By now we all know the obvious. With 401(k)s decreasing 18 percent on average in 2008, boomers will need to take more aggressive steps to make up for lost savings in order to achieve adequate income in retirement.
New research from Hewitt Associates breaks down the specifics: a typical 55-year-old employee with a current average 401(k) savings rate of 10 percent of pay will need to save an additional 12 percent each year until age 65, or work for two more years, to replace what was lost in 2008. The average 40-year-old with a current average 401(k) savings rate of 7 percent must work one more year or save an additional 1 percent of pay per year until age 65.
According to Hewitt, even if employees are able to recoup their losses from the recent market tumble, projected retirement income levels are still expected to fall short. Before the financial downturn, an average 40-year-old with 10 years of service, earning $83,000 at retirement in today’s dollars needed to save enough to provide $104,500 per year in retirement. However, the average 40-year-old was only saving enough to provide $70,500–a $34,000 annual shortfall. Since the financial upheaval, that shortfall has grown to $37,350 a year, or a lump sum amount of approximately $400,000.