Plan Sponsors

Driving stronger plan outcomes through income replacement metrics


Driving stronger plan outcomes through income replacement metrics (PDF)

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.

How to measure retirement readiness

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 preretirement 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 preretirement income, with at least 50% coming from guaranteed income sources.

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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 assisting you with your plan’s health.