Cost of Retirement: 11 Years’ Pay

“It is encouraging to see that the continued efforts by employers and employees to increase retirement income security may be paying off,” Rob Reiskytl, leader of retirement plan strategy and design at Aon Hewitt, said in a statement. “To further improve results, employers should design their 401(k) plans in a way that harnesses inertia, such as matching at higher rates of savings and combining automatic enrollment with automatic contribution escalation for all employees. Ideal solutions will improve outcomes with little or no increase in employer cost.”

The company’s analysis shows that taking advantage of economies of scale in reducing fees and expense ratios is critical to achieving adequate retirement income levels. A 1% difference in average returns over a career and retirement period can result in a two-times-pay difference in retirement resources, Aon notes.

“Employers cannot influence market returns, but they can leverage their scale to reduce investment fees, which can have an impact on employees’ savings over time,” Reiskytl added. “In addition, more employers are offering an array of investment advisory services like investment advice, managed accounts and pre-mixed portfolios. These tools can improve the diversification and efficiency of participants’ portfolios and help workers invest more effectively with very little effort.”