This analysis helps answer one of the most important questions that many defined contribution participants face before retirement: How much do I need to save each year for a “successful” retirement? It includes three of the major post-retirement risks (longevity, investment, and long-term care) while allowing the participant to also choose the probability of “success” that is best suited for their circumstances.
Given the assumptions used in this Notes article, a single male age 25 earning $40,000 with no previous savings would need a total contribution rate (employee and employer combined) of less than 3 percent per year until retirement (age 65) for a 50 percent chance of success. A 6.4 percent contribution rate would achieve a 75 percent success rate and a 14 percent contribution rate would achieve a 90 percent success rate. But if a male earning $40,000 were to wait until age 40 to begin saving, he would need a 6.5 percent total contribution rate for just a 50 percent chance of success and a 16.5 percent total contribution rate for a 75 percent chance of success; a 90 percent probability of success would be impossible even with a 25 percent contribution rate.
The analysis also shows how large a participant’s current account balance needs to be, by contribution rate, to be “on-track” for a particular level of retirement success.
Chosen excerpts by Job Market Monitor. Read the whole story at “How Much Needs to be Saved for Retirement After Factoring In Post-Retirement Risks: Evidence from the EBRI Retirement Security Projection Model,®” and “Employer and Worker Contributions to Health Reimbursement Arrangements and Health Savings Accounts, 2006–2014” | EBRI.
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