CHICAGO, Aug. 11 /PRNewswire-FirstCall/ -- A worker planning to
maintain a pre-retirement standard of living in retirement can
require anywhere from approximately $15,000 to $185,000 or more
annually from private and employer sources, according to Aon
Consulting Worldwide, the global human capital consulting
organization of Aon Corporation (NYSE:AOC). (Logo:
http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO) The 2008
Replacement Ratio Study, conducted by Aon Consulting and Georgia
State University, details the percentage of one's final annual
salary that needs to be replaced for a person to keep the same
standard of living after retirement. This allows workers to
determine what they should be saving now and in the future, based
on age, current salary and other factors. For example, the study
shows that a worker earning $50,000 at retirement will need to
replace 81 percent of that amount annually to continue the same
standard of living. On a yearly basis, this worker may receive 51
percent ($25,500) from Social Security (including spousal
benefits), while the remaining 30 percent ($15,000) needs to come
from an employer retirement plan and/or the worker's own savings.
These numbers vary depending on final base salary, so in contrast,
a worker earning $150,000 at retirement will need to replace 84
percent of that salary to continue the same pre-retirement standard
of living. In this case, however, Social Security will provide only
23 percent ($34,500), while the employer retirement plan and/or
worker's own savings must account for the remaining 61 percent
($91,500) each year. See chart at the end of this release for
additional breakouts. "Generally, a person needs less gross income
after retiring," said Cecil Hemingway, U.S. Retirement Practice
leader with Aon Consulting. "This is primarily due to the following
factors: income taxes go down after retirement; Social Security
taxes end completely; Social Security benefits are partially or
fully tax-free; and saving for retirement is no longer needed. That
said, our 2008 Replacement Ratio Study truly illustrates the
importance of saving and the overwhelming challenges that lie ahead
for those who don't save adequately." Making Money Last This study
also reveals the number of years an average person should plan for
their retirement assets to last. If a married couple is comfortable
with a 50 percent chance they will not outlive their assets, they
need to plan for 27 years. In terms of dollars, if this couple were
earning $80,000 annually before retiring, then accumulating
$420,000 from an employer retirement plan and/or their own savings
by the time they retire will allow them to maintain their
pre-retirement standard of living. If the couple were more
conservative and wanted a 95 percent chance they would not outlive
their assets, they should plan for at least 38 years. This
translates into approximately $715,000 in savings by the time they
retire. See chart at the end of this release for additional
breakouts. "The most significant issue retirees will face moving
forward is outliving assets," said Hemingway. "The convergence of
medical advancements, enabling people to live longer, and worker
apathy toward retirement savings is creating a 'perfect storm,'
which may result in millions of Americans with little money left as
they advance through their 'golden years.' The Pension Protection
Act of 2006 includes provisions so employees can be automatically
enrolled in company retirement plans. However, the responsibility
of retirement still rests with the employee to determine if that's
enough to ensure a well-funded retirement." It's Not Too Late to
Start Saving In addition, the Replacement Ratio Study shows the
percentage of a person's earnings that need to be saved annually
until age 65, if a worker were to start saving at various ages and
salary levels. For example, a 25-year-old male earning $30,000 who
has not started saving for retirement will need to save at least
4.2 percent of his pay each year until 65 to have a chance of
retiring with an appropriate amount of savings. If this worker were
age 35 making $60,000, the number jumps to 7.5 percent of pay each
year until 65. See chart at the end of this release for additional
breakouts. "An employee with a typical 401k, for example, has to
bear all equity, interest rate/inflation and longevity risk that
employers used to bear, so the bottom line is save," said
Hemingway. "If you're saving now, make sure it's an appropriate
amount, based on all factors. If you're not saving, start doing so
today. It's never too late to start saving, but the later you
start, the more you will need to save to make up for years of not
doing so." About the Replacement Ratio Study The primary data
source for this information is the U.S. Department of Labor's
Bureau of Labor Statistics' Consumer Expenditure Survey (CES). This
is essentially the same database that is used to construct the
Consumer Price Index. The CES is done annually. Aon Consulting and
Georgia State University used data from the most recent years
available-2003, 2004, and 2005. This data includes information on
approximately 12,823 "working" consumer units and 6,498 "retired"
