Research Shows Retirement Income Adequacy Lacking at Large Firms

This is 15% short of their need of 15.7 times pay, according to Hewitt’s report. The shortfall grows to 32% when including both employees who contribute and those who do not.  

The study found about 18% of employees are expected to satisfy 100% of their needs at retirement, while about 19% are expected to have a shortfall of more than five times pay at retirement age. The differences are largely attributable to individual factors such as in which plans they participate, savings plan behaviors, and gender, the report says.  

The average shortfall for employees with access to a defined benefit plan, whether frozen or not, is only 1.4 times pay at retirement age, compared to a shortfall of 4.3 times pay at retirement age for those with access to only a defined contribution plan.  

The study assumes retirees will have access only to group medical plans from their prior employers, without any company-provided subsidy.  If an employer provides a subsidy worth 50% of the plan cost, the percentage of retirement needs met for employees would increase from 85% to 94%, Hewitt found. 

Since females in the study tend to have lower pay and smaller retirement plan account balances, the shortfall for women is higher by 1.3 times pay at retirement. 

Hewitt notes that early retirement (age 62) significantly increases the shortfall for employees and late retirement (age 67) significantly improves retirement income adequacy.  

Not surprisingly, non-contributing employees are projected to have resources totaling only 43% of their retirement income needs.