Pensions can't seal the deal for retirement anymore

By Emily Hutto


The recently released Real Deal report by Aon Hewitt outlines the dollar amounts that Americans will need to retire. As pension contributions diminish, though, there's reason to believe that the report underestimates the numbers.

The average cost of retirement is 15.9 times the amount of your pay.

That's what the 2012 Real Deal Report by the benefits consulting firm Aon Hewitt says. That number takes inflation into account, assuming that the price of goods, services and media fees will increase. The report also suggests that because Social Security will cover some of these expenses, the average employee needs to save 11 times his or her pay by the time retirement rolls around.

This report is the summarized findings of studies of more than 2 million employees at 78 large employers in the United States. It says that while 11 times one's pay is the minimum dollar amount that should be saved prior to retirement, most employees are only expected to save less than nine times their pay (from defined contribution plans, employers' additions to defined contribution plans and defined benefit pensions), leaving them with shortfalls.

The calculated retirement medical costs in this report reflect the recently upheld PPACA, but they don't reflect the pension laws recently passed. The new law reduces the minimum payments that employers have to make to pension plans. Also important to note is that many companies are freezing, and in some cases completely eliminating, pension plans.

The Real Deal estimates that defined benefit pensions can provide 2.1 times an employee's pay in retirement. As pensions become more scarce though, can we really assume that will be the case by next year?