%
Employee Count
First Year Needs Before Retiree Medical as Percent of Pay
First Year Total Needs as Percent of Pay
24
Aon Hewitt
35 – 39
15,378
81.5%
94.8%
18,976
82.3%
91.1%
18,859
81.4%
88.3%
18,133
79.6%
85.1%
16,239
78.7%
83.4%
15,202
77.8%
82.0%
12,932
77.2%
81.6%
11,100
76.6%
81.1%
31,458
77.5%
82.5%
13,965
81.1%
86.1%
172,242
79.4%
85.6%
40 – 44
6,737
79.9%
91.6%
10,833
80.6%
88.3%
14,309
80.1%
86.2%
12,931
78.1%
83.1%
12,080
78.1%
82.3%
10,867
77.4%
81.1%
9,947
77.2%
80.8%
7,872
76.3%
80.0%
25,790
77.1%
81.3%
16,421
81.3%
85.5%
127,787
78.6%
83.7%
Under 70%
70% to 79%
80% to 89%
90% to 99%
100% to 109%
110%+
45 – 49
4,186
78.9%
89.1%
7,129
78.6%
85.5%
10,393
78.2%
83.5%
10,238
75.9%
80.3%
10,017
75.8%
79.5%
9,940
76.1%
79.4%
8,970
76.2%
79.1%
7,479
75.8%
78.8%
24,263
76.6%
80.1%
17,524
81.1%
84.7%
110,139
77.4%
81.6%
50 – 54
2,955
78.2%
87.1%
6,184
77.4%
83.5%
9,566
76.3%
81.1%
10,338
74.0%
77.9%
9,746
72.6%
75.9%
9,556
73.5%
76.3%
8,372
73.9%
76.4%
7,332
74.2%
76.6%
23,495
74.9%
77.7%
16,855
79.3%
82.2%
104,399
75.4%
78.9%
55 – 59
1,867
77.5%
85.3%
4,854
76.2%
81.6%
6,854
74.9%
79.1%
7,497
72.2%
75.7%
6,999
70.1%
73.0%
7,401
69.5%
72.0%
6,246
70.9%
73.2%
5,633
72.0%
74.0%
17,061
73.9%
76.2%
10,533
79.0%
81.5%
74,945
73.6%
76.6%
60+
1,285
77.3%
84.4%
2,249
75.7%
80.6%
2,810
74.2%
78.0%
3,211
71.5%
74.6%
3,224
68.9%
71.6%
3,021
67.8%
70.0%
2,499
67.5%
69.5%
2,322
69.5%
71.3%
6,560
72.9%
74.9%
4,091
78.9%
81.1%
31,272
72.5%
75.2%
Total
121,324
82.3%
98.0%
118,859
82.3%
91.8%
121,308
80.3%
87.3%
109,655
77.8%
83.3%
99,623
76.5%
81.1%
89,888
75.9%
80.0%
72,813
75.6%
79.6%
59,142
75.3%
79.3%
161,183
76.3%
80.4%
89,481
80.4%
84.2%
1,043,276
78.5%
85.1%
The Real Deal analysis considers the impact of postretirement medical cost trends and general inflation by translating
replacement ratios from the amount needed at retirement to the amount needed through retirement. The differences
by current age become more pronounced when postretirement medical costs are factored in because of additional
years of medical trend. Figure 12 shows the total need grouped by current age and income.
Figure 12
Projected Total Retirement Needs
Multiple of Pay
Full-Career Contributing Employees
Age
2011
Limited
Pay
Under
$30,000
$30,000
to
$39,999
$40,000
to
$49,999
$50,000
to
$59,999
$60,000
to
$69,999
$70,000
to
$79,999
$80,000
to
$89,999
$90,000
to
$99,999
$100,000
to
$149,999
$150,000+
Total
0 – 24
30,601
14.4
22.0
11,808
14.5
19.4
8,403
13.9
17.6
6,068
13.4
16.4
4,776
12.9
15.4
2,500
12.7
15.2
795
12.7
15.1
369
12.6
15.0
462
13.1
15.3
118
13.2
15.2
65,900
14.1
19.5
25 – 29
34,820
14.3
20.9
30,571
14.5
18.9
25,265
14.1
17.4
20,628
13.6
16.4
18,396
13.3
15.6
15,046
13.1
15.3
9,266
12.9
15.1
5,568
12.9
15.1
8,253
13.2
15.2
1,896
13.6
15.5
169,709
13.8
17.6
30 – 34
23,495
14.1
19.9
26,255
14.3
18.2
24,849
14.1
17.1
20,611
13.7
16.2
18,146
13.5
15.5
16,355
13.3
15.2
13,786
13.2
15.1
11,467
13.1
14.9
23,841
13.2
15.1
8,078
13.8
15.4
186,883
13.7
16.6
Employee Count
Needs Before Retiree Medical as Multiple of Pay
Total Needs as Multiple of Pay
35 – 39
15,378
14.1
19.3
18,976
14.2
17.6
18,859
14.0
16.7
18,133
13.7
15.8
16,239
13.5
15.3
15,202
13.3
14.9
12,932
13.2
14.8
11,100
13.1
14.6
31,458
13.2
14.8
13,965
13.8
15.3
172,242
13.6
15.9
40 – 44
6,737
13.8
18.4
10,833
13.9
17.0
14,309
13.8
16.2
12,931
13.4
15.4
12,080
13.4
15.1
10,867
13.3
14.7
9,947
13.2
14.6
7,872
13.1
14.4
25,790
13.2
14.5
16,421
13.8
15.1
127,787
13.5
15.3
45 – 49
4,186
13.7
17.7
7,129
13.6
16.3
10,393
13.5
15.5
10,238
13.0
14.8
10,017
13.0
14.5
9,940
13.1
14.3
8,970
13.1
14.2
7,479
13.0
14.1
24,263
13.1
14.2
17,524
13.8
14.9
110,139
13.3
14.8
50 – 54
2,955
13.6
17.1
6,184
13.4
15.8
9,566
13.1
15.0
10,338
12.7
14.2
9,746
12.5
13.7
9,556
12.6
13.7
8,372
12.6
13.6
7,332
12.7
13.6
23,495
12.8
13.7
16,855
13.5
14.3
104,399
12.9
14.2
55 – 59
1,867
13.4
16.5
4,854
13.2
15.3
6,854
12.9
14.6
7,497
12.4
13.7
6,999
12.0
13.2
7,401
11.9
12.9
6,246
12.1
13.0
5,633
12.3
13.1
17,061
12.6
13.4
10,533
13.4
14.2
74,945
12.6
13.7
60+
1,285
13.4
16.2
2,249
13.1
15.1
2,810
12.8
14.3
3,211
12.3
13.5
3,224
11.8
12.8
3,021
11.6
12.5
2,499
11.5
12.3
2,322
11.8
12.5
6,560
12.4
13.1
4,091
13.4
14.0
31,272
12.4
13.4
Total
121,324
14.2
20.3
118,859
14.2
17.9
121,308
13.8
16.5
109,655
13.3
15.5
99,623
13.1
14.9
89,888
13.0
14.6
72,813
12.9
14.4
59,142
12.9
14.3
161,183
13.0
14.3
89,481
13.7
14.8
1,043,276
13.5
15.9
Under 12.00
12.00 to 13.99
14.00 to 15.99
16.00 to 17.99
18.00 to 19.99
20.00+
Retirement Income Adequacy at Large Companies: The Real Deal
25
Retiree medical costs make up a significant portion of retirement income needs. On average, an employee needs about
4.5 times pay at retirement to pay for unsubsidized retiree medical coverage, close to 30% of total needs. Of this
amount, we can attribute about 2 times pay to additional costs over what the employee was used to paying as an active
employee. Retirees’ higher level of medical costs and elimination of employer subsidies drive these results.
The impact of retiree medical on retirement needs varies significantly across the population based on pay and age. As
Figure 13 shows, the additional medical cost in retirement adds much more to lower-income employees’ retirement
needs than it does to higher-income employees’ needs. Medical costs, which do not vary much by income level, create
this result. Similarly, we can observe a stronger impact of retiree medical costs on younger employees, since we assume
future medical costs will increase faster than general inflation and salary increases. As a result, retiree medical costs are
likely more affordable today than they will be in the future.
The analysis includes the provisions of the 2010 Patient Protection and Affordable Care Act (PPACA) as it stands as of
the date of this report. This drives decreased medical costs in retirement for all but the highest income levels. Without
reflecting the expected impact of the PPACA, the 4.5 times pay figure shown would have increased to 5.1 times pay
(average cost for unsubsidized retiree medical coverage). We expect PPACA to create the largest decrease in retiree
medical costs at lower income levels, and smaller decreases or slight increases for those individuals at higher
income levels.
Figure 13
Distribution of Total Retirement Needs By Current Pay
Baseline
Full-Career Contributing Employees
20.3
17.9
6.1
14.2
Under
$30,000
16.5
3.7
14.2
$30,000 –
$39,999
2.7
13.8
$40,000 –
$49,999
15.5
14.9
14.6
14.4
14.3
14.3
2.2
1.8
1.6
1.5
1.4
1.3
13.3
13.1
13.0
12.9
12.9
13.0
$50,000 –
$59,999
$60,000 –
$69,999
Cost of Additional Medical Needs During Retirement
Needs Before Additional Retiree Medical Costs
26
Aon Hewitt
$70,000 –
$79,999
$80,000 –
$89,999
14.8
1.1
13.7
$90,000 – $100,000 – $150,000 or
$99,999
$149,999
Greater
We also find it helpful to think of needs net of Social Security (private needs), since this represents the amount an
employee must accumulate through their employer’s plans and their own retirement savings. Social Security replaces
more pay for lower-income participants, and this offsets the fact lower-income participants need more to pay for health
care. As a result, the needs from private sources vary less by income level than when considering total needs, as shown in
Figure 14. The resulting 11.0 times pay target provides a helpful overall benchmark for employees to track their progress
toward accumulating adequate retirement resources during their working careers.
Figure 14
Projected Private Retirement Needs
Multiple of Pay
Full-Career Contributing Employees
Age
2011
Limited
Pay
Under
$30,000
$30,000
to
$39,999
$40,000
to
$49,999
$50,000
to
$59,999
$60,000
to
$69,999
$70,000
to
$79,999
$80,000
to
$89,999
$90,000
to
$99,999
$100,000
to
$149,999
$150,000+
Total
0 – 24
30,601
22.0
14.8
11,808
19.4
13.2
8,403
17.6
11.9
6,068
16.4
11.1
4,776
15.4
10.7
2,500
15.2
10.8
795
15.1
11.0
369
15.0
11.2
462
15.3
12.2
118
15.2
12.9
65,900
19.5
13.3
25 – 29
34,820
20.9
13.8
30,571
18.9
12.7
25,265
17.4
11.7
20,628
16.4
11.1
18,396
15.6
10.8
15,046
15.3
10.9
9,266
15.1
10.9
5,568
15.1
11.2
8,253
15.2
12.0
1,896
15.5
13.3
169,709
17.6
12.0
Employee Count
Total Needs as Multiple of Pay
Private Needs as Multiple of Pay
30 – 34
23,495
19.9
12.8
26,255
18.2
12.0
24,849
17.1
11.3
20,611
16.2
10.8
18,146
15.5
10.7
16,355
15.2
10.7
13,786
15.1
10.9
11,467
14.9
11.0
23,841
15.1
11.8
8,078
15.4
13.2
186,883
16.6
11.5
35 – 39
15,378
19.3
12.0
18,976
17.6
11.4
18,859
16.7
10.9
18,133
15.8
10.4
16,239
15.3
10.4
15,202
14.9
10.4
12,932
14.8
10.6
11,100
14.6
10.7
31,458
14.8
11.5
13,965
15.3
13.1
172,242
15.9
11.2
40 – 44
6,737
18.4
11.1
10,833
17.0
10.7
14,309
16.2
10.4
12,931
15.4
9.9
12,080
15.1
10.1
10,867
14.7
10.1
9,947
14.6
10.3
7,872
14.4
10.4
25,790
14.5
11.1
16,421
15.1
12.9
127,787
15.3
10.8
45 – 49
4,186
17.7
10.4
7,129
16.3
10.0
10,393
15.5
9.7
10,238
14.8
9.2
10,017
14.5
9.4
9,940
14.3
9.6
8,970
14.2
9.8
7,479
14.1
10.0
24,263
14.2
10.8
17,524
14.9
12.6
110,139
14.8
10.4
50 – 54
2,955
17.1
9.5
6,184
15.8
9.3
9,566
15.0
9.0
10,338
14.2
8.5
9,746
13.7
8.5
9,556
13.7
8.9
8,372
13.6
9.1
7,332
13.6
9.4
23,495
13.7
10.2
16,855
14.3
12.1
104,399
14.2
9.7
55 – 59
1,867
16.5
8.3
4,854
15.3
8.2
6,854
14.6
8.0
7,497
13.7
7.5
6,999
13.2
7.5
7,401
12.9
7.7
6,246
13.0
8.2
5,633
13.1
8.6
17,061
13.4
9.6
10,533
14.2
11.8
74,945
13.7
8.8
60+
1,285
16.2
7.5
2,249
15.1
7.4
2,810
14.3
7.3
3,211
13.5
7.0
3,224
12.8
7.0
3,021
12.5
7.2
2,499
12.3
7.4
2,322
12.5
8.0
6,560
13.1
9.2
4,091
14.0
11.6
31,272
13.4
8.3
Total
121,324
20.3
13.1
118,859
17.9
11.6
121,308
16.5
10.7
109,655
15.5
10.0
99,623
14.9
9.9
89,888
14.6
9.9
72,813
14.4
10.1
59,142
14.3
10.2
161,183
14.3
10.9
89,481
14.8
12.6
1,043,276
15.9
11.0
Under 8.00
8.00 to 9.99
10.00 to 11.99
12.00 to 13.99
14.00 to 15.99
16.00+
Retirement Income Adequacy at Large Companies: The Real Deal
27
Surplus or Shortfall
The Real Deal calculates each employee’s surplus or shortfall as the difference between retirement resources and needs.
The average shortfall of 2.2 times pay at retirement indicates the average employee needs to save more, retire later, or
expect to maintain a lower standard of living during retirement as shown in Figure 15.
Figure 15
Retirement Resources Versus Needs
Baseline
Full-Career Contributing Employees
15.9
4.9
11.0
8.8
2.2
Defined Contribution Plan—Employee Portion
Defined Contribution Plan—Employer Portion
4.1
Defined Benefit Plan
Retirement Income Surplus/(Shortfall)
2.6
Private Retirement Needs
Social Security
2.1
Private Shortfall
Resources
Total Retirement Needs
Private
Needs
Social
Security
Total
Needs
Retirement resources compare to retirement needs more effectively as multiples of pay than as replacement ratios;
multiples of pay consider the entire retirement period whereas replacement ratios look only at the first year of
retirement. As discussed in the Retirement Resources section of this report, the average full-career contributor has a
96% initial pay replacement ratio, which exceeds financial needs of 85% at the point of retirement. However, Social
Security benefits are the only retirement resource to increase with inflation, while the entire retirement need increases
with either inflation or medical trend each year. As a result, average annual resources initially deliver adequate income,
but then fall short, as needs quickly increase with inflation. This erosion of the value of resources, compared to needs,
is shown in Figure 16. When all retirement years are considered, retirement needs exceed retirement resources by an
average of 2.2 times pay.
28
Aon Hewitt
Figure 16
Progression of Total Retirement Resources and Needs By Age
­Baseline
Full-Career Contributing Employees
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86
Age
Resources as a Percentage of Pay at Retirement
Needs as a Percentage of Pay at Retirement
Figure 17 illustrates the distribution of the surpluses and shortfalls for full-career contributing employees. This graph
reveals the expectation that almost 30% of employees will have a surplus at retirement, with the other two-thirds
falling short.
Figure 17
Distribution of Retirement Income Surplus/(Shortfall) Multiples of Final Pay
Baseline
Full-Career Contributing Employees
Baseline Average = (2.2)
2 or Greater
17.3%
0 – 1.9
11.8%
(2) – (0.1)
15.7%
(4) – (2.1)
18.0%
(6) – (4.1)
16.4%
(8) – (6.1)
Less than (8)
11.8%
9.0%
Retirement Income Adequacy at Large Companies: The Real Deal
29
Figure 18 digs deeper and demonstrates the expectation that average shortfalls are relatively constant by age, but
they vary considerably at different pay levels. The largest projected shortfalls occur at the lower pay levels, with results
gradually improving with increasing income. The graph also reveals increasing shortfalls for the highest pay levels, which
may be the result of these employees increasingly reaching the legislated limits for tax-qualified retirement plans.
