Data & Research November 16, 2006

Study: Average Worker needs to Save $11K+ More Annually for Retirement

The average employee needs to contribute an additional $11,400 to their retirement savings – or 21.2% of pay - annually to get back on track to having a big enough nest egg for them to live on in retirement, according to the latest data from a continuing retirement savings study.
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The Aon Consulting/Georgia State University Retirement Income Replacement Ratio Study, which has examined the amount workers will need to generate to continue living their chosen lifestyle, said those earning $60,000 a year need to replace 75% of their last year’s earnings.

Of the 140,000 employees in the 2006 study, 58% are on track to a financially secure, according to the report. The 58% on-track figure reflects both those who are contributing to their employers’ plans and those who are not contributing. Looking at just participants, the on-track percentage shoots up to 72%.

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According to the study’s latest data, the participant age groups and the amount they need to add to their annual savings (in dollar and percentage terms) to get back on track to having a large enough retirement savings include:

  • Under 25 years old – $950, 3.3%
  • 25-34 – $1,500, 3.5%
  • 35-44 – $4,350, 7.7%
  • 45-54 – $9,250, 14.7%
  • 55-64 – $33,700, 53.8%

The additional 21% of pay needed to be saved annually for the average employee means that a worker earning $35,000 would have to save an additional $7,350.

Researchers also contended that the data supports the age-old retirement savings adage about the importance of starting early. Some 92% of participants in the 25 to 34 age group are on track with an average deferral rate of 5.8% while only 58% of the 45 to 54 age group, who are deferring an average of 7.7%, are on track.

Researchers tracked 16,000 participants between 2004 and 2006 and found the following:

  • the number projected to be on track decreased 1.6%
  • employees’ average deferral rate (includes those not saving) increased from 5.04% to 5.27%
  • employees’ average account balance increased 22.4%
  • average account balance as a percentage of average annual compensation increased from 70.2% to 81.7%

Researchers used data developed by tracking participants in plans served by Aon’s personalized employee benefit unit, Benefacts.

The report is here

Products November 16, 2006

Eaton Vance Unveils SRA Product

Eaton Vance Corp. has unveiled its Supplemental Retirement Account (SRA), a Web-based program for systematic retirement savings outside of a qualified plan.
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An Eaton Vance news release said that the SRA investments are made in a diversified portfolio of tax-managed equity and tax-exempt municipal income mutual funds selected by the participant, maintained and reported as a single consolidated account.

The announcement said that current program offerings include eight tax-managed equity funds, 33 long-term municipal bond funds, eight limited-term municipal bond funds and a tax-free cash reserve fund, all managed by Eaton Vance. The program offers five preset portfolio asset allocations with a different mix of fund investments and a distinct risk profile and participants may also create their own customized allocations, the announcement said.

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Eaton Vance said in the announcement that many Americans face a gap between what they need to save for retirement and the maximum they can contribute to their qualified plans under the law. The newly unveiled program is designed to help bridge the retirement savings gap by facilitating regular savings and investment outside the bounds of qualified plans, the company said.

According to the news release, on enrolling in the program, each participant selects starting and ending portfolio asset allocation targets and a final target date. Between initial funding of the SRA and the specified target date, the participant’s target allocation will gradually evolve from the starting to the ending portfolio specified, according to the announcement.

When the participant begins making withdrawals, the process works the same way in reverse – positions are selected for sale that will move the asset allocation of the account toward the targeted portfolio weightings, Eaton Vance said.

An initial minimum investment of $20,000 and a commitment to make systematic investments of at least $500 per month are required to open an SRA. Each SRA is charged a one-time set-up fee of $30 and an annual maintenance fee of $30.

Enrollment is a simple, Web-based process that can be completed throughwww.supplementalretirementaccount.com.

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