Hey, money-grubbing jerks, our non-profit counterparts are killing us. That would appear to be the lesson from TIAA-CREF’s latest Retirement Income Index. It finds that not-for-profit sector plan participants—read 403(b)—are estimated to replace an average of more than 90 percent of their pre-retirement income in retirement.
“As people live longer in retirement, and costs continue to rise for healthcare and basic living expenses, the stakes for retirement planning have been raised dramatically,” Teresa Hassara, president of Institutional Retirement at TIAA-CREF, said in a statement. “In this environment, employers who look only at their employees’ account balances can feel a false sense of security. Ultimately, employees’ ability to replace the income they earned while working will determine whether they can maintain their standard of living in retirement.”
The high ratio underscores the impact of a number of factors on individual and plan outcomes, according to the company: a robust combined employer and employee contribution rate (an average of 14 percent for TIAA-CREF participants), access to personalized financial advice and the inclusion of guaranteed lifetime income options, such as fixed annuities.1
Key highlights from the index:
- Employees generally can expect to receive more than 90 percent of their pre-retirement income in retirement, with 53 percent of that coming from guaranteed sources such as Social Security (47 percent) and fixed annuities (6 percent), and the balance from variable sources such as mutual funds and variable annuities.
- Participants younger than age 40 have an average income replacement ratio of 110 percent. In this case, however, the number doesn’t tell the whole story. These participants are generally saving less than their older counterparts, and the projections show they are more reliant on Social Security than on their own investments for their guaranteed income.
- Participants age 67 or older have an average income replacement ratio of 107 percent. This is driven by higher average savings rates and account balances, but also reflects less reliance on Social Security for guaranteed lifetime income.
“The findings of the Retirement Income Index are a great testament to our clients’ use of best-practice plan design and investment solutions, coupled with our focus on lifetime income,” Hassara added. “There will always be more work to be done, but the collaboration between TIAA-CREF and our clients is clearly helping employees achieve long-term financial well-being.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