Figure 18
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
Age
2011
Limited
Pay
Under
$30,000
$30,000
to
$39,999
$40,000
to
$49,999
$50,000
to
$59,999
$60,000
to
$69,999
$70,000
to
$79,999
$80,000
to
$89,999
$90,000
to
$99,999
$100,000
to
$149,999
$150,000+
Total
0 – 24
30,601
16.6
-5.4
11,808
16.7
-2.7
8,403
17.8
0.2
6,068
18.3
1.9
4,776
18.5
3.1
2,500
18.1
2.9
795
18.0
3.0
369
17.7
2.7
462
15.9
0.6
118
13.5
-1.7
65,900
17.1
-2.4
25 – 29
34,820
15.1
-5.7
30,571
14.9
-4.0
25,265
15.7
-1.8
20,628
16.1
-0.3
18,396
16.4
0.8
15,046
16.6
1.3
9,266
16.9
1.8
5,568
16.7
1.6
8,253
15.8
0.5
1,896
13.7
-1.9
169,709
15.7
-1.8
30 – 34
23,495
14.1
-5.8
26,255
13.5
-4.7
24,849
14.1
-3.0
20,611
14.5
-1.6
18,146
14.4
-1.1
16,355
14.6
-0.6
13,786
14.8
-0.3
11,467
14.9
0.0
23,841
14.6
-0.5
8,078
13.2
-2.2
186,883
14.3
-2.3
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
30
Aon Hewitt
35 – 39
15,378
13.1
-6.2
18,976
12.3
-5.3
18,859
12.9
-3.8
18,133
13.4
-2.4
16,239
13.2
-2.1
15,202
13.2
-1.8
12,932
13.3
-1.5
11,100
13.5
-1.1
31,458
13.2
-1.7
13,965
12.5
-2.8
172,242
13.0
-2.9
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
40 – 44
6,737
13.7
-4.7
10,833
12.4
-4.6
14,309
12.5
-3.7
12,931
13.2
-2.1
12,080
13.0
-2.0
10,867
13.0
-1.7
9,947
13.0
-1.6
7,872
13.2
-1.2
25,790
12.7
-1.8
16,421
11.9
-3.2
127,787
12.8
-2.6
45 – 49
4,186
14.2
-3.5
7,129
12.9
-3.4
10,393
13.0
-2.5
10,238
13.3
-1.5
10,017
13.2
-1.3
9,940
12.9
-1.4
8,970
12.8
-1.4
7,479
12.9
-1.2
24,263
12.5
-1.7
17,524
11.3
-3.5
110,139
12.7
-2.1
50 – 54
2,955
14.6
-2.5
6,184
13.3
-2.5
9,566
13.3
-1.7
10,338
13.4
-0.8
9,746
13.1
-0.7
9,556
12.9
-0.8
8,372
12.8
-0.9
7,332
12.6
-1.0
23,495
12.3
-1.4
16,855
11.1
-3.3
104,399
12.6
-1.6
55 – 59
1,867
14.8
-1.7
4,854
13.6
-1.7
6,854
13.6
-1.0
7,497
13.3
-0.4
6,999
12.9
-0.3
7,401
12.5
-0.4
6,246
12.4
-0.6
5,633
12.2
-0.9
17,061
11.7
-1.7
10,533
10.6
-3.6
74,945
12.4
-1.3
60+
1,285
14.7
-1.5
2,249
13.1
-1.9
2,810
12.8
-1.5
3,211
12.2
-1.3
3,224
11.6
-1.2
3,021
11.1
-1.3
2,499
11.0
-1.3
2,322
10.8
-1.7
6,560
10.4
-2.7
4,091
9.3
-4.7
31,272
11.3
-2.1
Total
121,324
14.9
-5.4
118,859
13.8
-4.0
121,308
14.1
-2.4
109,655
14.3
-1.2
99,623
14.2
-0.8
89,888
13.9
-0.6
72,813
13.8
-0.6
59,142
13.6
-0.6
161,183
12.9
-1.4
89,481
11.6
-3.2
1,043,276
13.7
-2.2
Summary of Findings for
Other Employee Groups
This section summarizes the key findings of the
Real Deal report for other employer groups.
This includes:
All Contributors, Noncontributors, and All Employees;
n Gender-Specific Results
n Employer Plan Structure
n 31
Retirement Income Adequacy at Large Companies: The Real Deal
31
Other Employee Groups
While this study focuses primarily on full-career contributing employees, we also want to understand the retirement
income adequacy levels of other employee groups, along with the entire population.
Full-Career
Contributors
All
Contributors
Noncontributors
All
Employees
Private resources
8.8
7.2
1.8
5.8
Private needs
11.0
10.5
12.6
11.1
Surplus/(shortfall)
(2.2)
(3.3)
(10.8)
(5.3)
Social Security
4.9
5.1
6.4
5.4
Total needs
15.9
15.6
19.0
16.5
All Contributors
To analyze the results for all contributing employees, the study adds employees who are contributing but were hired
after age 35 to the full-career contributors’ analysis. Many of these employees would likely have had the opportunity to
participate in the retirement benefit plans of other employers and may also have made contributions to retirement accounts.
The study does not include this information in the projection of retirement resources because of data constraints.
Based on the study’s data, employees who participate in their employer-sponsored plans, on average, can expect to
have accumulated private retirement resources of 7.2 times pay at retirement. The resulting average shortfall of 3.3 times
pay at retirement exceeds the 2.2 times pay average shortfall for full-career contributors. Figure 19 shows the distribution
of surpluses and shortfalls for contributing employees as compared to full-career contributing employees.
Figure 19
Distribution of Retirement Income Surplus/(Shortfall) Multiples of Final Pay
Baseline
Full-Career Contributing Employees and All Contributing Employees
Baseline Average = (2.2)
2 or Greater
17.3%
0 – 1.9
(2) – (0.1)
(4) – (2.1)
(6) – (4.1)
(8) – (6.1)
Less than (8)
32
Aon Hewitt
Contributors Average = (3.3)
12.0%
11.8%
15.7%
8.7%
12.8%
18.0%
16.9%
16.4%
19.4%
11.8%
9.0%
18.2%
11.9%
In Figure 20 the study adds the contributors hired mid-career to the surplus/(shortfall) hot zone of the full-career
contributors. Notice this group is expected to have less in retirement resources when compared to their full-career
counterparts, and therefore are expected to have larger retirement income gaps, as noted in the bottom-left portion of
the hot zone chart. Those who switch jobs mid- or late career generally do not earn the full-career retirement resources
from their current employers’ benefit programs. This study may not reflect their total retirement resources unless
employees have chosen to roll their prior benefits into their current employers’ retirement plans. Additionally, those who
switch jobs may lose value in their defined benefit plans and, potentially, in the accumulation of employer contributions
to their defined contribution plans.
Figure 20
Projected Retirement Income Surplus/(Shortfall)
Contributing Employees
Service
Age
Under 25
25 – 29
30 – 34
35 – 39
40 – 44
45 – 49
50 – 54
55 – 59
60+
Total
0–4
5–9
59,925
17.2
-2.2
116,287
15.9
-1.6
86,340
13.8
-2.7
68,662
12.1
-3.9
61,561
10.6
-5.0
55,998
9.3
-5.9
45,898
8.5
-6.4
30,851
8.1
-6.5
16,826
7.4
-6.9
542,348
12.6
-3.8
5,975
16.1
-4.2
49,358
15.5
-2.3
66,606
14.6
-1.9
53,119
12.9
-3.1
48,712
11.4
-4.2
45,659
10.2
-5.2
40,653
9.3
-5.7
29,845
8.8
-5.8
19,794
8.2
-6.2
359,721
12.1
-3.9
10 – 14
4,064
15.1
-3.1
32,058
14.8
-1.8
51,822
13.8
-2.0
48,146
12.3
-3.1
43,816
11.0
-4.1
38,174
10.1
-4.6
27,863
9.5
-4.9
18,460
8.7
-5.4
264,403
11.9
-3.4
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
15 – 19
1,879
14.7
-2.3
17,047
14.2
-1.7
32,012
13.4
-1.9
28,921
12.0
-3.0
24,316
11.0
-3.5
18,162
10.3
-3.9
11,285
9.4
-4.6
133,622
12.0
-2.9
20 – 24
1,919
14.4
-1.7
22,967
13.9
-1.3
40,824
13.1
-1.7
29,822
12.0
-2.3
19,911
11.2
-2.8
11,546
10.1
-3.7
126,989
12.4
-2.1
25 – 29
1,875
14.2
-1.3
23,286
13.5
-1.2
31,379
12.7
-1.4
18,192
11.8
-1.9
8,896
10.5
-3.0
83,628
12.5
-1.6
30+
3,646
14.0
-0.9
32,178
13.6
-0.6
43,711
12.9
-0.8
25,563
11.4
-2.0
105,098
12.8
-1.0
Total
65,900
17.1
-2.4
169,709
15.7
-1.8
186,883
14.3
-2.3
192,569
13.0
-3.0
215,273
12.0
-3.5
242,150
11.2
-3.8
242,420
10.8
-3.8
188,535
10.4
-3.7
112,370
9.4
-4.6
1,615,809
12.3
-3.3
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
Retirement Income Adequacy at Large Companies: The Real Deal
33
Noncontributors
Workers who use their employer plans well, and use them consistently over the course of their careers, have the potential
to accumulate significant retirement resources. The study reveals a much less encouraging outlook for the 26% of
employees who are not currently contributing to their defined contribution plans. For these employees, we expect
retirement resources to provide less than half of retirement needs.
Social Security makes up almost 80% of noncontributing employees’ resources, on average. The 20% of resources that
come from their employer-sponsored plans are attributable to benefits from defined benefit plans and non-elective
employer contributions (e.g., profit sharing plans or money purchase plans) that do not require employee contributions.
For some of these employees, a small balance from prior contributions may exist.
Noncontributors have higher retirement income needs compared to their contributing counterparts. Two primary factors
influence this result: 1) noncontributors need more to replicate their preretirement standard of living, which is not being
reduced by retirement savings; and 2) noncontributors tend to have much lower pay than contributors, on average,
which means retiree medical costs consume a larger percentage of their income.
On the bright side, as shown in Figure 21, most noncontributors are shorter-service employees (half of noncontributors
have less than five years of service)—and as tenure increases, employees are more likely to join, and to save more, in their
retirement plans.
34
Aon Hewitt
Figure 21
Projected Retirement Income Surplus/(Shortfall)
Noncontributing Employees
Service
Age
Under 25
25 – 29
30 – 34
35 – 39
40 – 44
45 – 49
50 – 54
55 – 59
60+
Total
0–4
5–9
79,846
8.6
-14.7
61,396
8.1
-12.8
39,375
7.8
-11.7
30,067
7.6
-11.2
27,034
7.4
-10.9
24,204
7.3
-10.6
19,921
7.4
-10.2
14,130
7.9
-9.3
8,809
8.3
-8.7
304,782
8.0
-12.2
6,663
8.7
-13.9
22,672
8.5
-12.0
20,873
8.3
-10.7
17,443
7.9
-10.4
15,724
7.7
-10.2
14,516
7.6
-10.0
12,430
7.5
-9.6
9,503
8.0
-8.9
6,920
8.3
-8.3
126,744
8.1
-10.6
10 – 14
2,582
9.8
-10.7
9,804
9.0
-9.9
12,439
8.4
-9.5
11,655
8.1
-9.4
10,715
7.9
-9.2
9,061
7.8
-9.0
6,536
8.2
-8.3
4,667
8.5
-7.9
67,459
8.3
-9.3
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
15 – 19
807
9.7
-9.3
4,796
9.1
-8.9
6,624
8.6
-8.7
6,156
8.3
-8.7
5,337
8.2
-8.4
3,785
8.6
-7.8
2,535
8.9
-7.4
30,040
8.6
-8.5
20 – 24
660
9.8
-8.2
5,014
9.3
-7.9
6,717
8.9
-7.8
5,232
8.7
-7.7
3,486
9.1
-7.1
2,087
9.2
-6.9
23,196
9.0
-7.6
25 – 29
457
10.0
-7.1
3,836
9.5
-7.0
4,153
9.2
-6.9
2,411
9.2
-6.6
1,337
9.3
-6.4
12,194
9.3
-6.8
30+
604
10.3
-6.2
4,596
10.0
-6.0
6,270
10.0
-5.5
4,284
9.3
-5.8
15,754
9.8
-5.8
Total
86,509
8.6
-14.7
86,650
8.2
-12.5
70,859
8.2
-11.1
65,405
8.0
-10.5
66,508
7.9
-10.0
66,748
7.9
-9.6
60,730
8.0
-9.0
46,121
8.5
-8.1
30,639
8.6
-7.7
580,169
8.2
-10.8
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
Retirement Income Adequacy at Large Companies: The Real Deal
35
All Employees
When considering all employees together, the average private projected retirement resources of 5.8 times pay at
retirement fall short of the projected private retirement needs of 11.1 times pay at retirement, leaving a shortfall of 5.3
times pay at retirement. If the assumptions in this report hold true, many employees will face difficult decisions at
retirement because of this projected gap.
Figure 22
Retirement Resources Versus Needs
Baseline
All Employee Groups
15.9
15.6
4.9
5.1
11.0
8.8
10.5
2.2
7.2
4.1
3.3
3.4
2.6
2.1
2.1
1.7
Full-Career Contributors
Private Shortfall
Resources
Private Social
Total
Needs Security Needs
Contributors
Private Shortfall
Resources
Private Social
Total
Needs Security Needs
19.0
16.5
6.4
5.4
12.6
11.1
5.3
10.8
5.8
2.5
0.2 1.8
1.2
1.8
1.5
0.4
Noncontributors
Private Shortfall
Resources
Private Social
Total
Needs Security Needs
All Employees
Private Shortfall
Resources
Defined Contribution Plan—Employee Portion
Defined Contribution Plan—Employer Portion
Defined Benefit Plan
Retirement Income Surplus/(Shortfall)
Private Retirement Needs
Social Security
Total Retirement Needs
36
Aon Hewitt
Private Social
Total
Needs Security Needs
Full-Career Contributors—Gender-Specific Results
The table below summarizes the findings of this section.
Females
Males
Private retirement resources
8.6
8.9
Private retirement needs
11.2
10.8
Surplus/(shortfall)
(2.6)
(1.9)
Social Security
5.4
4.6
Total needs
16.6
15.4
% of population
45%
55%
74% of all employees—males and females—contribute to their employers’ savings plans, and 45% of full-career
contributing employees are female. Even so, females continue to be less prepared for retirement than males. We can
attribute these results to two primary factors. First, females save less toward retirement than males, on average, which
leads to lower retirement resources and greater needs. Second, the average female will live longer than the average
male, meaning females have greater retirement needs.
Figure 23 compares the distribution of surpluses and shortfalls for females and males. The 2.6 times pay average
shortfall at retirement for females exceeds the 1.9 times pay shortfall for males.
Figure 23
Distribution of Retirement Income Surplus/(Shortfall) Multiples of Final Pay
Females and Males
Full-Career Contributing Employees
Females Average = (2.6)
2 or Greater
16.6%
14.5%
17.3%
(6) – (4.1)
16.7%
Less than (8)
12.4%
11.0%
(4) – (2.1)
(8) – (6.1)
18.3%
16.1%
0 – 1.9
(2) – (0.1)
Males Average = (1.9)
18.5%
16.2%
13.1%
11.4%
10.9%
7.1%
Retirement Income Adequacy at Large Companies: The Real Deal
37
Average Demographics
Females
Males
Participant rate
73%
74%
Savings rate
6.9%
7.8%
$75,000
$118,000
Life expectancy age
88
87
Age
39
39
Service
13
13
$66,000
$87,000
Account balance to date
Pay
The table above illustrates some of the key influencing factors for full-career contributors:
While men and women have similar average age and service, women save less for retirement than men at 6.9% of pay,
compared to 7.8% of pay for men.
n Women tend to be in and out of the workforce more often than men for family or other reasons. As a result, women
often experience breaks in saving for retirement. Females in our study have accumulated balances to date of 1.1 times
pay on average, compared to the 1.4 times pay the average male has saved. Despite similar age and service patterns
between the genders, women have saved less.
n Women generally live longer than men. When reflecting gender-specific life expectancy, women must spend assets
at a lower rate and/or must accumulate more to cover expenses for a longer period of time.
n Average pay levels represent one of the key financial differences between the genders. Full-career contributing females
earned an average of $66,000, while contributing males earned an average of $87,000.
n Females have larger Social Security benefits in relation to their preretirement pay, because of their lower average pay.
