Many boomers worry about the adequacy of their retirement income, particularly in light of the concerns heard about climbing medical costs.
Coupled to that concern is that many boomers have witnessed the drastic erosion of traditional pension plans and may have got a relatively late start in putting aside retirement funds in defined-contribution plans such as 401(k)s.
A recent study by Hewitt Associates Inc., Lincolnshire, Ill., gives some context to these concerns. The study, “Total Retirement Income At Large Companies: The Real Deal,” looked at data on employees of 67 large firms and calculated how much of an employee’s final annual income would be replaced when he/she retires.
The study found, reassuringly, that employer-sponsored retirement plans, including 401(k) and pension plans, can, when combined with Social Security payouts, replace most if not all of their working income. But that is more likely to be true of younger employees than for boomers.
Because younger workers have more years to contribute to their plans, they had significantly higher income-replacement ratios. For instance, the average employee aged 35 to 39 would, at a 6% contribution rate with 2% employer match, replace on average about 106% of his/her income upon retirement.
In contrast, among 130,000 workers in the older part of the baby boom generation–55 to 59–the average employee participating in a 401(k) plan could expect to replace just under 80% of final annual income, Hewitt found. For those aged 60 and over, projected retirement income replacement was about 70%.
[Those figures do not include retirement savings that individuals may have left behind when they switched employers.]