New study breaks down specifics on severity of retirement income loss

“Most Americans were already far from achieving adequate levels of retirement income before the economy collapsed, and for many, the financial downfall has made reaching these goals nearly impossible,” says Rob Reiskytl, Hewitt’s leader of Retirement Plan Strategy and Design. “In today’s economy, employees are stretched to their limit. But the key for workers is to keep saving, and to make sure they are using all the tools and resources they have at their disposal to maximize their retirement savings potential. It also means that many employees–particularly Baby Boomers–may have to make some tough decisions about what retirement looks like. They may need to work longer, part-time, or find other ways to supplement income in retirement to make up for the shortfall.”

How can boomers fill the income gap? According to Hewitt:

• Don’t Give Up Free Money: Workers should make sure they are contributing enough money to get their full company match. Failure to do so means they are leaving free money on the table. For instance, an employee earning $55,000 in 2009 can receive an extra $43,000 per year during retirement if they contributed enough to their retirement plan each year to get the full company match. If an employer suspends their match–which roughly 3 percent have done–employees should do all they can to maintain if not increase their contributions in order to make up for the reduced company contribution. This will also help bolster their nest egg when the match is reinstated.
• Put Your Plan on Autopilot: Automatic contribution escalation will increase employees’ 401(k) contribution rates at a minimal rate on an annual basis. Contributing just 1 percent a year more will not seem like such a big impact to their paycheck, but the steady increase in saving rates can increase employee retirement savings by 50 percent or more. According to Hewitt research, about half (53 percent) of employers now offer automatic savings rate escalation in their retirement plans.
• Diversify Your Assets: Employees need to make sure their portfolios are properly diversified and they should periodically rebalance their savings to make sure they are invested in the right mix of funds. This is particularly true during volatile markets. For employees who are not financially literate, choosing target-date funds or taking advantage of automatic rebalancing tools puts these tasks on autopilot. According to Hewitt research, 77 percent of employers now offer target-date funds and about half (49 percent) offer automatic rebalancing.
• Take Advantage of Advice: Many companies offer services and tools that can help workers make informed investment choices based on their particular needs. According to Hewitt research, 38 percent of companies offered online, third-party investment advisory services in 2008 and another 43 percent planned to add these services in 2009. In addition, one-fifth (20 percent) of companies currently offer managed accounts, which allow employees to delegate the overall management of their accounts to an outside professional.