The single-sum value of Social Security benefits is also larger than the value for men because females are expected to
receive the benefit for more years because of females’ longer life expectancy.
n 38
Aon Hewitt
Full-Career Contributors—Employer Plan Structure
This section compares retirement income adequacy levels of employees who have benefits from both defined benefit
(DB) and defined contribution (DC) plans with those who are covered by a DC plan only. Because employees with a DB
plan receive almost twice as much in retirement resources from their employers compared to employees with only a DC
plan, they can expect to receive more than 2.5 times pay in additional resources at retirement, versus employees with
only a DC plan.
Employees
With DB and
DC Plans
Employees
With
DC Plans
Only
Private retirement resources
9.6
7.6
Private retirement needs
10.7
11.4
Surplus/(shortfall)
(1.1)
(3.8)
Social Security
4.8
5.2
Total needs
15.5
16.6
% of population
54%
46%
% of employers – ongoing plan
40%
% of employers – closed or frozen plan
42%
A troubling statistic for DC-only participants is only 69% are currently contributing to their DC plans (compared to 78%
of employees with DB plans). When the retirement resources of all employees with DB are compared to the resources of
all DC-only employees, the disparity in retirement income adequacy widens to 3.5 times pay since 30% of DC-only
employees receive little or no retirement allocation.
Employees
With DB and
DC Plans
Employees
With
DC Plans
Only
Participation rate
78%
69%
Current savings rate
7.8%
6.7%
Age 65 projected savings rate
8.8%
9.4%
$120,000
$67,000
Age
41
35
Service
15
9
$83,000
$68,000
Average Demographics
Account balance to date
Pay
Retirement Income Adequacy at Large Companies: The Real Deal
39
Figure 24 compares the distribution of surpluses and shortfalls of the two groups of full-career contributing employees.
These differences may help illustrate why many older current employees can expect to retire “comfortably” (often with a
DB pension benefit), while the situation for future retirees, without DB pension benefits, may be quite different.
Figure 24
Distribution of Retirement Income Surplus/(Shortfall) Multiples of Final Pay
Employees with DB and DC and Employees with Only DC
Full-Career Contributing Employees
DB and DC Average = (1.1)
2 or Greater
0 – 1.9
(2) – (0.1)
(4) – (2.1)
(6) – (4.1)
(8) – (6.1)
Less than (8)
40
Aon Hewitt
21.2%
DC-Only Average = (3.8)
11.4%
14.4%
7.7%
18.5%
11.4%
19.7%
15.3%
15.0%
18.5%
7.4%
3.7%
18.5%
17.1%
Figure 25 illustrates the components of retirement resources for both groups. The average employee with only a
DC plan will accumulate fewer retirement resources than the average employee also covered by a DB plan. Interestingly,
employees with a DB plan have, on average, higher contribution rates (7.8% vs. 6.7% for full-career contributors) and
higher current DC balances than employees with only DC plans. We can explain this, in part, by the younger average
age, service, and pay of the DC-only participants. However, automatic contribution escalation programs apply more
commonly to DC-only employees, so future saving rates for these employees are expected to be higher than future
savings rates for employees also covered by a DB plan. The average savings rate grows to 9.4% of pay for DC-only
employees, versus 8.8% for DB and DC employees.
Figure 25
Private Retirement Resources Versus Needs
Employees with DB and DC and Employees with Only DC
Full-Career Contributing Employees
9.6
11.4
10.7
1.1
3.8
7.6
3.9
4.4
2.3
3.4
3.2
DB and DC Employees
Private
Resources
Shortfall
Private
Needs
DC-Only Employees
Private
Resources
Shortfall
Private
Needs
Defined Contribution Plan—Employee Portion
Defined Contribution Plan—Employer Portion
Defined Benefit Plan
Retirement Income Surplus/(Shortfall)
Private Retirement Needs
Retirement Income Adequacy at Large Companies: The Real Deal
41
Employees with only defined contribution benefits must take responsibility for managing their retirement savings
throughout their working careers to set themselves up for a comfortable retirement. Figure 26 shows the target balances
employees should aim to achieve at each age in order to accumulate sufficient assets for retirement at age 65. This
illustration assumes the employee starts saving at age 25, and the employee and employer make a combined
contribution of 15% of pay each year until retirement. Figure 26 also plots the average actual DC account balances for
each age group to illustrate that DC-only employees of all ages are generally “off track” toward accumulating adequate
retirement income. Note that the averages hide the details, so even though the average account balances appear below
target, there are many employees who are on track and blended into the averages as shown.
Figure 26
Target DC Balances By Age
Employees with Only DC
Full-Career Contributing Employees
11.4
9.2
7.2
5.6
4.1
2.9
0.0
25
0.8
30
1.8
35
40
45
Current Age
Target DC Balance as a Multiple of Pay
Actual DC Balance as Multiple of Pay
42
Aon Hewitt
50
55
60
65
Key Retirement Income
Adequacy Risks
This section will explore the sensitivity of the results for
the full-career contributor presented in this report to five
key risks employees and employers face when planning
for retirement.
This includes:
Investment Risk
n Longevity Risk
n Inflation Risk
n Retirement Age
n Inadequate Savings
n 43
Retirement Income Adequacy at Large Companies: The Real Deal
43
Risks: Full-Career Contributors—Investment Risk
The table below summarizes the findings of this section.
Baseline
1% Lower
Expected
Return
Private retirement resources
8.8
7.9
Private retirement needs
11.0
12.2
Surplus/(shortfall)
(2.2)
(4.3)
Social Security
4.9
5.5
Total needs
15.9
17.7
Preretirement expected return
7.0%
6.0%
Postretirement expected return
5.5%
4.5%
Investment rates of return on defined contribution assets will fluctuate over time, influencing the ability of employees to
retire. The baseline scenario assumes a 7% preretirement and 5.5% postretirement annual return, recognizing that most
individuals choose more conservative investments in retirement. In order to demonstrate the sensitivity of retirement
income adequacy to the pre- and postretirement expected return, the study analyzes the impact of a 1% reduction in
expected investment returns by assuming a 6% preretirement and a 4.5% postretirement annual rate of return.
Lower preretirement investment returns reduce the assets accumulated in defined contribution accounts at retirement.
The study also assumes defined contribution accounts will grow more slowly during retirement under a lower
postretirement return and will therefore be less valuable in comparison to retirement needs. The defined benefit and
Social Security benefits become larger components of a retiree’s retirement resources because of the lower rate of
discounting when calculating the expected value of these resources at retirement.
The average shortfall increases from 2.2 to 4.3 times pay at retirement. Figure 27 shows the distribution of the surpluses
and shortfalls in comparison to the baseline scenario distribution. The value of the defined contribution balance
decreases by about 1 times pay at retirement because of the lower preretirement return expectation and covers less of
the expected needs during retirement because of the lower postretirement return.
44
Aon Hewitt
Figure 27
Distribution of Retirement Income Surplus/(Shortfall) Multiples of Final Pay
Baseline and 1% Lower Expected Return
Full-Career Contributing Employees
Baseline Average = (2.2)
2 or Greater
(2) – (0.1)
(4) – (2.1)
(6) – (4.1)
8.8%
17.3%
0 – 1.9
11.8%
7.3%
12.4%
15.7%
16.1%
18.0%
18.3%
16.4%
(8) – (6.1)
Investment Risk Average = (4.3)
11.8%
Less than (8)
16.1%
21.0%
9.0%
These results underscore the need to invest wisely. Employers can offer investment advisory help to employees
through a variety of programs, including (prevalence statistics based on other Aon Hewitt research):
Written retirement and investment communication materials (98%);
n Call center counseling (87%);
n Email communication (85%);
n On-site seminars/workshops/meetings (76%);
n Online seminars (67%);
n Online guidance (47%);
n One-on-one financial counseling (44%);
n Online advice (37%);
n Managed accounts (29%); and
n Premixed portfolios such as target date funds (81%) and target risk funds (10%).
n Retirement Income Adequacy at Large Companies: The Real Deal
45
Risks: Full-Career Contributors—Longevity Risk
When employees retire, most have accumulated assets in accounts that must be converted into a series of payments to
supplement Social Security (and when available, payments from a defined benefit plan). Employees must consider the
risk of outliving their assets in order to ensure an adequate retirement for their entire lifetime.
The baseline scenario assumes an employee has adequate retirement income when they have enough retirement
resources to last for an average lifetime—an age in the high 80s, at the 50th percentile of life expectancy.
In reality, most employees would prefer more than a 50% assurance they will not outlive their retirement assets. Granted,
some retirees will not live to their middle 80s and may have more assets than needed, but many others should live past
their middle 80s and may face an unexpected shortfall of retirement resources. In order to protect further against the risk
of outliving retirement assets, many retirees use an age for financial planning that is later than the average life expectancy,
to estimate and manage the risk of living beyond the average age at death.
Baseline
80th Percentile
Life Expectancy
Private retirement resources
8.8
9.0
Private retirement needs
11.0
13.6
Surplus/(shortfall)
(2.2)
(4.6)
Social Security
4.9
5.9
Total needs
15.9
19.5
Female
88
94
Male
87
93
Life expectancy for 65-year-old
46
Aon Hewitt
Figure 28 demonstrates the effect on a retiree of spreading the retirement resources over an extended period of time
(through an age in the early 90s, the 80th percentile of life expectancy). Under this scenario, retirees need 2.4 times pay
of additional private resources, on average, to meet their financial needs over this longer period of time, and the average
retirement income shortfall more than doubles from 2.2 to 4.6 times pay at retirement.
Figure 28
Distribution of Retirement Income Surplus/(Shortfall) Multiples of Final Pay
50th Percentile (Baseline) and 80th Percentile Life Expectancy
Full-Career Contributing Employees
Baseline Average = (2.2)
2 or Greater
(2) – (0.1)
(4) – (2.1)
(6) – (4.1)
(8) – (6.1)
Less than (8)
9.9%
17.3%
0 – 1.9
Longevity Risk Average = (4.6)
11.8%
7.1%
11.0%
15.7%
14.3%
18.0%
16.3%
16.4%
11.8%
9.0%
15.6%
25.8%
If retirees live to their mid-90s or beyond (instead of to the average life expectancy of 87 or 88), retirement resources are
far more likely to fall short of retirement needs. Only 17% of current employees have sufficient retirement resources under
this scenario, compared with roughly 30% of employees in the baseline scenario.
A significant part of the challenge of saving for an extended period is retirees must plan for the possibility of increased
medical needs that come with a longer lifespan. An employee would need to save about an extra 1 times pay at
retirement to accommodate the extra years of medical coverage.
In the past, when many employees received structured lifetime annuities from defined benefit plans, the need to protect
against longevity risk was less important because the normal form of payment from a pension plan is an annuity payable
until death. With the increasing number of both defined contribution plans and the prevalence of retirees opting to
receive a lump-sum payment from their defined benefit plans (when available), many more retirees must find a viable
alternative for effectively managing their retirement resources to last their lifetimes. Employees can develop a sustainable
withdrawal method for their retirement assets (effectively self-insuring the longevity risk, perhaps with financial planning
assistance or professionally managed accounts), and/or they can insure the risk through a lifetime income annuity or
similar product. Regardless of the method used, there will be a cost associated with addressing the longevity risk,
whether through reduced spending or premiums and insurance fees.
This illustration highlights the dramatic impact on individuals of self-insuring the longevity risk both in spending and in
increased medical costs. Given the pending retirement of the Baby Boomer generation, additional education and
financial products and services are needed to support retirees in addressing this challenge.
Retirement Income Adequacy at Large Companies: The Real Deal
47
Risks: Full-Career Contributors—Inflation Risk
Inflation poses another risk to retirement income adequacy. When goods and services cost more than expected, a
retiree’s standard of living will erode unless they are receiving a series of annuity payments that include inflation
protection. The baseline scenario of the study assumes an inflation rate of 3% per year. Increased future inflation poses
a risk. The study models this scenario using a 1% increase in inflation per year.
Baseline
1% Increase in
Inflation
Private retirement resources
8.8
7.6
Private retirement needs
11.0
12.3
Surplus/(shortfall)
(2.2)
(4.7)
Social Security
4.9
5.4
Total needs
15.9
17.7
Inflation rate
3.0%
4.0%
Salary increase rate
4.0%
5.0%
Medical inflation rate
6.5%
7.5%
Higher inflation increases the value of Social Security benefits that are indexed with inflation. Retirement needs,
including medical costs, are expected to increase. Therefore, defined contribution and defined benefit plans will
decrease in value if they are not indexed with inflation. As demonstrated in the distribution of surpluses and shortfalls
in Figure 29, a 1% increase in inflation results in an average shortfall of 4.7 times pay at retirement, with very few
(13%) expected to accumulate adequate retirement income.
48
Aon Hewitt
Figure 29
Distribution of Retirement Income Surplus/(Shortfall) Multiples of Final Pay
Baseline and 1% Increase in Inflation
Full-Career Contributing Employees
Baseline Average = (2.2)
2 or Greater
(2) – (0.1)
(4) – (2.1)
(6) – (4.1)
(8) – (6.1)
Less than (8)
7.2%
17.3%
0 – 1.9
Inflation Risk Average = (4.7)
11.8%
6.3%
11.2%
15.7%
15.8%
18.0%
18.8%
16.4%
11.8%
9.0%
17.6%
23.0%
While a constantly higher level of inflation can impact retirement income adequacy, a few years of hyperinflation,
particularly in the early years of retirement, may have an even more pronounced effect. If unexpectedly high inflation
occurs, whether over an extended period or a few years, most retirees would not be in a position to accumulate the
needed additional retirement resources, and would therefore be forced to reduce their standard of living.
Retirement Income Adequacy at Large Companies: The Real Deal
49
Risks: Full-Career Contributors—Retirement Age
The age at which an employee retires significantly impacts their expected retirement adequacy. This section compares
results for retirement at ages 62 and 67 to the baseline with retirement at age 65.
Baseline
Age 62
Retirement
Age 67
Retirement
Private retirement resources
8.8
7.7
9.5
Private retirement needs
11.0
13.5
9.4
Surplus/(shortfall)
(2.2)
(5.8)
0.1
Social Security
4.9
4.5
5.3
Total needs
15.9
18.0
14.7
65
62
67
Retirement age
Retiring earlier than age 65 has a dramatic impact on replacement resources because of reduced Social Security and
pension benefits, increased years spent in retirement, and a decreased savings period. In addition, retirement needs will
increase, particularly medical needs in the years before retirees become eligible for Medicare. The majority of employees
may not be able to enjoy early retirement in the same way as was experienced by prior generations.
Figure 30
Retirement Resources Versus Needs
Age 65 (Baseline), Age 62, and Age 67 Retirement
Full-Career Contributing Employees
18.0
15.9
13.5
4.9
11.0
8.8
14.7
9.5
5.8
2.2
9.4
5.3
4.5
3.5
2.6
2.3
2.9
2.1
1.9
2.1
Baseline
Private
Resources
Private
Needs
Shortfall
Age 62 Retirement
Total
Needs
Private
Resources
Social
Security
Defined Contribution Plan—Employee Portion
Defined Contribution Plan—Employer Portion
Defined Benefit Plan
Retirement Income Surplus/(Shortfall)
Private Retirement Needs
Social Security
Total Retirement Needs
Aon Hewitt
0.1
7.7
4.1
50
4.5
Shortfall
Private
Needs
Age 67 Retirement
Total
Needs
Social
Security
Private
Resources
Surplus
Private
Needs
Total
Needs
Social
Security
Conversely, we expect employees who delay their retirement to age 67 to have a much greater chance of retiring
comfortably. Delaying retirement increases retirement resources because Social Security benefits will increase and
savings accumulate for a longer period of time. Additionally, employees would receive additional years of active medical
coverage, and they would draw from their retirement accounts for a shorter period of time. Delaying retirement by only
two years increases retirement resources, decreases needs, and results in little or no shortfall, on average, for full-career
contributing employees.
Age 62 Retirement
Retiring early results in larger retirement income gaps, on average, because of decreased retirement resources and
increased retirement needs. The cost of retiree medical benefits plays a significant role for retirement before age 62 for
several reasons:
Early retirement includes some period prior to eligibility for Medicare at age 65, and retiree medical benefits can be
particularly costly during this pre-Medicare period. For example, pre-65 coverage costs an average of $12,500 per
person per year in 2011 (retiree pay-all basis).
n Anticipated high future rates of medical inflation will compound the high cost of pre-65 coverage even further. If
retiree medical costs do increase as expected, pre-65 medical coverage will take an even higher toll on retirement
income.
n Figure 31 compares the distribution of surpluses and shortfalls for employees who retire at age 62 to the baseline scenario
of retirement at age 65. The distribution demonstrates most employees will have a retirement income shortfall of
between 2 and 10 times pay at retirement. Additionally, fewer than 10% of full-career contributing employees will have
accumulated sufficient assets to retire at age 62. Our projections also show nearly 1 in 3 employees would have a shortfall
of more than 8 times pay.
