New Watson Wyatt Tool Helps Employers Re-calculate Retirement Income Strategies for Workers to Maintain Living Standards
Model Challenges Belief that 70-to-80 Percent of Pre-Retirement Income Is Enough
WASHINGTON, DC, August 19, 2002 - Diminished performance of 401(k) plans shouldn't be the only concern of workers planning for retirement. Most employees also aren't aware that they may need as much as 105 percent of pre-retirement income to maintain living standards, warns Watson Wyatt based on its new Retirement Income Target (RIT). Unlike many other savings models, the RIT tool accounts for early retirement, inflation and rising medical costs that can decimate savings as retirees age.
"Watson Wyatt's Retirement Income Target (RIT) tool challenges the popular belief that retirees need only 70 to 80 percent of pre-retirement income to maintain living standards," said Eric Lofgren, global director of Watson Wyatt's benefits consulting group. "The old assumptions are dangerously false, especially when people are retiring younger and living longer."
Retirement age is the biggest factor in determining how much income a retiree needs. The typical 70-to-80-percent savings target assumes retirement at age 65, but income needs can be much larger for the significant number of workers who retire early, and the RIT tool takes this into account.
"Higher savings targets are even more critical for employees retiring at lower wage levels," adds John Steele, senior consultant with Watson Wyatt. "That's because medical costs are about the same regardless of income levels, eating up a higher percentage of smaller pension checks. Lower earners also have lower average savings over their careers."
A Better Retirement Savings Model for Employers and Employees
The RIT tool is designed primarily to help employers determine if their current retirement program provides adequate opportunity for employees to sustain their standard of living in retirement. It also helps define retirement income targets, which can aide in communication and education for employees. The tool is easily customized for most types of defined benefit, defined contribution and post-retirement medical plans. Results, which are shown graphically, also incorporate Social Security and personal savings.
"Today, more than ever, companies need to have a clear picture of what the benefit program offers and what that means for employees," Lofgren said. "Armed with that information, employers can make appropriate changes to their programs and provide valuable, accurate information to employees about what they need to save for retirement."
Watson Wyatt & Company, the primary subsidiary of Watson Wyatt & Company Holdings (NYSE: WW), is an international human capital consulting firm that provides services in the areas of employee benefits, human resources technologies and human capital strategies. The firm is headquartered in Washington, D.C., and has more than 4,200 associates in 62 offices in the Americas and Asia-Pacific. Together with Watson Wyatt LLP, a leading European-based consulting partnership, the firm operates globally as Watson Wyatt Worldwide. Watson Wyatt Worldwide has more than 6,200 associates in 87 offices in 30 countries.
Ed Emerman, 609.452.5967, firstname.lastname@example.org