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Are You Saving Enough for Retirement?

One study says you'll need 11 times your final salary to retire in comfort

By Richard Eisenberg

It's impossible to know exactly how much you'll need in savings to ensure a comfortable retirement. But human resources consulting firm Aon Hewitt recently came out with a retirement savings study that offers a pretty good estimate: 11 times your final working salary, assuming you plan to retire at 65 and maintain your pre-retirement standard of living.

Are you on target?

(MORE: The Retirement Math That Matters Most)

The Rule of 11 for Retirement Savings

To put some concrete numbers on Aon Hewitt's new Rule of 11:

If your annual pay at retirement is $60,000, you should have $660,000 in savings. If your salary is $100,000, the nest egg should total $1.1 million; if your final-year earnings are $250,000, at least $2.75 million should be set aside.

Aon Hewitt says that based on its retirement-savings rule and its study of employees at 78 large U.S. corporations, roughly 30 percent of employees are now on track to retire comfortably at 65. Put another way, the firm says that employees, on average, face a 20 percent shortfall for their projected retirement needs of 11 times pay. Ugh.

Here's the thing about rules like this: They're not as simple as they appear.

Lower Targets for Pre-Retirees

In fact, a closer look at Aon Hewitt's research reveals that many people in their 50s and early 60s may need a smaller savings stash than 11 times pay, since that target represents the projected average financial need for all future retirees.

"The targets for older workers are lower than for younger workers — around 9 or 10 times pay — primarily because of the assumptions in our study about the future cost of retiree health care," says Rob Reiskytl, the partner at Aon Hewitt who led this study. "Many older workers are currently on track to retire comfortably by age 65, and many others are on track for a comfortable retirement at a slightly later age, say 66 or 67."

So, let's run the numbers again, using a 9 times pay rule:

Final pay of $60,000 = $540,000 in savings, ideally; $100,000 salary = $900,000 in savings; and $250,000 in earnings = a nest egg of $2.25 million.

Granted, those savings target numbers aren't low, but at least they're smaller than the 11-times-pay figures.

(MORE: 'Lifestyle' Investing: A New Path to a Successful Retirement)

One more thing you should know: When Aon Hewitt says 30 percent of employees are on track for their retirement targets, it's talking about long-term employees (ones with the potential to work 30 years or more with their current employer before retirement) who contribute to employer-sponsored savings plans.

But, the study says, "projections for mid-career hires and those not currently contributing to their defined contribution plans reveal significantly worse results." Only about 15 percent of those employees are on target to retire comfortably at 65.


Ways to Meet Your Retirement Target

Reiskytl says employers and employees can do more to help Americans reach their retirement targets.

What employers should do: Reiskytl maintains that more firms should have automatic enrollment and automatic contribution escalation provisions in their 401(k)s, so employees will invest a growing portion of their pay (typically a step up of one percent a year, to a limit of 10 percent) in their retirement plans annually — unless they opt out.

He also says more employers should offer more investment advisory help, such as seminars and online investment guidance. An Aon Hewitt/Financial Engines study showed that employees who take advantage of this type of  help can increase their returns by as much as 3 percent.

What employees should do: Reiskytl says the two biggest mistakes employees make are not participating in their company-provided savings plans and not stashing away enough money in them.

According to the Aon Hewitt report, "increasing the savings rate by just 1 percent of pay for each of the next five years and then maintaining that higher savings rate until retirement will allow the average employee to retire at age 65 with adequate income."

Pushing back your planned retirement date from age 65 to 67 — just two years — can also greatly help you hit your target, says Reiskytl. Deferring retirement to 67 allows almost 50 percent of employees to achieve adequate retirement income, according to his study.

The two extra years give you more time to contribute to your retirement savings plan, with (hopefully) growing tax-deferred earnings. Working longer also reduces your retirement income needs, by shortening the number of years you'll need your savings to last.

Reiskytl's final cautionary words of wisdom: "It's important to recognize that the savings targets and rules of thumb in the Aon Hewitt research represent averages only. It probably makes sense for older workers to do some more precise calculations."

When you do these calculations, I recommend following the smart advice Dan Kadlec recently offered on's Moneyland site: "Use conservative estimates for expected investment returns and liberal estimates for how long you will live."


Photograph of Richard Eisenberg
Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More
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