Figure 31
Distribution of Retirement Income Surplus/(Shortfall) Multiples of Final Pay
Age 65 (Baseline) and Age 62 Retirement
Full-Career Contributing Employees
Baseline Average = (2.2)
2 or Greater
(2) – (0.1)
(4) – (2.1)
(6) – (4.1)
(8) – (6.1)
Less than (8)
5.3%
17.3%
0 – 1.9
Age 62 Average = (5.8)
11.8%
4.4%
8.4%
15.7%
13.2%
18.0%
17.4%
16.4%
11.8%
9.0%
19.0%
32.2%
Early retirement will likely be feasible for only certain employees with above-average retirement resources, significant
other personal retirement savings, or for employees who are willing to significantly reduce their standard of living.
Retirement Income Adequacy at Large Companies: The Real Deal
51
Age 67 Retirement
When comparing projected retirement resources with projected retirement needs, the study shows full-career
contributors willing to delay retirement until age 67 or later are generally well-prepared for retirement. Figure 32
illustrates the distribution of surpluses and shortfalls. This scenario expects only 1 in 40 employees will have a shortfall of
more than 8 times pay, compared to 1 in 3 odds for the early retirement scenario at age 62.
Figure 32
Distribution of Retirement Income Surplus/(Shortfall) Multiples of Final Pay
Age 65 (Baseline) and Age 67 Retirement
Full-Career Contributing Employees
Baseline Average = (2.2)
2 or Greater
(4) – (2.1)
(6) – (4.1)
(8) – (6.1)
Less than (8)
31.0%
17.3%
0 – 1.9
(2) – (0.1)
Age 67 Average = 0.1
15.7%
11.8%
17.3%
15.7%
16.4%
18.0%
11.2%
16.4%
11.8%
9.0%
5.9%
2.5%
If employees delay retirement until age 67, significantly more employees will have sufficient retirement assets
(nearly half, versus 29% at age 65 or less than 10% at age 62).
The impact of a two-year deferral of retirement raises a number of questions and challenges for employees and
employers:
Research indicates recent market volatility and the rising cost of medical care have caused many employees to delay
their expected retirement date. To retain access to active medical benefits, many employees may choose deferred
retirement. Thus, for many employees, the increases noted under this scenario might be particularly important.
n An important factor to consider is how realistic it will be to postpone retirement. Employees need to set realistic
expectations, recognizing they may face physical limitations on “working as long as necessary.” While employees may
desire to work beyond age 65, it may not be realistic for many employees. Health issues, family care needs, and
changing workforce patterns may prevent or inhibit the employee from working as long as intended.
n Employers who need to plan for succession of employees may not have the means to implement such plans as older
employees remain in their jobs.
n The impact of delaying retirement also provides a helpful reminder of the potential value of implementing “phased
retirement”—reduced hours toward the end of one’s career, possibly supplemented by payments from the employer’s
qualified retirement plans. The concept of phased retirement has been the subject of ongoing discussion for years,
with only modest employer support. For employees who are concerned about retirement income adequacy and/or
retiree medical costs, a program that helps them move closer to the retirement resource levels represented in this
report—without necessarily continuing in full-time employment that would achieve all of the increases shown in
this section—may provide a viable solution for both the employer and employee.
n 52
Aon Hewitt
Risks: Full-Career Contributors—Inadequate Savings
The table below summarizes the findings of this section.
Baseline
Maximize
Employer
Match
Escalation of
Savings Rates
Private retirement resources
8.8
9.4
10.4
Private retirement needs
11.0
10.9
10.3
Surplus/(shortfall)
(2.2)
(1.5)
0.1
Social Security
4.9
4.9
4.9
Total needs
15.9
15.8
15.2
Actual
Greater of actual
rate or required
rate to receive
full employer
match
Actual plus 1%
escalation for
five years
Assumed contribution rate
Employee participation and saving toward retirement play a critical role in accumulating adequate retirement resources.
Among factors influencing retirement income adequacy, few (if any) carry more weight than employee savings rates.
A strong rate of savings, started early in an employee’s career, provides the main ingredient for retirement income
adequacy. Employees exert the most direct control over this variable, subject to their understanding, willingness, and
ability to defer a portion of their income.
The study models two theoretical scenarios to illustrate the leverage of savings rates. First, the Real Deal shows the
impact of increasing each employee’s savings rate to be large enough to receive their company’s full match (if they are
not already saving enough to maximize the match). Second, it analyzes the impact of escalating each employee’s savings
rate by 1% of pay per year for each of the next five years (5% increase overall), and then holding the savings rate
constant thereafter.
Full-career contributing employees in the study are currently saving 7.4% of pay, on average, and employers are
contributing 4.7% of pay for a total of 12.1% of pay.
Increasing future savings rates can have a very positive impact, as shown in Figure 33. If full-career contributing
employees maximize their employers’ match, the average shortfall decreases by 0.7 times pay. Increased DC resources
from additional employee and employer contributions, along with slightly decreased retirement needs, combine to
create this result.
Retirement Income Adequacy at Large Companies: The Real Deal
53
Figure 33
Private Retirement Resources Versus Needs
Baseline and Maximize Employer Match
Full-Career Contributing Employees
11.0
8.8
10.9
9.4
2.2
Baseline
Private
Resources
1.5
Maximize Employer Match
Shortfall
Private
Needs
Private
Resources
Shortfall
Private
Needs
Private Retirement Resources
Retirement Income Surplus/(Shortfall)
Private Retirement Needs
Figure 34 illustrates the influence of increasing the savings rate for all full-career contributors 1% per year for each of
the next five years and then maintaining those new higher savings rates through retirement. In this scenario, the number
of employees expected to retire with sufficient retirement resources grows from 29% to 46%. Thus, many employees
can attain retirement income adequacy if they are willing to increase their savings rates by as little as 5% of pay on average.
Figure 34
Distribution of Retirement Income Surplus/(Shortfall) Multiples of Final Pay
Baseline and 1% Escalation of Savings Rate Each Year for Five Years
Full-Career Contributing Employees
Baseline Average = (2.2)
2 or Greater
(4) – (2.1)
(6) – (4.1)
(8) – (6.1)
Less than (8)
54
Aon Hewitt
29.4%
17.3%
0 – 1.9
(2) – (0.1)
Increased Savings Average = 0.1
17.0%
11.8%
20.0%
15.7%
17.5%
18.0%
11.4%
16.4%
11.8%
9.0%
4.1%
0.6%
A 12.5% median personal savings rate would generate adequate retirement income for all full-career contributing
employees. For employees who only have a defined contribution plan, the employee contribution needed to achieve
retirement income adequacy increases to 15.5%, reflecting the need to catch up from previously inadequate savings
and market-driven account volatility. However, if an employee begins saving regularly starting at age 25, with an assumed
employer contribution of 6% of pay, the employee contribution needed decreases to 9.5% of pay. This underscores the
need to start contributing regularly at an early age.
Starting at age 25, employees with only a DC plan should aim for
a 15% total annual contribution (employee plus employer).
Retirement Income Adequacy at Large Companies: The Real Deal
55
Risks: Full-Career Contributors—Automatic Contribution
Escalation and Automatic Enrollment
The table below summarizes the findings of this section.
Automatic
Contribution
Escalation
No Automatic
Contribution
Escalation
Automatic
Enrollment
No Automatic
Enrollment
Private retirement resources
11.4
8.4
9.5
7.4
Private retirement needs
10.6
11.0
11.0
11.0
Surplus/(shortfall)
0.8
(2.6)
(1.5)
(3.6)
Social Security
5.5
4.9
4.8
5.2
Total needs
16.1
15.9
15.8
16.2
% of employers
64%
36%
64%
36%
% of population
9%
91%
The previous scenario presented a hypothetical exercise, demonstrating how escalating savings rates can help employees
better meet their retirement needs. This scenario projects retirement income adequacy for the actual employees who
are already enrolled in automatic contribution escalation programs. It analyzes results for these employees, projecting
outcomes for actual current retirement plan designs, to measure the impact of automatic contribution escalation.
As defined contribution plans now provide the primary retirement income vehicle for many employees, and as employers
have become more aware of the inertia that can influence employee behavior, features such as automatic enrollment and
automatic contribution escalation have gained importance. Aon Hewitt research shows 64% of employers currently offer
automatic contribution escalation (50 of the 78 employers in this study). During the two years since the previous Real
Deal study, 13 employers have adopted automatic contribution escalation, and the percentage of employees enrolled
in an automatic contribution escalation program has increased from 7% to 9%. Overall, 64% of plans in this study offer
automatic enrollment.
56
Aon Hewitt
Consistent with the findings of the prior section of this report, Figure 35 shows employees who take advantage of
automatic contribution escalation will have much higher retirement resources as compared to the rest of the population.
The study assumes employees stay enrolled in automatic contribution escalation until they reach the targeted savings rates
as defined in their plan or personal elections. If they do, these employees will accumulate significantly more retirement
resources. However, it is important to note this income adequacy is only achievable for those employees who choose
automatic contribution escalation (or are automatically defaulted into the feature) early in their careers, which is the case
among those currently enrolled. We anticipate the automatic contribution escalation provisions of plans currently in place
will allow more employees to retire with enough assets to cover their projected needs (53% of employees versus
26% without the automatic contribution escalation feature).
Figure 35
Distribution of Retirement Income Surplus/(Shortfall) Multiples of Final Pay
Baseline and Employees With Automatic Contribution Escalation
Full-Career Contributing Employees
Baseline Average = (2.2)
2 or Greater
(4) – (2.1)
(6) – (4.1)
(8) – (6.1)
Less than (8)
35.3%
17.3%
0 – 1.9
(2) – (0.1)
Contribution Escalation Average = 0.8
11.8%
17.6%
15.7%
18.6%
18.0%
16.0%
16.4%
8.1%
11.8%
9.0%
3.5%
0.9%
Retirement Income Adequacy at Large Companies: The Real Deal
57
While we expect automatic contribution escalation will improve retirement resources, employers could do more. The
following summarizes a few ways to improve the projected outcomes, including prevalence statistics from other Aon
Hewitt research. Employers should consider:
Adopting automatic enrollment, if they have not already done so (56% of plans currently offer);
n Pairing automatic contribution escalation with automatic enrollment, so employees don’t need to sign up for the
escalation feature separately (45% of plans with automatic enrollment do this currently);
n Automatically applying the automatic contribution escalation feature to all eligible participants, rather than only applying
these features to new hires (18% of plans with automatic enrollment also backsweep eligible nonparticipants); and
n Adopting robust defaults, including allowing the savings rate escalation feature to continue up to the maximum
amounts allowable by the IRS (12% of plans with automatic contribution escalation use a default maximum savings rate
of more than 10% of pay).
n It should be noted many employers offering automatic contribution escalation have chosen to limit the default maximum
savings rate in order to comply with the ADP/ACP safe harbor rules. Others have chosen a default maximum savings rate
for their escalation program assuming the cap should be “high enough,” based on a rule of thumb such as 10% of pay,
rather than analyzing the specific needs of their workforces.
Automatically enrolling employees in their retirement savings plans not only increases participation, but can also increase
retirement income adequacy. The results of this study show consistent patterns with other Aon Hewitt research, where
DC plan participation for plans that automatically enroll participants consistently exceeds participation in plans for those
that do not (86% compared to 65%). Inertia in plans with automatic enrollment can lead to lower average savings rates,
compared to plans requiring active enrollment. This highlights the importance of choosing robust defaults for employers
choosing to use automatic features in their plans.
58
Aon Hewitt
Appendix
41
59
Retirement Income Adequacy at Large Companies: The Real Deal
59
Demographics
Participants Included in the Study
The Real Deal study uses actual demographic information as of January 1, 2011 for over 2.2 million employees from 78
large employers. This section of the report summarizes some of the demographic information from the data:
74% of eligible employees are actively contributing to their savings plan.
n Contributing employees save an average of 7.6% of pay. The employers of these employees contribute, on average,
an additional 4.7% of pay for a total average annual contribution of 12.3%.
n 55% of the population is male.
n 60
Average
Age
Average
Service
Average
2011 Pay
Average
Employee
Contribution
Full-career contributors
39
13
$77,423
7.4%
4.7%
$99,381
48%
Contributors
43
11
$76,350
7.6%
4.7%
$87,045
74%
Noncontributors
39
7
$45,010
0.0%
0.5%
$13,929
26%
All employees
42
10
$68,070
5.6%
3.6%
$67,727
100%
Aon Hewitt
Average
Average
Employer
DC Account
Contribution
Balance
Percent
of Total
Participating Companies
Companies Included in the Study
The 78 companies studied (including 2.2 million covered employees) represent a segment of Aon Hewitt’s defined
contribution plan outsourcing clients and roughly reflect a representative cross-section of the large employer universe. We
selected a broad range of employers of various industries and sizes for the study, with comprehensive and credible data.
The companies selected span a broad range of industries detailed in Table A1 on the following page.
n All companies are in the private sector; no governmental organizations were included.
n The retirement designs maintained by these companies are roughly consistent with general prevalence data among
large employers in general and, specifically, among Fortune 500 companies.
n – 22% maintain open traditional pension plans (17 companies)—15 final average pay, and 2 career average pay plans
among 78 companies (versus 12% of Fortune 500 companies in Aon Hewitt’s Benefit SpecSelectTM).
– 18% maintain open hybrid pension plans (14 companies)—13 cash balance and 1 pension equity plan
(versus 24% of Fortune 500 companies).
– 25% have closed defined benefit plans (20 companies) and offer only defined contribution plans to new hires
(versus 23% of Fortune 500 companies).
– 35% offer only defined contribution plans or have only frozen defined benefit plans (27 companies)
(versus 41% of the Fortune 500).
– 50 companies (64%) offer automatic enrollment and 50 companies (64%) offer automatic contribution escalation
(versus 63% offering automatic enrollment and 54% offering contribution escalation among the Fortune 500).
Thus, we conclude the retirement benefit levels at these 78 companies approximately represent the retirement benefits
generally provided in the large employer universe.
Figure 36
Distribution of Employer Plans
Traditional
DB
22%
Hybrid DB
18%
DC Only
35%
Closed DB
25%
About Aon Hewitt’s Benefit SpecSelect Tool
Benefit SpecSelect is an Aon Hewitt annual publication, providing summaries of the principal salaried employee benefit
programs of major U.S. employers. The 2011 Benefit SpecSelect contained data for 1,347 companies, including 55% of
the Fortune 500.
Retirement Income Adequacy at Large Companies: The Real Deal
61
Participating Companies
Table A1
Industry
Percentage of
Employees
Number of
Companies
Chemicals
1%
3
Energy and Utilities
5%
8
Finance
9%
10
Food and Beverage
3%
5
Health Care
4%
5
Insurance
10%
10
Manufacturing
19%
18
Media
3%
3
Retail
37%
9
Technology
9%
7
100%
78
Total
62
Aon Hewitt
Methodology and Assumption Details
This study compares the projected retirement resources and needs of 2.2 million employees of 78 large U.S. companies.
Retirement resources are the assets each employee is projected to have at retirement. In this study, retirement resources
include assets employees can derive from participation in their current employer retirement benefit plans, plus the assets
available from Social Security. Retirement needs are the assets required at retirement for each employee to maintain their
preretirement standard of living for their lifetime after retirement.
Employees whose retirement resources are projected to exceed their retirement needs are likely to have an adequate
retirement income and possibly some surplus resources. Those whose retirement resources are projected to fall short of
their needs are more likely to have inadequate retirement income. In this report, a positive difference between retirement
needs and resources indicates a surplus of resources, and a negative difference indicates a shortfall of resources.
Whenever a single retirement needs, resources, or surplus/shortfall value appears, the value represents an average of the
results for every individual in the group.
The remainder of this section summarizes how the study determines retirement resources and needs, including
methodology and assumptions.
Retirement Resources
Total retirement resources are the amounts projected to be available to employees at retirement. The study reflects
retirement resources from three sources—Social Security, employer defined contribution plans (both employee and
employer contributions plus return on assets), and current employer defined benefit plans.
