What is Retirement Readiness?

According to John Hancock’s “State of the Participant 2021” report, overall retirement readiness dropped slightly in 2020. However, most participants under age 50 remain retirement ready. For the purposes of its study, John Hancock defines retirement readiness as the expected ability of a participant’s current strategy to replace at least 70% of their pre-retirement earnings.

The ultimate question for almost everyone saving for retirement is “how much do I need to be saving?” Many financial professionals recommend saving enough to replace 70-85% of your pre-retirement income. But is that benchmark right for everyone? Depending on each person’s unique circumstances or outlook, they may not need to save that much – or they may need to save more. Here’s a high-level guide to help employees determine their own retirement readiness benchmark.

Why employees might need to save less

Depending on how they envision their life in retirement, an employee’s anticipated expenses may be much less than they are today. In addition, they may continue to earn money in retirement to help offset expenses. Here are some reasons employees may not need to save as much for retirement:

• If they have a mortgage, they plan on paying it off before they retire
• They plan on downsizing to a smaller home, with a much lower mortgage payment
• They plan on relocating to a less expensive city
• They plan on working part-time during retirement
• They anticipate other sources of income, such as investment/rental properties
• They expect Social Security benefits will provide adequate income for their needs
• They will no longer need to financially support children or other family members
• They anticipate good health, with no unexpected medical or long-term care expenses

Why employees might need to save more

However, on average, men and women who reach the standard retirement age of 65 can anticipate living into their eighties, according to the Social Security Administration. With retirement potentially lasting 20 years or more, an employee may want to be more aggressive with their retirement saving goal. Here are some reasons employees may need to save more for retirement:

• If they have a mortgage, they plan on continuing to make payments during retirement.
• They want to travel extensively or purchase a second home for an occasional getaway
• They expect higher healthcare and medication expenses
• They anticipate needing long-term care at some point
• They plan on starting their own business and will need to provide funding
• They will need to financially support children or other family members
• They believe that their Social Security benefits will be reduced or inadequate

Looking to help employees determine their own unique retirement readiness benchmark and take the steps to reach it? Kmotion’s retirement and financial wellness educational materials can help you make it happen. Visit kmotion.com or contact us today at 1.877.306.5055 for more information!