Workers worldwide are increasingly being pushed to take greater responsibility for retirement savings, but that’s no easy task for people who have no idea how much they need to set aside — particularly as other countries increasingly adopt defined contribution plans in replacement of defined benefit plans.
To help resolve that problem, Fidelity Investments has announced the industry’s first international retirement savings guidelines so that multinational companies and their employees in the U.K., Germany, Japan, Hong Kong and Canada are better able to begin to understand how much money needs to be saved for retirement.
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Set up to give workers “simple ‘rules of thumb’” to steer them in the right direction, the new guidelines are aimed at helping employees tackle two of the most common questions workers have about retirement savings: “How much do I need to save for retirement?” and “Am I on track to save enough?” The new guidelines are also designed to serve as a starting point for a broader retirement planning discussion.
The global guidelines are based on a consistent global framework that, when combined with locally relevant financial and demographic assumptions, can help multinational companies develop a benefit platform that can help meet the needs of a global workforce.
They start with a U.S. framework also known as “10x” (10 times) or age-based savings guidelines, and use workers’ age and salary to provide them with a means to understand how much they should have in savings, as a multiple of their salary, at specific age milestones.
Then, based on several key assumptions, calculate a suggested annual savings rate and age-based savings milestones for each country. The guidelines also include a target income replacement rate and a probable sustainable withdrawal rate, which helps workers understand how much they may be able to withdraw from their savings each year without running out of money in retirement.
As a comparison, for example, the guideline suggests that the goal of workers in the U.S. is to have saved 10x the final year of their salary, while in the U.K. it’s 7x. The lower multiple in the U.K. is mainly due to a more generous pension system, which replaces more income in retirement. The other advantage for workers in the U.K. is that their withdrawal rate can be higher, at 5% versus 4.5% in the U.S.
“[T]hese guidelines can be part of an innovative international benefits program and can help employers monitor and encourage good retirement savings habits in a consistent manner across their regional workforces,” Kevin Barry, president of workplace investing at Fidelity Investments in Boston, said in a statement.
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