The Real Deal expresses retirement resources as the single-sum amount of assets an employee will have at retirement
as a multiple of their projected pay at retirement. This is commonly referred to as a “multiple of pay.” Some retirement
resources, such as Social Security and certain defined benefit plan benefits, are payable only as fixed installments over
the employee’s lifetime. This report expresses these fixed installments as the single-sum amount at retirement that,
when invested, would provide an equivalent stream of payments designed to last through the employee’s expected
age at death.
The study also expresses retirement resources as the annual amount the employee will receive in the first year of
retirement, as a percentage of their projected pay at retirement. This is commonly referred to as a “replacement ratio.”
Defined contribution plans and certain defined benefit plans are payable as a single sum upon retirement. The study
assumes such amounts will be invested during retirement, with the initial distribution amount and interest distributed
evenly across the employee’s retirement period.
Retirement Income Adequacy at Large Companies: The Real Deal
63
This study includes three categories of retirement resources:
Defined contribution plans. The study projects each individual’s actual defined contribution balance as of
January 1, 2011, plus future contributions and interest to retirement age. It uses actual contribution rate elections plus
matching and non-elective company contributions (based on current plan design). The baseline scenario assumes
future contribution rates will equal current contribution rates, limited by IRC 402(g). If an employee has elected
automatic contribution escalation, the contribution rate increases each year at the elected increase percentage until
reaching the elected targeted maximum savings rate. Pay is limited according to IRC 401(a)(17). The study accumulates
the account with investment earnings at an assumed rate of return.
n – When expressed in terms of replacement ratios, the study assumes the defined contribution balance is invested and
payable evenly throughout the retirement period. Our baseline life expectancy (50th percentile) results in an average
age at death (for retirees age 65) of age 87 for males and age 88 for females.
Defined benefit plans. The study projects the pension benefit for each employee covered by a defined benefit plan
to retirement age, including open plans or plans that have been frozen or closed within the past five years. The
projection reflects additional years of service and increasing pay levels as appropriate. Pay is limited according to
IRC Section 401(a)(17).
n – If the plan has a cash balance or pension equity design, the value is equal to the benefit account (i.e., the lump-sum
amount) payable at retirement.
When expressed in terms of replacement ratios, the study assumes the benefit account will be invested and payable
evenly throughout the retirement period. Our baseline life expectancy (50th percentile) results in an average age at
death (for retirees age 65) of age 87 for males and age 88 for females.
n – For traditional final average pay or career average pay plans, retirement resources are the single-sum value of the
projected benefit. This value equals the amount of assets which, when combined with postretirement investment
returns, should provide for a lifetime of the periodic payments promised by the annuity. This study does not consider
spousal benefits. Our baseline life expectancy (50th percentile) results in an average age at death (for retirees age 65)
of age 87 for males and age 88 for females.
When expressed in terms of replacement ratios, the study reflects the annual annuity payable in the first year
of retirement.
n Social Security. The study projects an individual’s primary insurance amount payable at retirement, assuming no
change in Social Security provisions. Retirement resources are the single-sum value of these benefits. This equals the
amount of assets which, when combined with postretirement investment returns, should provide for a lifetime of
the Social Security payments (including expected future cost-of-living increases). Our baseline life expectancy
(50th percentile) results in an average age at death (for retirees age 65) of age 87 for males and age 88 for females.
n – When expressed in terms of replacement ratios, the study reflects the annual annuity payable in the first year
of retirement.
64
Aon Hewitt
Disruptions to Accumulation of Retirement Resources Not Reflected in Study
The process used in this analysis assumes current employees remain employed with their current employer until
retirement, and the current employer-sponsored plans and Social Security remain unchanged. Furthermore, the process
assumes there are no employee-invoked disruptions of asset accumulation, either through withdrawal activity, unpaid
loans, or through lapses in contribution levels.
From the employer perspective, it is appropriate to focus on employees who remain until retirement. However, we also
recognize mid-career changes in employment are of concern to employees. Although the study does not analyze the
disruptive effect of employment changes, it should be noted employees who change employment and move to another
large employer (with a comparable benefits package) may have the opportunity to receive comparable benefits after the
job change. This is especially true if their initial employer maintains a benefits structure—such as cash balance or defined
contribution only—that accrues benefits more evenly throughout an employee’s career and that is not “leveraged” by
focusing on final pay. Admittedly, the picture will look far different for those who terminate employment and, as a result
of that termination, reduce or stop the growth of their retirement wealth.
Resources Not Reflected
There are several retirement resource assumptions that have been made in this study that should be noted:
This analysis reflects only those retirement income assets included in the plans maintained by the participant’s current
employer. Thus, the study reflects employees’ benefits from previous employers only if rolled into the plans of their
current employer. For logistical and philosophical reasons, the Real Deal does not consider amounts retained in the
plans of prior employers, amounts in individual retirement accounts (IRAs), and other personal assets including real estate
values held in the form of personal and other residences.
n Generally, the study analyzes only the current pension structure at the employers in the study, assuming the current
pension formulas have always been in effect. However, in the case of employers that have frozen or closed their defined
benefit pension plans within the last five years, it includes the value of that frozen or closed defined benefit plan. In the
case of plans that were frozen or closed more than five years ago, or plans that have been otherwise amended, it does
not reflect prior benefit provisions.
n This may result in some level of understatement of retirement resource amounts, because grandfathered or frozen prior
plans may have provided more valuable benefits than those currently provided. However, because the value of frozen
or grandfathered benefits erodes over time and because this study projects all employees’ benefits to age 65 in the
baseline scenario, we assume such understatement to be of minimal impact.
The study does not reflect employer-provided benefits other than tax-qualified defined benefit and defined contribution
retirement plans. As a result, it does not reflect any value for other employer-sponsored plans that might contribute to
employees’ retirement resources (such as stock purchase plans, stock option plans, and nonqualified retirement benefits)
or other sources of wealth that are not employer-sponsored (such as net housing wealth).
n Retirement Income Adequacy at Large Companies: The Real Deal
65
Retirement Needs
Traditional studies, such as the 1981 Report of the President’s Commission on Pension Policy, build on the idea that an
individual needs an income just after retirement that will allow him/her to maintain preretirement living standards. The
income level is presumed to be the amount available to the retiree prior to retirement with a few adjustments—primarily
changes in the level of taxes after retirement and the fact retirees no longer need to save for retirement. Individuals can
choose to reduce their standard of living in retirement—but that is a personal decision. This study builds on the traditional
approach of measuring retirement income adequacy.
Retirement needs for this analysis are the amount of assets that will allow each employee to maintain their preretirement
standard of living over a postretirement lifetime. The process to arrive at this amount for each employee follows:
Determine adequate retirement income level at retirement. The annual income that would allow an employee to
maintain preretirement living standards in the year after retirement begins with projecting each employee’s current pay
to retirement age using an assumed pay growth rate and then adjusting as follows:
Eliminate saving for retirement. Prior to retirement, employees save a portion of their income for retirement instead
of spending it. Therefore, this amount does not need to be replaced after retirement and projected pay is reduced
by an amount based on the employee’s defined contribution plan savings rate at retirement. The savings rate is the
employee’s current savings rate adjusted for anticipated increases for any automatic contribution escalation elections,
assuming employees do not opt out before their target contribution rate is reached. On average, this rate is 7.6% for
employees contributing to their employer-sponsored defined contribution plan.
n Decrease taxes. Taxes payable postretirement will generally decrease from preretirement levels, so each employee’s
projected pay is reduced for the difference. Taxes are reduced primarily because a portion of Social Security income
is not subject to taxation, FICA taxes are eliminated after retirement, and extra deductions are available for those over
age 65. Additionally, gross income may be lower after retirement, and a lower tax bracket may be applicable.
n Add medical costs. As individuals retire and move from active employee to retiree health care, they can see dramatic
increases in health care premiums and out-of-pocket costs—with the typical active employee paying 25% of their
health care costs and the typical retiree paying between 50% and 100%. Moreover, the rate of health care inflation is
markedly higher than general price inflation.
n ­
– Health care costs vary somewhat by income level. However, retiree health care costs represent a higher percentage
of pay for lower-wage individuals than for higher-income individuals.
– The availability of Medicare—including Medicare prescription drug coverage—starting at age 65 represents a substantial
“asset” available toward meeting postretirement medical needs. For those employees who choose to retire before
Medicare is available, the cost of health coverage is significant.
– Medical inflation and capped or declining employer subsidies for retiree health benefits can quickly erode the retirement
resources generated by the defined benefit and defined contribution plans.
– To assess the impact of retiree medical costs, this study considers a plan that gives employees access only, based on
retiree rates, with no subsidy. As more employers eliminate retiree medical subsidies, it is increasingly appropriate for
employees—even those with some retiree medical benefit—to plan for this access-only scenario.
– The study projects the dollar cost of retiree medical insurance, focusing on the incremental increase in moving from
active to retiree status. This incremental cost has been added to the retirement income needs.
66
Aon Hewitt
Adjust for other expenditure changes in retirement. Data in the U.S. Department of Labor’s Bureau of Labor Statistics’
Consumer Expenditure Survey (CES) allows us to quantify trends in expenditure changes after retirement. The following
categories were analyzed in the 2008 Aon/Georgia State Replacement Ratio study and have been included as
adjustments to income in this study:
n – Reading and education (decrease)
– Utilities (increase for all but the highest income levels)
– Household operations (increase)
– Shelter (decrease)
– Entertainment (increase)
– Food (increase)
– Apparel and services (decrease)
– Transportation (decrease other than for the lowest income levels)
In aggregate, these expenditure changes result in an increased need for the lower income levels and a decreased need for
the higher income levels.
Figure 37
Postretirement Expenditure Changes by Pay
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
<$20,000 $20,000 – $30,000 – $40,000 – $50,000 – $60,000 – $70,000 – $80,000 –
$29,999 $39,999 $49,999 $59,999 $69,999 $79,999 $89,999
The need determined by adjusting pay at retirement for savings, taxes, and changes in expenditures (both medical and
other) is often expressed in terms of a replacement ratio. This is the need in the first year of retirement divided by pay in
the year before retirement.
Retirement Income Adequacy at Large Companies: The Real Deal
67
Determine single-sum value of adequate retirement income. After projecting the income level that is deemed to
provide adequate retirement income in the first year of retirement, the single sum required to provide for that level of
income over the employee’s postretirement lifetime is determined. The single-sum value is the amount of assets a retiree
would need to have invested to provide for annual payments equal to the adequate income level, with annual increases
because of inflation, during the employee’s expected postretirement lifetime.
n – The amount needed to maintain the same standard of living will increase each year as the cost of goods and services
increases with inflation. Normally, active employees receive salary increases to mitigate the effect of inflation on their
standard of living. However, retirees must manage inflation on their own.
– The cost of medical care is expected to increase at a faster rate than regular inflation, and therefore the amount of
assets needed to cover the additional cost of medical increases above inflation is also calculated.
Defining Retirement Income Adequacy
We can analyze retirement income adequacy based on the surplus or shortfall of retirement resources versus retirement
needs. If retirement resources exceed retirement needs, then the individual can anticipate a retirement income surplus
through an average postretirement lifetime. Conversely, if resources are not sufficient to cover needs, then the individual
can anticipate a shortfall and may need to consider actions to increase retirement resources prior to retiring, or reduce
retirement needs.
We acknowledge the active debate about what constitutes an adequate level of retirement income at retirement and how
much retirees may need throughout their postretirement lifetimes. Our analysis does not include all assets individuals may
have set aside for retirement, and it does not reflect every possible retirement need. We also realize there may be a range
of income levels individuals are willing to accept as being “adequate” in retirement.
Even so, this study provides a reasonable way to evaluate how effectively current employer-sponsored benefits and Social
Security might financially prepare employees to have adequate retirement income throughout retirement. The Real Deal
study is the most comprehensive assessment of its kind, using actual employee data, to determine if employees might be
able to retire comfortably with income to sustain them throughout their retirement years.
68
Aon Hewitt
Assumptions Used in Projections
The baseline assumptions for the analysis represent a reasonable basis for determining the likely retirement income
adequacy for a large population of employees. Outcomes could vary, however, based on actual events. The study
evaluates a number of alternative scenarios to test the sensitivity of the results versus the baseline assumptions and to
model the impact of various changes employees and employers could make in an effort to improve retirement income
adequacy. The chart below summarizes the baseline assumptions and alternative scenarios considered.
Baseline Assumption
Alternative Scenarios
Covered employees
All full-career (hired by age 35)
employees currently contributing
(nonzero contribution rates) on
1/1/2011
Analysis of all employees, all
contributing employees, and all
noncontributing eligible employees
Retirement age
65
62, 67
Employee contribution rates
Actual individual rates as of
1/1/2011, including scheduled
automatic increases
Actual individual rates, as of
1/1/2011, escalated by 1 percentage point for 5 years; rate necessary
to obtain the maximum employer
match
Employer contribution rates
Contributions derived from
current plan formulas, both
matching and non-elective or
“profit sharing” contributions
Same as Baseline
Preretirement rate of return
7% annual (nominal) rate of
return (net of fees)
6%
5.5% annual (nominal) rate of
return (net of fees)
4.5%
General inflation
3% pre- and postretirement
4%
Employer’s retiree medical benefit
Access only, with retiree paying
100% of the group-rated cost
of coverage
Same as Baseline
Medical inflation
6.5% per annum
7.5%
Pay growth
4% per annum (inflation plus 1%)
5%
National wage base increase rate
3.5% per annum (inflation plus
0.5%)
4.5%
Plan fees
0.25% of assets per annum
Same as Baseline
Postretirement mortality
50th percentile life expectancy
from the RP-2000 table for healthy
annuitants projected to 2051 (i.e.,
approximately age 88 for females
and age 87 for males)
80th percentile life expectancy
from the RP-2000 table for healthy
annuitants projected to 2051 (i.e.,
approximately age 94 for females
and age 93 for males)
Postretirement rate of return
Retirement Income Adequacy at Large Companies: The Real Deal
69
Assumption Details
This Appendix elaborates on details of the assumptions summarized previously in the report.
Covered employees. The focus of this study is on full-career employees who are actively participating in their
employer-sponsored defined contribution plans. Full-career employees are those who began work at their current
company by age 35 and, therefore, will have 30 years or more of service at age 65. Employers who design their plans
with retirement income adequacy in mind generally will design their plans for a full-career hire.
n Mid-career hires are excluded from the core analysis of the study. However, baseline results have been included for
all contributing employees, regardless of their years of service, as an important benchmark for employers. Mid-career
hires may exhibit lower retirement income adequacy than those who stay at a company for a full career because of
their short service in the employers’ plans. Some of these participants may have accumulated retirement assets through
prior employers that would improve their retirement income adequacy results. Others may not have saved their small
amount cash-outs or rollovers for retirement, but rather, spent these benefits immediately. The study does not have
access to such information.
The core analysis of the study also excludes employees who are not currently contributing to their defined contribution
plans. This includes those who previously participated in their employer-sponsored plans but who are no longer saving
in the plan. Some of these employees will have defined contribution balances from previous contributions or from
employer contributions that do not require employee contributions. Understanding the reasons why employees fail to
actively participate in their plans, and increasing plan utilization by such employees, is clearly a critical topic of study.
Accordingly, a special analysis of noncontributors has been included. However, by separating noncontributors from
those employees actively using their employer plans, the failure of some employees to utilize their employer plans does
not obscure the analysis of the situation facing those employees who do save.
Family status. The study focuses on single employees.
n Retirement ages. Age 65 is traditionally viewed as the normal retirement age and is included as the base case
assumption. Age 62 is also included because a significant number of working employees do plan to retire before age
65 or are forced to by medical or family care reasons. Additionally, 62 is the first age at which Social Security benefits
are available, albeit reduced, and many employees see this as a signal for an appropriate age at which to retire. Age 67
is included because, realistically, many employees may not be able to retire by age 65, and there can be significant
benefit to waiting even two years. In addition, younger employees will not be eligible for unreduced Social Security
benefits until age 67.
n Employee contribution rates. This study uses actual contribution rates (by different pay levels), including automatic
contribution increases where elected. Also modeled is the impact of increases in contributions in order to
demonstrate the benefits of programs that encourage employees to increase savings rates.
n Preretirement rate of return. The rate of return assumption is a long-term investment rate assuming a balanced
portfolio of stock and bond investments and is determined net of plan fees. Employees are assumed to elect asset
allocations that become more conservative as they age. Note the average defined contribution participant had 65%
of account balances in stock investments as of January 1, 20112. In comparison, at January 1, 2007, the average defined
contribution participant had about 75% of balances in stock investments and at January 1, 2009, the average defined
contribution participant had about 55% of balances in stock investments. The January 1, 2011 balance is rolled forward
one year with an average return of -2.6%. The balances are rolled forward based on actual asset allocation at
January 1, 2011.
n 2
70
Source: 2009 Aon Hewitt Universe Benchmarks
Aon Hewitt
For purposes of this study, each participant group’s portfolio is subject to the same rate of return (7% per year).
