Research from a TIAA-CREF index indicates that not-for-profit employees are on track to replace a surprising amount of their preretirement income in retirement—90 percent.
Data from the Retirement Income Index, which is based on a study of 500,000 employees actively contributing to TIAA-CREF retirement plans as of December 31, 2014, found that participants’ average plan account balance was approximately $177,000 (as of that date), which is nearly double the industry average of $91,300 (as of the same date).
More important is income replacement—how much income a participant will have in retirement, compared with his or her working income, and whether it’s adequate to pay the participant’s essential living expenses.
The index, according to TIAA-CREF, shows participants’ income replacement ratio: a person’s projected after-tax income after retirement, divided by his or her after-tax salary before retirement.
The index assumes that the participant doesn’t retire till 67, and it includes full Social Security benefits.
A 90-plus percent replacement ratio is in line with industry experts’ recommendation that individuals focus on being able to replace between 70–100 percent of their preretirement income during retirement.
The index found that employees generally can expect to receive more than 90 percent of their preretirement 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 are in an even better position, according to the index, with an average income replacement ratio of 110 percent. But they’re not saving as much as older participants, with projections relying more heavily on Social Security than on their own investments for their guaranteed income.
Participants 67 years old or older have an average income replacement ratio of 107 percent, with more of that total thanks to higher average savings rates and account balances and less reliance on Social Security for guaranteed lifetime income.
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