"Measuring Retirement Income Adequacy, Part One: Traditional Replacement Ratios and Results for Workers at Large Companies" and "Facts from EBRI: Assets in Qualified Plans, 1985–2002"

• This article is the first of a two-part series intended to sort through some of the issues and variations in determining whether the post-World War II baby boom generation is likely to achieve an “acceptable” standard of living in retirement.

• The Aon Consulting/Georgia State University study on benchmarking retirement income needs has provided periodic updates of this type of calculation for various levels of preretirement income since 1988.

• Under their baseline calculation (assuming a family situation where there is one wage earner who retires at age 65 with a spouse age 62), the replacement ratios peak at 89 percent for those in the lowest income group ($20,000 annually) and then gradually reduce to 75 percent for those earning $60,000 annually before increasing back to 88 percent for those in the high-income categories ($250,000).

• A recent study by Hewitt Associates shows that the typical 401(k) participant is well-positioned to replace 85–95 percent of preretirement income when current Social Security, existing profit-sharing, and defined benefit plans are taken into account. The study examined the projected preretirement income replacement levels across 62 large companies of the 960,000 employees who were actively participating in their 401(k) plans as of Jan. 1, 2003.

• The overall average replacement ratio for the Hewitt analysis drops from 95 percent under the high medical coverage assumption to 83 percent under the medium assumption and 80 percent under the low medical coverage assumption. This is true for employees retiring at a “normal” retirement age of 65, and who are relying primarily on Medicare for their health care benefits. Employees retiring at an earlier age will experience an even larger financial setback.