However, it is possible a 7% rate of return may be unattainable for certain participant groups—particularly those
currently close to retirement. Also, certain actions could result in dramatically different rates of return. In particular,
investing in an individual security such as employer stock could result in more volatile and significantly higher or
lower returns because of unsystematic risk.
A 1% decrease in the rate of return scenario is included to show the sensitivity of retirement income adequacy to
the assumed rate of return on the investments.
Changes in investment return could materially influence an individual’s level of retirement resources. The impacts of
time horizon on risk and security-specific risk are worthy subjects for participant education. However, for purposes
of evaluating the typical retirement income adequacy of a diverse population, a consistent rate of return is applied
predicated on systematic (rather than unsystematic) risk.
Postretirement rate of return. This assumes a portfolio in retirement that increases its fixed income and liquid asset
allocation as the retiree ages and draws down retirement assets. The rate of return assumption is net of plan fees.
n A 1% decrease in the rate of return scenario is included to show the sensitivity of retirement income adequacy to the
assumed rate of return on the investments.
Inflation and pay growth. These assumptions are consistent with assumptions frequently used by employers in
reviewing their retirement plans, and each of these assumptions—and the 1% spread between them—represents
reasonable long-term assumptions for a large (and disparate) population. The 2011 pay is capped at the $245,000
limit imposed by the Internal Revenue Code on pay that can be considered by a qualified plan. Pay capped is
assumed to grow at the national wage base assumption of a 3.5% annual rate of growth.
n Medical inflation. This assumption is a single-point rate derived from Professor Getzen’s long-term health care cost
trends model as commissioned by the Society of Actuaries3. The single-point trend rate (as compared to tables used
in FAS 106 accounting) is appropriate in comparison to our flat increase of needs by a single inflationary component
through retirement.
n Postretirement mortality. The study converts annuities to present values assuming the average employee will need
to have an income stream until his or her 50th percentile lifetime based on the RP-2000 Healthy Annuitant Mortality
Table projected 40 years to 2051 with Scale AA (i.e., approximately age 88 for females and age 87 for males).
Additionally, the possibility retirees will self-insure against longevity risk by spreading their retirement resources until
the 80th percentile of life expectancy (i.e., approximately age 94 for females and age 93 for males) is considered.
n 3
Source: For more information, reference: http://www.soa.org/research/research-projects/health/research-hlthcare-trends.aspx
Retirement Income Adequacy at Large Companies: The Real Deal
71
Replacement Ratios and Multiples of Pay
The report expresses each employee’s retirement needs and resources as a multiple of their projected pay at
retirement. Through this approach, we can compare retirement resources and needs of employees retiring at different
times in the future.
Income replacement ratios are appropriate when benefits are defined in terms of lifetime annuities such as provided in
defined benefit plans and Social Security.
Example: 60-year-old employee with pay of $82,000
Retirement resources
$ 900,000
Retirement needs
$1,400,000
Pay at retirement
$ 100,000
Retirement resources as a multiple of pay
9.0
($900,000/$100,000)
Retirement needs as a multiple of pay
14.0
($1,400,000/$100,000)
Surplus or (shortfall) as multiple of pay
(5.0)
As the percentage of retirement income funded through defined contribution plans and hybrid defined benefit plans
increases, it has become more relevant to discuss retirement income adequacy in terms of the accumulation of assets.
This measure also allows the study to reflect future inflation and medical trend which would not be captured in a year
of retirement replacement ratio. The Real Deal expresses the measure of retirement income adequacy as a multiple of
an employee’s pay at retirement.
Converting a retirement income replacement ratio to a retirement income multiple-of-pay factor involves multiplying
the retirement income replacement ratio by an annuity factor at retirement age. For example, assume an employee has
a replacement income ratio of 90% (i.e., the employee has total retirement income which will replace 90% of the
employee’s pay at age 65 retirement). The income is made up of 60% from private resources and 30% from Social
Security. The age 65 retirement annuity factor equals 13 for private resources that have no annual inflation increase and
17 for Social Security, which does include inflation protection. Therefore, the 90% replacement income ratio converts
to a retirement income of 12.9 times pay at retirement (60% x 13) + (30% x 17). If this participant has projected pay at
retirement of $50,000, the employee would have retirement resources of $645,000 (12.9 x $50,000).
72
Aon Hewitt
Additional Hot Zones
This Appendix includes hot zones not included in the body of the report but which may be useful to study. The hot
zones appear in the following order:
Retirement Surplus/Shortfall:
Baseline—All Employees (Age/Service)
n Full-Career Contributors—Gender-Specific—Females (Age/Pay)
n Full-Career Contributors—Gender-Specific—Males (Age/Pay)
n Full-Career Contributors—Employees with Defined Benefit and Defined Contribution (Age/Service)
n Full-Career Contributors—Employees with Defined Contribution Only (Age/Service)
n Full-Career Contributors—Investment Risk (Age/Service)
n Full-Career Contributors—Longevity Risk (Age/Service)
n Full-Career Contributors—Inflation Risk (Age/Pay)
n Full-Career Contributors—Age 62 Retirement (Age/Service)
n Full-Career Contributors—Age 67 Retirement (Age/Service)
n Full-Career Contributors—Maximize Employer Match (Age/Pay)
n Full-Career Contributors—1% Escalation of Savings Rate Each Year for Five Years (Age/Pay)
n Full-Career Contributors—Contribution Escalation (Age/Service)
n Full-Career Contributors—No Contribution Escalation (Age/Service)
n Full-Career Contributors—Automatic Enrollment (Age/Service)
n Full-Career Contributors—No Automatic Enrollment (Age/Service)
n Retirement Income Adequacy at Large Companies: The Real Deal
73
Baseline—All Employees (Age/Service)
Figure A1
Projected Retirement Income Surplus/(Shortfall)
All Employees
Service
Age
Under 25
25 – 29
30 – 34
35 – 39
40 – 44
45 – 49
50 – 54
55 – 59
60+
Total
0–4
5–9
139,771
12.3
-9.4
177,683
13.2
-5.5
125,715
11.9
-5.5
98,729
10.7
-6.1
88,595
9.6
-6.8
80,202
8.7
-7.4
65,819
8.2
-7.5
44,981
8.0
-7.4
25,635
7.7
-7.5
847,130
10.9
-6.8
12,638
12.2
-9.3
72,030
13.3
-5.4
87,479
13.1
-4.0
70,562
11.6
-4.9
64,436
10.5
-5.7
60,175
9.6
-6.3
53,083
8.9
-6.6
39,348
8.6
-6.5
26,714
8.3
-6.8
486,465
11.0
-5.6
10 – 14
6,646
13.0
-6.1
41,862
13.5
-3.7
64,261
12.8
-3.4
59,801
11.5
-4.3
54,531
10.4
-5.1
47,235
9.7
-5.5
34,399
9.3
-5.5
23,127
8.7
-5.9
331,862
11.2
-4.6
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
74
Aon Hewitt
15 – 19
2,686
13.2
-4.4
21,843
13.1
-3.3
38,636
12.6
-3.0
35,077
11.4
-4.0
29,653
10.5
-4.4
21,947
10.0
-4.6
13,820
9.3
-5.1
163,662
11.4
-3.9
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
20 – 24
2,579
13.2
-3.4
27,981
13.1
-2.5
47,541
12.5
-2.5
35,054
11.5
-3.1
23,397
10.9
-3.4
13,633
10.0
-4.2
150,185
11.9
-3.0
25 – 29
2,332
13.4
-2.4
27,122
12.9
-2.0
35,532
12.3
-2.1
20,603
11.5
-2.5
10,233
10.4
-3.5
95,822
12.1
-2.3
30+
4,250
13.5
-1.6
36,774
13.1
-1.3
49,981
12.6
-1.4
29,847
11.1
-2.6
120,852
12.4
-1.6
Total
152,409
12.3
-9.4
256,359
13.2
-5.4
257,742
12.6
-4.7
257,974
11.7
-4.9
281,781
11.0
-5.0
308,898
10.5
-5.1
303,150
10.2
-4.8
234,656
10.0
-4.6
143,009
9.2
-5.2
2,195,978
11.2
-5.3
Full-Career Contributors—Gender-Specific—Females (Age/Pay)
Figure A2
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
Female Gender Only
Age
2011
Limited
Pay
Under
$30,000
$30,000
to
$39,999
$40,000
to
$49,999
$50,000
to
$59,999
$60,000
to
$69,999
$70,000
to
$79,999
$80,000
to
$89,999
$90,000
to
$99,999
$100,000
to
$149,999
$150,000+
Total
0 – 24
16,123
16.6
-6.0
5,070
16.8
-3.1
3,573
17.8
0.0
2,723
18.2
1.4
1,611
18.3
2.4
771
18.0
2.5
237
17.9
2.5
94
17.1
2.1
136
15.0
-0.5
44
12.6
-2.9
30,382
17.0
-3.4
25 – 29
19,629
15.3
-6.1
14,651
15.2
-4.1
11,885
15.8
-2.0
9,664
16.1
-0.6
7,251
16.5
0.5
5,322
16.7
1.0
3,136
17.0
1.5
1,886
16.9
1.4
2,778
15.8
0.1
553
13.4
-2.5
76,755
15.8
-2.5
30 – 34
14,338
14.3
-6.0
13,588
13.8
-4.8
11,796
14.4
-3.1
9,613
14.6
-1.9
7,928
14.5
-1.3
6,574
14.9
-0.6
5,170
15.1
-0.3
3,955
15.2
0.0
7,661
15.2
-0.2
2,388
13.6
-2.3
83,011
14.5
-2.7
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
35 – 39
10,365
13.2
-6.4
10,940
12.6
-5.3
9,789
13.1
-3.9
8,909
13.5
-2.6
7,503
13.2
-2.3
6,460
13.3
-1.9
5,300
13.6
-1.4
3,941
13.9
-1.0
10,123
13.6
-1.5
3,960
13.0
-2.7
77,290
13.3
-3.3
40 – 44
5,037
13.7
-4.9
7,146
12.6
-4.6
7,883
12.7
-3.7
6,640
13.2
-2.4
6,216
12.9
-2.4
5,041
13.1
-1.9
4,223
13.2
-1.7
3,262
13.4
-1.2
8,225
13.3
-1.5
4,285
12.5
-3.0
57,958
13.0
-2.8
45 – 49
3,184
14.2
-3.7
4,934
13.1
-3.4
5,794
13.3
-2.5
5,205
13.5
-1.6
4,848
13.1
-1.7
4,354
12.9
-1.7
3,823
13.0
-1.5
2,880
13.2
-1.1
7,452
12.8
-1.6
4,639
11.6
-3.6
47,113
13.0
-2.2
50 – 54
2,336
14.5
-2.7
4,580
13.4
-2.5
5,509
13.5
-1.7
5,419
13.5
-1.0
4,495
13.0
-1.0
4,031
12.7
-1.3
3,301
12.7
-1.2
2,724
12.7
-1.1
6,165
12.6
-1.4
3,631
11.5
-3.2
42,191
13.0
-1.7
55 – 59
1,410
14.8
-1.8
3,744
13.7
-1.8
4,029
13.7
-1.1
3,586
13.5
-0.6
3,166
12.7
-0.7
2,994
12.1
-1.1
2,282
12.3
-0.9
1,922
12.2
-1.2
4,088
11.8
-1.8
1,950
10.8
-3.7
29,171
12.8
-1.4
60+
1,068
14.6
-1.8
1,793
13.2
-2.0
1,722
12.9
-1.5
1,528
12.4
-1.3
1,282
11.5
-1.5
1,092
10.9
-1.8
777
10.9
-1.7
616
10.9
-1.9
1,285
10.4
-2.8
487
9.6
-4.7
11,650
12.1
-1.9
Total
73,490
14.9
-5.7
66,446
13.9
-4.1
61,980
14.2
-2.6
53,287
14.3
-1.5
44,300
14.0
-1.2
36,639
13.9
-1.0
28,249
13.9
-0.8
21,280
13.9
-0.7
47,913
13.4
-1.3
21,937
12.2
-3.1
455,521
14.0
-2.6
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
Retirement Income Adequacy at Large Companies: The Real Deal
75
Full-Career Contributors—Gender-Specific—Males (Age/Pay)
Figure A3
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
Male Gender Only
Age Age
2011
Limited
Pay
Under
$30,000
$30,000
to
$39,999
$40,000
to
$49,999
$50,000
to
$59,999
$60,000
to
$69,999
$70,000
to
$79,999
$80,000
to
$89,999
$90,000
to
$99,999
$100,000
to
$149,999
$150,000+
Total
0 – 24
14,478
16.6
-4.7
6,738
16.6
-2.4
4,830
17.7
0.4
3,345
18.4
2.4
3,165
18.6
3.4
1,729
18.2
3.1
558
18.1
3.2
275
17.9
3.0
326
16.3
1.0
74
14.0
-1.0
35,518
17.2
-1.6
25 – 29
15,191
14.9
-5.3
15,920
14.6
-3.9
13,380
15.6
-1.6
10,964
16.1
0.0
11,145
16.4
1.0
9,724
16.6
1.5
6,130
16.9
2.0
3,682
16.6
1.7
5,475
15.8
0.7
1,343
13.8
-1.6
92,954
15.7
-1.3
30 – 34
9,157
13.8
-5.4
12,667
13.2
-4.6
13,053
13.9
-2.9
10,998
14.5
-1.4
10,218
14.3
-1.0
9,781
14.4
-0.6
8,616
14.6
-0.2
7,512
14.7
0.0
16,180
14.3
-0.6
5,690
13.0
-2.2
103,872
14.1
-1.9
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
76
Aon Hewitt
35 – 39
5,013
12.8
-5.8
8,036
11.9
-5.3
9,070
12.7
-3.6
9,224
13.4
-2.2
8,736
