This article accompanies Plan Ahead.
Many companies have not assessed the retirement readiness of their employee population, particularly younger workers, while a large percentage of employees have no idea how much they will need at retirement and how much they should be saving, says Kent Allison, partner and national practice leader at PricewaterhouseCoopers' financial education practice in Florham Park, N.J.
To address these two issues, Allison advises organizations to use a "retirement-readiness assessment," which can come in two forms.
In the first, a company can ask its retirement-plan administrator to assess the retirement readiness of employees by taking their current retirement savings balance, their current contribution rate and an assumed or projected rate of return to project the balance at retirement.
Then, they can project what type of income that figure can generate in retirement over their life expectancy, add in other known sources of income (Social Security, pension, etc., if applicable), "present-value" it and then compare the results to a presumed income-replacement goal (e.g., 80 percent of current compensation).
"This will give the company some idea as to where its employees stand with regard to retirement preparedness," says Allison.
In a similar vein, he says, companies can push out a "personalized" statement to each employee, showing how much they will need to save each year to meet their income-replacement goal at retirement, which shows results at different ages in which they start saving and at different rates of returns.