Market volatility over the past three years has made saving even more difficult for many employees. The median rate of return for defined contribution accounts has fluctuated wildly since 2008, with a low of negative 28 percent, rebounding to positive 24 percent in 2009, and a positive 13.5 percent in 2010. As of mid-August, 2011, initial indications show many defined contribution accounts have experienced investment losses this year.  

"The good news is that short-term drops in the market won't impact most employees' long-term savings outlook," explains Reiskytl. "They'll be able to make-up ground by continuing to contribute to their DC plan, and through generally positive market returns over the course of their life time. However, these market events can really hurt those workers nearing retirement because they have less time to adjust to market fluctuations."

In addition to market volatility, suspending contributions to a 401(k) during the down economy also significantly hampered workers' savings goals. For those employees (11.2 percent) who stopped contributing to their 401(k) plan and lost their employer's matching contribution in 2008, plan balances at the end of 2010 have yet to recover to pre-recession levels. An average employee who did not contribute to their retirement savings plan from 2008 through 2010 would have a balance of $88,000 at the end of 2010, down from $91,000 at the beginning of 2008.

On the other hand, if that same employee had continued to actively contribute to their plan, their account balance would have grown to $128,000 during the same period.  

Making up for the shortfall

Workers can make a few adjustments in order to eliminate the savings shortfall and ensure they are ready for retirement:

Retire later. Aon Hewitt's analysis shows that delaying retirement even two years can help workers make up their savings shortfall. For an average 40 year old worker currently saving at a rate of 8 percent per year, retiring at age 65 is expected to result in a savings shortfall of 1.7 times pay. However, by extending employment just two years to age 67, that worker may be able to close the savings gap. For an average 60 year old worker saving at 10 percent annually, who has a shortfall of 2.3 times pay, retirement may have to be delayed to age 68 in order to make up for the shortfall.

Save more. According to recent Aon Hewitt research, nearly 30 percent of employees did not contribute enough to their employer provided DC plan to receive the full company match. Workers who choose to increase their yearly contribution rate by just a few percentage points can dramatically improve their situation. For example, if that same 40 year old worker, saving at a rate of 8 percent of pay per year, increases their savings rate 4 percentage points to 12 percent per year, they will close their savings gap and should be on track to retire at age 65.

Seek expert help. Aon Hewitt's research shows that 74 percent of companies offer outside investment advisory services to employees, up from 50 percent in 2009. However, most employees (75 percent) are not taking advantage of this help. Making the most of these services may give workers the leg up they need to meet their retirement savings goals.

"The bottom line is that workers need to be proactive about saving for their future," stressed Reiskytl. "Ideally, the younger you are when you start saving, and the more you can put away, the better. However, it's not too late for workers who've gotten a late start or have been saving at a low rate. Making small adjustments to your savings rate, delaying retirement a few years, or just making sure your investments are sound, may be all you need to do to make sure you have enough money saved for retirement."