For employers and employees alike, the stakes for retirement planning are high. How can you tell if your retirement plan measures up, and whether you are most effectively using your time and resources to improve retirement outcomes for your employees?
Here’s a look at how to gauge your plan’s progress more precisely through a metric that measures your employees’ projected level of retirement income.
The main objective of any retirement plan is retirement readiness, or how well your employees are financially prepared to live after they stop working. It’s not about building the biggest nest-egg, but rather about employees replacing enough pre-retirement income to cover monthly expenses and still living comfortably throughout retirement.
A plan’s income replacement ratio can help you determine whether your employees are on track to meet their retirement income goals. It shows how well an individual employee can replace his or her current paycheck after retirement. Yet, only 25% of plan sponsors measure income replacement.1
Your plan’s income replacement metrics should go further by distinguishing between how much income comes from guaranteed sources—such as Social Security and annuities—and from other investment options that aren’t guaranteed. As a goal, your employees should target replacing between 70% and 100% of their pre-retirement income, with at least 50% coming from guaranteed income sources.
Having a focused and comprehensive way to assess your employees’ retirement readiness and your overall plan performance are key to meeting your retirement plan’s goals. Learn more about TIAA’s approach to improving your plan’s health.
1 Source: Rebecca Moore, Plan Benchmarking Measures, PlanSponsor Magazine, February 2015.
2 Both Jane’s pre- and post-retirement income are after taxes.Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value.
TIAA-CREF Individual & Institutional Services, LLC, Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and SIPC, distribute securities products. Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association of America (TIAA) and College Retirement Equities Fund (CREF), New York, NY. Each of the foregoing is solely responsible for its own financial condition and contractual obligations. Guarantees are based on the claims-paying ability of the issuer.
Investment products may be subject to market and other risk factors. See the applicable product literature, or visit TIAA.org for details.Income options will vary by investment provider. There may be liquidity and other withdrawal restrictions. You should contact your provider for details.
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