consumer units. About Aon Consulting Aon Consulting Worldwide
(http://www.aon.com/hcc) is among the top global human capital
consulting firms, with 2007 revenues of $1.352 billion and 6,335
professionals in 117 offices worldwide. Aon Consulting is shaping
the workplace of the future through benefits, talent management and
rewards strategies and solutions. Aon Consulting was named the best
employee benefit consulting firm by the readers of Business
Insurance magazine in 2006 and 2007. About Aon Aon Corporation
(NYSE:AOC) is the leading global provider of risk management
services, insurance and reinsurance brokerage, human capital and
management consulting. Through its 36,000 colleagues worldwide, Aon
readily delivers distinctive client value via innovative and
effective risk management and workforce productivity solutions. Our
industry-leading global resources, technical expertise and industry
knowledge are delivered locally through more than 500 offices in
more than 120 countries. Aon was named the world's best broker by
Euromoney magazine's 2008 Insurance Survey. In 2008, Aon ranked
highest on the Business Insurance ranking of the world's largest
insurance brokers based on commercial retail, wholesale,
reinsurance and personal lines brokerage revenues. Aon also was
ranked by A.M. Best as the number one insurance broker based on
brokerage revenues in 2007 and 2008, and was voted best insurance
intermediary, best reinsurance intermediary, and best employee
benefits consulting firm in 2007 by the readers of Business
Insurance. For more information on Aon, log onto
http://www.aon.com/. Replacement Ratios Translated into Dollars
Private and Private and Pre-Retirement Social Employer Employer
Sources Income Security(%) Sources(%) Total(%) (Annual $) $50,000
51 30 81 $15,000 $60,000 46 32 78 $19,200 $70,000 42 35 77 $24,500
$80,000 39 38 77 $30,400 $90,000 36 42 78 $37,800 $150,000 23 61 84
$91,500 $200,000 17 69 86 $138,000 $250,000 14 74 88 $185,000 This
assumes a family situation in which there is one wage earner who
retires at age 65, with a spouse at age 62. The Social Security
includes the spouse's Social Security he/she will collect at age
62. Number of Years a Retirement Account Should Last Desired
Probability That You Number of Years You Should Prepare For Will
Not Outlive Your Assets Married Couple Male only Female only (Male
65, and (65) (62) Female 62)* 50% 19 24 27 75% 24 30 31 95% 31 38
38 For example: If a 65-year-old male is counting on a 95%
probability that he will not outlive his assets, he should plan for
his retirement savings to last 31 years. * This assumes a family
situation in which there is one wage earner who retires at age 65,
with a spouse at age 62. Number of Years a Retirement Account
Should Last - Dollars Needed on the Day of Retirement 50% Desired
95% Desired Probably of Probably of Not Outliving Not Outliving
Private Assets (27 Assets (38 Private and years)- years)- Pre-
Social and Employer Private and Private and Retirement Security
Employer Total Sources Employer Employer Income (%) Sources(%) (%)
(Annual $) Dollars Dollars $80,000 39 38 77 $30,400 $420,000
$715,000 $90,000 36 42 78 $37,800 $525,000 $890,000 $150,000 23 61
84 $91,500 $1,260,500 $2,150,000 $200,000 17 69 86 $138,000
$1,905,000 $3,250,000 $250,000 14 74 88 $185,000 $2,555,000
$4,355,000 This assumes a family situation in which there is one
wage earner who retires at age 65, with a spouse at age 62. Social
Security includes the payments made to both spouses. Annual
investment returns are expected to average 7.8% with a standard
deviation of 10.7%. Yearly Savings as a Percentage of Pay - Males
Current % of pay that needs to be saved each year until Salary age
65, if saving starts at age x 25 35 45 55 $20,000 3.5 5.8 10.9 26.7
$30,000 4.2 7.1 13.3 32.8 $40,000 4.2 7.1 13.3 32.8 $50,000 4.1 6.9
13.0 31.9 $60,000 4.5 7.5 14.0 34.5 $70,000 4.8 8.1 15.1 37.1
$80,000 5.2 8.8 16.5 40.5 $90,000 5.8 9.7 18.2 44.9 For example: A
35-year-old male making $60,000 who hasn't saved anything for
retirement, will need to save 7.5% of his salary per year to retire
at age 65. If a 45-year-old making $60,000 begins saving for
retirement, he will need to save 14% of his annual salary per year
to retire at age 65. Yearly Savings as a Percentage of Pay -
Females Current % of pay that needs to be saved each year until
Salary age 65, if saving starts at age x 25 35 45 55 $20,000 3.7
6.2 11.6 28.5 $30,000 4.6 7.7 14.4 35.4 $40,000 4.6 7.7 14.4 35.4
$50,000 4.5 7.5 14.0 34.5 $60,000 4.8 8.1 15.1 37.1 $70,000 5.2 8.8
16.5 40.5 $80,000 5.7 9.5 17.9 44.0 $90,000 6.2 10.5 19.6 48.3 For
example: A 35-year-old female making $60,000 who hasn't saved
anything for retirement, will need to save 8.1% of her salary per
year to retire at age 65. If a 45-year-old making $60,000 begins
saving for retirement, she will need to save 15.1% of her annual
salary per year to retire at age 65. For more information, contact:
Joe Micucci 312-381-4786
http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO
http://photoarchive.ap.org/ DATASOURCE: Aon Corporation CONTACT:
Joe Micucci of Aon Corporation, +1-312-381-4786, Web site:
http://www.aon.com/
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