According to a new study from State Street Global Advisors, current savings rates may present some challenges.
State Street conducted an online survey of 9,451 people across eight countries that looked at every stage of the retirement spectrum, from those new to the workforce to those later in retirement itself, to better understand the milestones and inflection points across the whole savings journey. State Street recently release a report based on this survey’s findings, called Balancing Flexibility and Security in Retirement.
The countries included in the survey were the United States, Australia, the United Kingdom, Ireland, Italy, Germany, Sweden and the Netherlands.
According to Catherine Reilly, global head of research for State Street Global Advisors’ defined contribution business, these countries all are introducing defined contribution savings as part of the global shift away from defined benefit to defined contribution.
In most of the countries that State Street surveyed, a majority of people said they are saving less than 10% of their income.
This “is less than you would want to see,” Reilly said.
According to the report, this finding stands out both for being consistent across varied markets and for being inadequate as standalone savings.
The consistency of the less than 10% savings rate is notable given that required minimum contribution rates vary widely by country, the report found.
At one extreme, in the U.S., DC plan contributions are voluntary for both employers and employees. Meanwhile, Australia mandates a 9.5% employer contribution and in the Netherlands, the required contribution rate is on average 20% to 25% of salary, with the employee contributing 4% to 6%, on average, and the employer responsible for the rest.
For those who are saving less than 10% on a pure DC basis — net state pension or social security income sources — “the potential for outliving retirement savings is high,” according to the report.
“In the current market environment, a participant who saves 10% of her salary from age 25 to 65 could expect to receive a replacement rate of about 30% of their salary at retirement,” the report stated. “This should give individuals and providers across the globe pause to consider course corrections.”
There was a positive finding counteracting this retirement income shortfall, according to Reilly.