13.2
-2.0
8,742
13.0
-1.7
7,632
13.1
-1.5
7,159
13.3
-1.2
21,335
12.9
-1.7
10,005
12.3
-2.8
94,952
12.9
-2.6
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
40 – 44
1,700
13.8
-4.1
3,687
12.0
-4.4
6,426
12.1
-3.7
6,291
13.3
-1.8
5,864
13.1
-1.7
5,826
12.9
-1.6
5,724
12.9
-1.5
4,610
13.1
-1.2
17,565
12.5
-1.9
12,136
11.7
-3.3
69,829
12.5
-2.3
45 – 49
1,002
14.3
-2.9
2,195
12.4
-3.3
4,599
12.6
-2.6
5,033
13.1
-1.3
5,169
13.2
-0.9
5,586
13.0
-1.1
5,147
12.6
-1.3
4,599
12.7
-1.2
16,811
12.3
-1.8
12,885
11.2
-3.5
63,026
12.4
-2.0
50 – 54
619
14.9
-1.7
1,604
13.0
-2.3
4,057
13.0
-1.6
4,919
13.4
-0.6
5,251
13.1
-0.4
5,525
13.0
-0.5
5,071
12.8
-0.6
4,608
12.6
-0.9
17,330
12.2
-1.4
13,224
10.9
-3.3
62,208
12.4
-1.5
55 – 59
457
14.7
-1.5
1,110
13.3
-1.5
2,825
13.4
-0.8
3,911
13.2
-0.3
3,833
13.0
0.0
4,407
12.8
0.1
3,964
12.4
-0.4
3,711
12.2
-0.7
12,973
11.7
-1.6
8,583
10.5
-3.6
45,774
12.1
-1.3
60+
217
15.2
-0.4
456
12.9
-1.6
1,088
12.5
-1.5
1,683
11.9
-1.3
1,942
11.6
-1.0
1,929
11.2
-1.1
1,722
11.1
-1.1
1,706
10.8
-1.7
5,275
10.4
-2.6
3,604
9.2
-4.7
19,622
10.8
-2.3
Total
47,834
14.9
-5.0
52,413
13.7
-4.0
59,328
14.0
-2.3
56,368
14.3
-0.9
55,323
14.3
-0.4
53,249
14.0
-0.4
44,564
13.7
-0.5
37,862
13.5
-0.6
113,270
12.7
-1.5
67,544
11.4
-3.2
587,755
13.5
-1.9
Full-Career Contributors—Employees with Defined Benefit and Defined Contribution
(Age/Service)
Figure A4
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
With Defined Benefit and Defined Contribution
Service
Service
Age
Under 25
25 – 29
30 – 34
35 – 39
0–4
19,711
17.5
-2.0
49,314
16.6
-0.8
36,739
14.7
-1.8
23,943
12.9
-2.9
40 – 44
5–9
2,614
17.4
-3.4
26,832
17.0
-0.4
39,970
16.0
-0.3
32,141
14.0
-1.8
14,668
12.4
-2.7
45 – 49
10 – 14
2,514
16.0
-2.3
20,102
16.2
-0.3
32,594
15.1
-0.6
29,963
13.5
-1.8
9,429
11.8
-2.8
50 – 54
15 – 19
1,252
15.4
-1.6
11,313
15.4
-0.5
21,389
14.5
-0.7
18,687
13.1
-1.8
8,770
11.9
-2.3
55 – 59
20 – 24
1,452
14.9
-1.2
17,659
14.7
-0.6
30,987
13.8
-0.9
22,136
12.7
-1.5
10,534
11.7
-2.0
60+
Total
129,707
15.5
-1.7
116,225
15.2
-1.1
94,602
14.5
-1.2
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
61,411
13.9
-1.3
82,768
13.5
-1.1
25 – 29
1,501
14.5
-0.9
18,728
14.1
-0.6
24,595
13.3
-0.8
13,974
12.4
-1.3
4,297
11.4
-2.2
63,095
13.2
-1.0
30+
3,092
14.3
-0.5
26,849
14.1
-0.1
35,618
13.5
-0.2
19,620
12.2
-1.3
85,179
13.4
-0.4
Total
22,325
17.5
-2.2
78,660
16.7
-0.7
98,063
15.5
-0.9
101,443
14.3
-1.5
85,180
13.8
-1.4
80,923
13.5
-1.2
82,350
13.2
-0.9
60,126
12.9
-0.8
23,917
12.0
-1.4
632,987
14.4
-1.1
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
Retirement Income Adequacy at Large Companies: The Real Deal
77
Full-Career Contributors—Employees with Defined Contribution Only (Age/Service)
Figure A5
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
With Defined Contribution Only
Service
Service
Age
Under 25
25 – 29
30 – 34
35 – 39
0–4
40,214
17.1
-2.3
66,973
15.3
-2.1
49,601
13.2
-3.4
24,392
11.0
-5.2
40 – 44
5–9
3,361
15.1
-4.9
22,526
13.6
-4.6
26,636
12.5
-4.4
20,978
11.1
-5.2
8,119
9.8
-5.8
45 – 49
10 – 14
1,550
13.5
-4.5
11,956
12.5
-4.3
19,228
11.7
-4.3
18,183
10.4
-5.2
4,033
9.2
-5.5
50 – 54
15 – 19
627
13.3
-3.6
5,734
12.0
-4.0
10,623
11.2
-4.2
10,234
10.1
-5.0
2,250
8.9
-5.3
55 – 59
20 – 24
467
12.7
-3.6
5,308
11.6
-3.8
9,837
10.8
-4.1
7,686
10.1
-4.4
2,508
9.4
-4.5
60+
Total
181,180
14.6
-2.9
81,620
12.3
-4.8
54,950
11.3
-4.7
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
78
Aon Hewitt
29,468
10.8
-4.5
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
25,806
10.6
-4.1
25 – 29
374
12.8
-2.7
4,558
11.1
-3.6
6,784
10.4
-3.7
4,218
9.9
-3.9
1,416
9.1
-4.4
17,350
10.4
-3.8
30+
554
12.2
-2.6
5,329
11.1
-3.0
8,093
10.3
-3.3
5,939
8.9
-4.5
19,915
10.2
-3.5
Total
43,575
16.9
-2.5
91,049
14.9
-2.8
88,820
12.9
-3.8
70,799
11.3
-4.9
42,607
10.7
-4.9
29,216
10.4
-4.5
22,049
10.3
-3.9
14,819
10.0
-3.7
7,355
8.9
-4.5
410,289
12.8
-3.8
Full-Career Contributors—Investment Risk (Age/Service)
Figure A6
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
Investment Risk
Preretirement Interest Rate = 6.0%
Postretirement Interest Rate = 4.5%
Service
Service
Age
Under 25
25 – 29
30 – 34
35 – 39
0–4
59,925
15.9
-5.7
116,287
14.8
-4.5
86,340
13.2
-5.1
48,335
11.7
-6.0
40 – 44
5–9
5,975
15.1
-7.4
49,358
14.6
-5.2
66,606
13.9
-4.4
53,119
12.5
-5.2
22,787
11.4
-5.5
45 – 49
10 – 14
4,064
14.4
-5.8
32,058
14.2
-4.3
51,822
13.3
-4.2
48,146
12.2
-4.9
13,462
11.0
-5.2
50 – 54
15 – 19
1,879
14.3
-4.6
17,047
13.8
-3.8
32,012
13.1
-3.8
28,921
12.1
-4.5
11,020
11.5
-4.2
55 – 59
20 – 24
1,919
14.1
-3.8
22,967
13.7
-3.2
40,824
13.0
-3.3
29,822
12.2
-3.6
13,042
11.7
-3.5
60+
Total
310,887
14.1
-5.2
197,845
13.4
-5.0
149,552
13.0
-4.6
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
90,879
12.7
-4.1
108,574
12.8
-3.4
25 – 29
1,875
14.1
-3.0
23,286
13.4
-2.8
31,379
12.7
-2.9
18,192
12.2
-3.0
5,713
11.4
-3.6
80,445
12.7
-2.9
30+
3,646
14.1
-2.3
32,178
13.8
-1.9
43,711
13.3
-1.8
25,559
12.0
-2.8
105,094
13.2
-2.1
Total
65,900
15.9
-5.9
169,709
14.7
-4.7
186,883
13.6
-4.7
172,242
12.7
-5.0
127,787
12.6
-4.4
110,139
12.6
-3.7
104,399
12.8
-2.9
74,945
12.8
-2.4
31,272
11.9
-3.0
1,043,276
13.4
-4.3
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
Retirement Income Adequacy at Large Companies: The Real Deal
79
Full-Career Contributors—Longevity Risk (Age/Service)
Figure A7
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
Longevity Risk
Life Expectancy = 80th percentile
Service
Service
Age
Under 25
25 – 29
30 – 34
35 – 39
0–4
59,925
18.5
-5.8
116,287
17.0
-4.5
86,340
14.9
-5.4
48,335
12.9
-6.5
40 – 44
5–9
5,975
17.4
-8.0
49,358
16.6
-5.3
66,606
15.7
-4.6
53,119
13.9
-5.6
22,787
12.5
-6.1
45 – 49
10 – 14
4,064
16.3
-6.1
32,058
16.0
-4.4
51,822
14.9
-4.3
48,146
13.4
-5.4
13,462
12.0
-5.7
50 – 54
15 – 19
1,879
15.9
-4.9
17,047
15.4
-4.0
32,012
14.5
-4.0
28,921
13.1
-5.1
11,020
12.3
-4.8
55 – 59
20 – 24
1,919
15.6
-4.0
22,967
15.1
-3.5
40,824
14.1
-3.7
29,822
13.1
-4.2
13,042
12.4
-4.2
60+
Total
310,887
16.1
-5.3
197,845
15.1
-5.3
149,552
14.4
-4.8
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
80
Aon Hewitt
90,879
14.0
-4.5
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
108,574
13.9
-3.9
25 – 29
1,875
15.3
-3.4
23,286
14.5
-3.2
31,379
13.6
-3.4
18,192
12.9
-3.7
5,713
12.0
-4.4
80,445
13.7
-3.5
30+
3,646
15.2
-2.8
32,178
14.7
-2.4
43,711
14.1
-2.4
25,559
12.6
-3.6
105,094
14.0
-2.7
Total
65,900
18.4
-6.0
169,709
16.9
-4.8
186,883
15.4
-4.9
172,242
14.1
-5.3
127,787
13.8
-4.8
110,139
13.7
-4.2
104,399
13.7
-3.4
74,945
13.5
-3.0
31,272
12.5
-3.7
1,043,276
14.8
-4.6
Full-Career Contributors—Inflation Risk (Age/Pay)
Figure A8
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
Inflation Risk
Inflation = 4.0%
Age
2011
Limited
Pay
Under
$30,000
$30,000
to
$39,999
$40,000
to
$49,999
$50,000
to
$59,999
$60,000
to
$69,999
$70,000
to
$79,999
$80,000
to
$89,999
$90,000
to
$99,999
$100,000
to
$149,999
$150,000+
Total
0 – 24
30,109
15.5
-9.1
12,012
15.2
-6.4
8,147
16.0
-3.6
6,349
16.4
-1.8
4,829
16.3
-0.9
2,638
15.9
-1.1
831
15.8
-1.2
388
15.4
-1.3
475
13.8
-3.3
122
11.5
-5.6
65,900
15.6
-6.1
25 – 29
33,927
14.5
-8.9
30,574
14.0
-7.1
24,560
14.5
-4.8
21,164
14.7
-3.4
18,282
14.9
-2.4
15,357
15.0
-2.2
9,500
15.1
-1.7
5,812
14.9
-2.0
8,550
14.0
-2.9
1,983
11.9
-5.4
169,709
14.5
-5.0
30 – 34
22,773
13.8
-8.4
26,055
13.0
-7.4
24,401
13.4
-5.6
20,898
13.7
-4.2
18,168
13.5
-3.7
16,344
13.5
-3.4
13,859
13.6
-3.2
11,608
13.6
-3.1
24,438
13.2
-3.5
8,339
11.8
-5.3
186,883
13.4
-5.0
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
35 – 39
14,771
13.0
-8.5
18,813
12.1
-7.7
18,991
12.5
-6.2
17,961
12.9
-4.8
15,525
12.7
-4.4
15,138
12.5
-4.1
12,946
12.5
-3.9
11,294
12.6
-3.7
32,032
12.2
-4.3
14,484
11.4
-5.5
171,955
12.4
-5.3
Age
40 – 44
6,533
13.6
-6.9
10,624
12.3
-6.8
14,332
12.2
-6.0
12,846
12.8
-4.5
11,746
12.6
-4.1
11,112
12.4
-3.9
9,869
12.4
-3.8
7,999
12.5
-3.4
25,990
11.9
-4.1
16,897
11.0
-5.7
127,948
12.2
-4.8
45 – 49
4,072
14.1
-5.6
7,034
12.8
-5.4
10,222
12.7
-4.8
10,282
12.9
-3.8
9,708
12.8
-3.3
10,075
12.5
-3.3
8,987
12.3
-3.4
7,566
12.3
-3.3
24,492
11.9
-3.9
18,018
10.7
-5.8
110,456
12.2
-4.2
50 – 54
2,803
14.5
-4.5
6,087
13.1
-4.5
9,264
13.0
-3.8
10,276
13.1
-3.0
9,741
12.9
-2.6
9,527
12.6
-2.7
8,458
12.3
-2.8
7,388
12.2
-2.9
23,658
11.9
-3.3
17,343
10.6
-5.3
104,545
12.2
-3.6
55 – 59
1,769
14.8
-3.6
4,742
13.4
-3.7
6,685
13.3
-3.0
7,572
13.1
-2.4
7,050
12.8
-2.0
7,332
12.4
-2.1
6,270
12.2
-2.4
5,681
12.0
-2.6
17,352
11.5
-3.3
10,799
10.3
-5.3
75,252
12.1
-3.1
60+
1,214
14.5
-3.5
2,217
12.8
-4.1
2,742
12.4
-3.6
3,168
12.0
-3.2
3,239
11.6
-2.7
3,006
11.2
-2.7
2,499
11.1
-2.7
2,296
10.8
-3.2
6,657
10.3
-4.2
4,220
9.2
-6.2
31,258
11.2
-3.8
Total
117,971
14.4
-8.3
118,158
13.3
-6.7
119,344
13.4
-5.1
110,516
13.6
-3.7
98,288
13.4
-3.2
90,529
13.1
-3.1
73,219
13.0
-3.1
60,032
12.8
-3.1
163,644
12.1
-3.7
92,205
10.8
-5.5
1,043,906
13.0
-4.7
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
Retirement Income Adequacy at Large Companies: The Real Deal
81
Full-Career Contributors—Age 62 Retirement (Age/Service)
Figure A9
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
Age 62 Retirement
Service
Service
Age
Under 25
25 – 29
30 – 34
35 – 39
0–4
59,925
15.3
-6.5
116,287
14.1
-5.7
86,340
12.2
-6.5
48,335
10.5
-7.5
40 – 44
5–9
5,975
14.3
-8.3
49,358
13.8
-6.3
66,606
13.0
-5.7
53,119
11.3
-6.7
22,787
10.1
-7.2
45 – 49
10 – 14
4,064
13.4
-7.1
32,058
13.2
-5.6
51,822
12.3
-5.5
48,146
10.9
-6.5
13,462
9.7
-6.8
50 – 54
15 – 19
1,879
13.1
-6.2
17,047
12.7
-5.3
32,012
11.9
-5.3
28,921
10.6
-6.2
11,020
9.8
-6.1
55 – 59
20 – 24
1,919
12.8
-5.4
22,967
12.5
-4.8
40,824
11.6
-4.9
29,822
10.6
-5.5
13,042
9.8
-5.7
60+
Total
310,887
13.2
-6.3
197,845
12.4
-6.4
149,552
11.8
-6.0
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
82
Aon Hewitt
90,879
11.4
-5.7
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
108,574
11.3
-5.1
25 – 29
1,875
12.6
-4.8
23,286
12.0
-4.5
31,379
11.2
-4.6
18,192
10.3
-5.1
5,693
9.3
-5.8
80,425
11.1
-4.8
30+
3,646
12.5
-4.2
32,178
12.1
-3.9
43,711
11.4
-4.0
17,068
10.3
-4.8
96,603
11.5
-4.1
Total
65,900
15.2
-6.6
169,709
14.0
-5.9
186,883
12.6
-6.1
172,242
11.5
-6.4
127,787
11.3
-6.0
110,139
11.2
-5.4
104,399
11.2
-4.8
74,945
10.9
-4.5
22,761
10.1
-5.1
1,034,765
12.2
-5.8
Full-Career Contributors—Age 67 Retirement (Age/Service)
Figure A10
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
Age 67 Retirement
Service
Service
Age
Under 25
25 – 29
30 – 34
35 – 39
0–4
59,925
18.5
0.6
116,287
17.0
1.0
86,340
14.9
-0.3
48,335
12.9
-1.8
40 – 44
5–9
5,975
17.2
-1.4
49,358
16.5
0.2
66,606
15.6
0.4
53,119
13.8
-0.9
22,787
12.4
-1.7
45 – 49
10 – 14
4,064
16.1
-0.7
32,058
15.8
0.5
51,822
14.8
0.2
48,146
13.2
-1.0
13,462
11.9
-1.6
50 – 54
15 – 19
1,879
15.7
0.0
17,047
15.2
0.5
32,012
14.3
0.2
28,921
12.9
-0.9
11,020
12.2
-0.9
55 – 59
20 – 24
1,919
15.3
0.5
22,967
14.9
0.8
40,824
14.0
0.4
29,822
12.9
-0.2
13,042
12.2
-0.4
60+
Total
310,887
16.1
0.1
197,845
15.0
-0.3
149,552
14.3
-0.3
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
90,879
13.8
-0.2
108,574
13.7
0.2
25 – 29
1,875
15.1
0.9
23,286
14.4
0.9
31,379
13.6
0.6
18,192
12.7
0.1
5,713
11.7
-0.7
80,445
13.5
0.5
30+
3,646
14.9
1.2
32,178
14.5
1.5
43,711
13.8
1.3
27,678
12.2
-0.1
107,213
13.6
1.0
Total
65,900
18.4
0.4
169,709
16.9
0.7
186,883
15.3
0.1
172,242
14.0
-0.7
127,787
13.7
-0.5
110,139
13.6
-0.1
104,399
13.5
0.5
74,945
