Aon Study: More ``Labor Days'' Ahead for American Workers?

Business Wire, Sept 1, 2004

CHICAGO -- Aon's 2004 Replacement Ratio Study Reveals Over 75 Percent of Pre-retirement Income Will Be Needed Per Year To Maintain Standard of Living After Retirement

Aon's 2004 Replacement Ratio Study, the preeminent retirement benchmarking tool in the industry, finds that the amounts employees need to retire have gone up, in some cases considerably, since last measured three years ago - creating the possibility that Americans will have to work longer and save more in the years to come.

Replacement ratios - defined as a person's gross income after retirement divided by his or her gross income before retirement - employees need to maintain the same standard of living vary by income level. For instance, someone making $20,000 before retirement needs to make 89 percent from social security, private and employer sources, meaning they need to get a total of $17,800 from all sources per year. At the $80,000 income level, that figure drops to 77 percent. Three years ago, the $20,000-a-year earner needed 83 percent, and the $80,000-a-year earner needed 75 percent.

"While managing their workforce in today's economy, employers need to look ahead to the demographic implications of the retiring Baby Boomers," said Chris Bone, chief actuary for Aon Consulting and head of the company's retirement consulting practice. "The company's retirement plan needs to be appropriate for its industry, competitive, and perceived as a benefit that employees understand and will be able to use."

2004 Replacement Ratio Findings
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  Pre-Retirement       Social        Private and          TOTAL
      Income          Security    Employer Sources  Replacement Ratio
                         (%)             (%)               (%)
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     $20,000             65              24                89
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     $30,000             56              28                84
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     $40,000             51              29                80
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     $50,000             48              29                77
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     $60,000             43              32                75
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     $70,000             39              37                76
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     $80,000             35              42                77
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     $90,000             33              45                78
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Aon Consulting, together with Georgia State University, created the Replacement Ratio Study in 1988, and the two organizations have updated the figures regularly since then, determining the replacement ratios necessary for individuals to maintain their standard of living after retirement.

"Understanding replacement ratios is just one step for employers to undertake as they help their employees plan for retirement," continued Ron DeStefano, senior vice president with Aon Consulting. "The next step is to use those percentages to take a serious look at where the employee population falls at their organization. If a company has a large portion of employees that are not 'on track' for retirement, it's vital to analyze issues such as plan design and communication of plan benefits."

In addition, Aon research finds that 41 percent of American workers don't think they will have enough money to retire, and 32 percent "don't know."

The Aon Consulting/Georgia State University Replacement Ratio Study(TM) offers detailed comparison of replacement ratios between 2001 and 2004, and also offers information on different family situations and analysis of savings rates. In addition, Aon continues the research to cover higher wage earners (those earning up to $250,000) and the replacement ratios needed for those situations. For more information, or to request a copy of the study, please visit www.aon.com/retirement.> About Aon

Aon Corporation (www.aon.com) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. The company employs approximately 52,000 professionals in its 600 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.

Aon Consulting is among the top global human resources consulting firms, with 2003 revenues of $1.185 billion and 7,500 professionals in 140 offices throughout the world. Aon Consulting delivers integrated consulting solutions to help clients with employee benefits, human resources outsourcing, compensation, communication and management consulting.