13.3
0.7
33,391
12.1
-0.2
1,045,395
14.7
0.1
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
Retirement Income Adequacy at Large Companies: The Real Deal
83
Full-Career Contributors—Maximize Employer Match (Age/Pay)
Figure A11
Figure
A11Retirement Income Surplus/(Shortfall)
Projected
Full-Career
Contributing
Employees
Projected
Retirement
Income
Surplus/(Shortfall)
Maximize
Employer
Match
Full-Career Contributing Employees
Maximize Employer Match
Age Age
2011
Limited
Pay
Under
$30,000
$30,000
to
$39,999
$40,000
to
$49,999
$50,000
to
$59,999
$60,000
to
$69,999
$70,000
to
$79,999
$80,000
to
$89,999
$90,000
to
$99,999
$100,000
to
$149,999
$150,000+
Total
0 – 24
30,601
18.0
-3.8
11,808
18.0
-1.2
8,403
18.8
1.3
6,068
19.0
2.7
4,776
19.2
3.8
2,500
18.6
3.5
795
18.5
3.5
369
18.1
3.1
462
16.2
0.9
118
13.8
-1.4
65,900
18.3
-1.1
25 – 29
34,820
16.4
-4.2
30,571
16.1
-2.5
25,265
16.7
-0.6
20,628
17.0
0.7
18,396
17.1
1.6
15,046
17.2
1.9
9,266
17.3
2.3
5,568
17.1
2.1
8,253
16.1
0.9
1,896
14.0
-1.4
169,709
16.6
-0.8
30 – 34
23,495
15.2
-4.5
26,255
14.6
-3.3
24,849
15.0
-1.8
20,611
15.4
-0.6
18,146
15.1
-0.3
16,355
15.2
0.1
13,786
15.3
0.3
11,467
15.3
0.5
23,841
14.9
-0.1
8,078
13.5
-1.9
186,883
15.0
-1.4
35 – 39
15,378
14.0
-5.1
18,976
13.2
-4.1
18,859
13.7
-2.7
18,133
14.1
-1.5
16,239
13.8
-1.4
15,202
13.7
-1.1
12,932
13.8
-0.9
11,100
13.9
-0.7
31,458
13.4
-1.3
13,965
12.7
-2.5
172,242
13.6
-2.2
40 – 44
6,737
14.4
-3.9
10,833
13.1
-3.6
14,309
13.0
-3.0
12,931
13.7
-1.4
12,080
13.4
-1.5
10,867
13.3
-1.3
9,947
13.3
-1.1
7,872
13.5
-0.8
25,790
12.9
-1.5
16,421
12.0
-3.0
127,787
13.1
-2.1
45 – 49
4,186
14.6
-3.0
7,129
13.3
-2.8
10,393
13.3
-2.0
10,238
13.6
-1.0
10,017
13.4
-0.9
9,940
13.2
-1.0
8,970
13.0
-1.1
7,479
13.1
-0.9
24,263
12.6
-1.6
17,524
11.4
-3.4
110,139
12.9
-1.8
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
Employee Count
-3.00 to -1.01
Total Retirement Resources as Multiple of Pay
-1.00 to -0.01
Surplus/(Shortfall) as Multiple of Pay
0.00+
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
84
Aon Hewitt
50 – 54
2,955
14.8
-2.1
6,184
13.5
-2.1
9,566
13.5
-1.4
10,338
13.6
-0.5
9,746
13.2
-0.4
9,556
13.0
-0.6
8,372
12.9
-0.7
7,332
12.7
-0.8
23,495
12.4
-1.3
16,855
11.1
-3.2
104,399
12.7
-1.4
55 – 59
1,867
14.9
-1.5
4,854
13.7
-1.5
6,854
13.7
-0.8
7,497
13.4
-0.2
6,999
12.9
-0.1
7,401
12.6
-0.2
6,246
12.4
-0.5
5,633
12.2
-0.8
17,061
11.8
-1.6
10,533
10.6
-3.5
74,945
12.4
-1.2
60+
1,285
14.7
-1.4
2,249
13.2
-1.8
2,810
12.8
-1.4
3,211
12.2
-1.2
3,224
11.6
-1.1
3,021
11.2
-1.2
2,499
11.1
-1.1
2,322
10.8
-1.6
6,560
10.4
-2.6
4,091
9.3
-4.7
31,272
11.3
-2.0
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
Total
121,324
16.0
-4.1
118,859
14.8
-2.9
121,308
14.8
-1.5
109,655
14.9
-0.5
99,623
14.6
-0.2
89,888
14.3
-0.1
72,813
14.1
-0.2
59,142
13.9
-0.3
161,183
13.1
-1.1
89,481
11.7
-3.1
1,043,276
14.3
-1.5
Full-Career Contributors—1% Escalation of Savings Rate Each Year for Five Years (Age/Pay)
Figure A12
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
1% Escalation of Savings Rate Each Year for Five Years
Age
2011
Limited
Pay
Under
$30,000
$30,000
to
$39,999
$40,000
to
$49,999
$50,000
to
$59,999
$60,000
to
$69,999
$70,000
to
$79,999
$80,000
to
$89,999
$90,000
to
$99,999
$100,000
to
$149,999
$150,000+
Total
0 – 24
30,601
19.7
-1.6
11,808
19.9
1.3
8,403
20.7
3.8
6,068
21.3
5.5
4,776
21.5
6.7
2,500
21.0
6.7
795
20.9
6.6
369
20.5
6.3
462
18.3
3.5
118
15.0
0.2
65,900
20.2
1.4
25 – 29
34,820
18.0
-2.1
30,571
17.8
-0.2
25,265
18.4
1.7
20,628
18.8
3.1
18,396
19.1
4.2
15,046
19.3
4.8
9,266
19.4
5.1
5,568
19.2
5.0
8,253
17.9
3.3
1,896
14.8
-0.3
169,709
18.4
1.6
30 – 34
23,495
16.5
-2.7
26,255
15.9
-1.4
24,849
16.5
0.2
20,611
16.8
1.4
18,146
16.7
1.8
16,355
16.8
2.4
13,786
17.0
2.7
11,467
17.0
2.8
23,841
16.3
1.9
8,078
14.0
-1.1
186,883
16.4
0.6
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
35 – 39
15,378
15.1
-3.5
18,976
14.2
-2.4
18,859
14.9
-1.0
18,133
15.3
0.3
16,239
15.0
0.5
15,202
14.9
0.7
12,932
15.0
1.1
11,100
15.2
1.3
31,458
14.5
0.3
13,965
13.1
-2.0
172,242
14.7
-0.5
40 – 44
6,737
15.2
-2.5
10,833
13.9
-2.2
14,309
13.9
-1.4
12,931
14.7
0.2
12,080
14.4
0.2
10,867
14.3
0.4
9,947
14.3
0.6
7,872
14.4
0.8
25,790
13.7
-0.2
16,421
12.2
-2.7
127,787
13.9
-0.7
45 – 49
4,186
15.1
-1.9
7,129
13.9
-1.5
10,393
14.0
-0.7
10,238
14.2
0.3
10,017
14.1
0.6
9,940
13.8
0.4
8,970
13.6
0.2
7,479
13.7
0.4
24,263
13.1
-0.5
17,524
11.6
-3.1
110,139
13.4
-0.7
50 – 54
2,955
15.2
-1.2
6,184
13.9
-1.0
9,566
13.9
-0.2
10,338
14.0
0.6
9,746
13.7
0.8
9,556
13.5
0.8
8,372
13.3
0.6
7,332
13.2
0.4
23,495
12.8
-0.2
16,855
11.3
-2.6
104,399
13.1
-0.3
55 – 59
1,867
15.1
-0.7
4,854
13.9
-0.6
6,854
13.9
0.1
7,497
13.6
0.6
6,999
13.2
0.8
7,401
12.8
0.8
6,246
12.6
0.7
5,633
12.4
0.3
17,061
11.9
-0.7
10,533
10.7
-3.1
74,945
12.6
-0.4
60+
1,285
14.7
-1.2
2,249
13.2
-1.5
2,810
12.8
-1.1
3,211
12.2
-0.9
3,224
11.7
-0.8
3,021
11.2
-0.9
2,499
11.1
-0.8
2,322
10.9
-1.2
6,560
10.4
-2.3
4,091
9.3
-4.5
31,272
11.3
-1.7
Total
121,324
17.3
-2.2
118,859
16.0
-1.0
121,308
16.0
0.2
109,655
16.1
1.3
99,623
15.8
1.7
89,888
15.5
1.8
72,813
15.2
1.6
59,142
15.0
1.5
161,183
13.9
0.2
89,481
12.0
-2.6
1,043,276
15.3
0.1
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
Retirement Income Adequacy at Large Companies: The Real Deal
85
Full-Career Contributors—Contribution Escalation (Age/Service)
Figure A13
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
Enrolled in Automatic Contribution Escalation
Service
Service
Age
Under 25
25 – 29
30 – 34
35 – 39
0–4
18,292
21.0
2.2
28,563
18.9
2.3
19,698
16.2
0.5
6,105
13.7
-1.0
40 – 44
5–9
1,336
19.3
0.4
6,131
18.2
1.3
6,416
16.7
1.0
4,875
14.6
-0.4
1,735
13.0
-1.5
45 – 49
10 – 14
385
18.6
1.7
2,241
17.1
1.5
3,382
15.3
0.3
3,086
13.2
-1.3
941
11.2
-3.1
50 – 54
15 – 19
161
17.3
1.7
1,174
15.3
0.5
1,957
13.8
-0.5
1,848
11.9
-2.2
596
10.9
-2.6
55 – 59
20 – 24
126
15.7
1.0
1,121
14.5
0.4
1,884
12.9
-1.0
1,527
11.5
-1.9
372
10.6
-2.5
60+
Total
72,658
18.3
1.5
20,493
16.5
0.5
10,035
14.8
-0.2
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
86
Aon Hewitt
5,736
13.3
-1.0
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
5,030
12.7
-1.0
25 – 29
99
14.7
0.5
1,033
13.4
-0.2
1,322
12.2
-1.0
743
10.7
-2.3
189
9.5
-3.6
3,386
12.1
-1.1
30+
149
13.6
0.0
1,241
13.1
0.0
1,358
12.2
-0.8
733
10.7
-2.3
3,481
12.3
-0.8
Total
19,628
20.9
2.1
35,079
18.8
2.1
28,516
16.4
0.7
15,662
14.5
-0.4
7,998
13.5
-0.9
5,855
12.4
-1.5
4,686
12.0
-1.2
2,473
11.5
-1.5
922
10.4
-2.6
120,819
16.9
0.8
Full-Career Contributors—No Contribution Escalation (Age/Service)
Figure A14
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
Not Enrolled in Automatic Contribution Escalation
Service
Service
Age
Under 25
25 – 29
30 – 34
35 – 39
0–4
41,633
15.6
-4.2
87,724
14.9
-2.8
66,642
13.1
-3.7
42,230
11.7
-4.5
40 – 44
5–9
4,639
15.2
-5.5
43,227
15.1
-2.8
60,190
14.4
-2.3
48,244
12.7
-3.4
21,052
11.4
-4.0
45 – 49
10 – 14
3,679
14.7
-3.6
29,817
14.6
-2.1
48,440
13.7
-2.1
45,060
12.3
-3.2
12,521
11.0
-3.6
50 – 54
15 – 19
1,718
14.5
-2.7
15,873
14.2
-1.9
30,055
13.4
-2.0
27,073
12.0
-3.0
10,424
11.3
-2.9
55 – 59
20 – 24
1,793
14.3
-1.9
21,846
13.9
-1.4
38,940
13.1
-1.7
28,295
12.1
-2.3
12,670
11.3
-2.5
60+
Total
238,229
13.9
-3.6
177,352
13.7
-3.0
139,517
13.2
-2.6
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
85,143
12.9
-2.4
103,544
12.8
-1.9
25 – 29
1,776
14.1
-1.4
22,253
13.5
-1.2
30,057
12.7
-1.5
17,449
11.9
-1.9
5,524
10.9
-2.7
77,059
12.6
-1.6
30+
Total
3,497
14.0
-0.9
30,937
13.6
-0.6
42,353
12.9
-0.8
24,826
11.4
-2.0
101,613
12.8
-1.0
46,272
15.5
-4.3
134,630
14.9
-2.8
158,367
13.9
-2.8
156,580
12.9
-3.1
119,789
12.7
-2.7
104,284
12.7
-2.1
99,713
12.6
-1.6
72,472
12.4
-1.3
30,350
11.3
-2.1
922,457
13.3
-2.6
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
Retirement Income Adequacy at Large Companies: The Real Deal
87
Full-Career Contributors—Automatic Enrollment (Age/Service)
Figure A15
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
Employers with Automatic Enrollment
Service
Service
Age
Under 25
25 – 29
30 – 34
35 – 39
0–4
43,623
17.9
-1.3
82,919
16.5
-0.8
60,003
14.2
-2.2
31,762
12.1
-3.6
40 – 44
5–9
4,408
16.8
-3.4
32,362
16.4
-1.0
43,606
15.4
-0.8
34,337
13.5
-2.3
16,043
11.9
-3.3
45 – 49
10 – 14
2,900
15.6
-2.5
20,973
15.7
-0.7
34,126
14.6
-1.0
30,247
13.0
-2.2
8,898
11.4
-3.2
50 – 54
15 – 19
1,303
15.1
-1.8
11,220
15.0
-0.8
21,796
14.0
-1.2
19,380
12.5
-2.4
7,396
11.8
-2.4
55 – 59
20 – 24
1,367
14.7
-1.3
15,717
14.4
-0.8
28,459
13.4
-1.3
20,960
12.3
-1.9
9,206
11.4
-2.4
60+
Total
218,307
15.5
-1.7
130,756
14.8
-1.7
97,144
14.1
-1.6
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
88
Aon Hewitt
61,095
13.4
-1.7
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
75,709
13.1
-1.5
25 – 29
1,349
14.5
-0.9
16,503
13.8
-0.9
22,875
12.9
-1.2
13,090
11.9
-1.8
4,083
10.9
-2.6
57,900
12.8
-1.3
30+
2,717
14.2
-0.6
23,284
13.8
-0.5
30,933
13.1
-0.6
17,750
11.6
-1.9
74,684
13.0
-0.9
Total
48,031
17.8
-1.5
118,181
16.4
-0.9
125,885
14.9
-1.5
112,812
13.6
-2.1
85,152
13.3
-1.9
75,957
13.1
-1.7
74,515
12.9
-1.3
53,229
12.5
-1.2
21,833
11.5
-2.0
715,595
14.3
-1.5
Full-Career Contributors—No Automatic Enrollment (Age/Service)
Figure A16
Projected Retirement Income Surplus/(Shortfall)
Full-Career Contributing Employees
Employers without Automatic Enrollment
Service
Age
Under 25
25 – 29
30 – 34
35 – 39
0–4
16,302
15.4
-4.7
33,368
14.4
-3.6
26,337
12.9
-4.0
16,573
11.5
-4.8
40 – 44
5–9
1,567
13.9
-6.5
16,996
13.6
-4.8
23,000
13.0
-4.0
18,782
11.7
-4.6
6,744
10.4
-4.9
45 – 49
10 – 14
1,164
13.8
-4.6
11,085
13.1
-4.0
17,696
12.3
-3.8
17,899
11.2
-4.5
4,564
10.3
-4.4
50 – 54
15 – 19
576
13.7
-3.4
5,827
12.8
-3.4
10,216
12.2
-3.3
9,541
11.1
-4.1
3,624
10.3
-4.0
55 – 59
20 – 24
552
13.5
-2.9
7,250
13.0
-2.5
12,365
12.2
-2.6
8,862
11.4
-3.0
3,836
11.1
-2.8
60+
Total
92,580
13.6
-4.1
67,089
12.6
-4.5
52,408
11.9
-4.2
Employee Count
Total Retirement Resources as Multiple of Pay
Surplus/(Shortfall) as Multiple of Pay
29,784
11.8
-3.6
32,865
12.0
-2.7
25 – 29
526
13.3
-2.3
6,783
12.8
-1.9
8,504
12.1
-2.0
5,102
11.5
-2.2
1,630
10.5
-3.0
22,545
12.1
-2.1
30+
929
13.4
-1.5
8,894
13.1
-1.0
12,778
12.5
-1.1
7,809
11.0
-2.3
30,410
12.3
-1.4
Total
17,869
15.3
-4.8
51,528
14.1
-4.0
60,998
13.0
-4.0
59,430
12.0
-4.3
42,635
11.6
-3.9
34,182
11.8
-3.1
29,884
12.0
-2.2
21,716
12.0
-1.7
9,439
10.9
-2.4
327,681
12.6
-3.6
Under -7.00
-7.00 to -5.01
-5.00 to -3.01
-3.00 to -1.01
-1.00 to -0.01
0.00+
Retirement Income Adequacy at Large Companies: The Real Deal
89
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www.aonhewitt.com
Retirement Income Adequacy at Large Companies: The Real Deal
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About Aon Hewitt
Aon Hewitt is the global leader in human resource solutions. The company partners with
organizations to solve their most complex benefits, talent and related financial challenges, and
improve business performance. Aon Hewitt designs, implements, communicates and administers
a wide range of human capital, retirement, investment management, health care, compensation
and talent management strategies. With more than 29,000 professionals in 90 countries, Aon
Hewitt makes the world a better place to work for clients and their employees.
For more information on Aon Hewitt, please visit www.aonhewitt.com.
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