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Aon Consulting's Replacement Ratio Study Shows the Impact on Workers Who are not Saving Enough for Retirement
PRNewswire-FirstCall
CHICAGO
(NYSE:AOC)

CHICAGO, Aug. 11 /PRNewswire-FirstCall/ -- A worker planning to maintain a pre-retirement standard of living in retirement can require anywhere from approximately $15,000 to $185,000 or more annually from private and employer sources, according to Aon Consulting Worldwide, the global human capital consulting organization of Aon Corporation (NYSE: AOC).

(Logo: http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO)

The 2008 Replacement Ratio Study, conducted by Aon Consulting and Georgia State University, details the percentage of one's final annual salary that needs to be replaced for a person to keep the same standard of living after retirement. This allows workers to determine what they should be saving now and in the future, based on age, current salary and other factors.

For example, the study shows that a worker earning $50,000 at retirement will need to replace 81 percent of that amount annually to continue the same standard of living. On a yearly basis, this worker may receive 51 percent ($25,500) from Social Security (including spousal benefits), while the remaining 30 percent ($15,000) needs to come from an employer retirement plan and/or the worker's own savings. These numbers vary depending on final base salary, so in contrast, a worker earning $150,000 at retirement will need to replace 84 percent of that salary to continue the same pre-retirement standard of living. In this case, however, Social Security will provide only 23 percent ($34,500), while the employer retirement plan and/or worker's own savings must account for the remaining 61 percent ($91,500) each year. See chart at the end of this release for additional breakouts.

"Generally, a person needs less gross income after retiring," said Cecil Hemingway, U.S. Retirement Practice leader with Aon Consulting. "This is primarily due to the following factors: income taxes go down after retirement; Social Security taxes end completely; Social Security benefits are partially or fully tax-free; and saving for retirement is no longer needed. That said, our 2008 Replacement Ratio Study truly illustrates the importance of saving and the overwhelming challenges that lie ahead for those who don't save adequately."

Making Money Last

This study also reveals the number of years an average person should plan for their retirement assets to last. If a married couple is comfortable with a 50 percent chance they will not outlive their assets, they need to plan for 27 years. In terms of dollars, if this couple were earning $80,000 annually before retiring, then accumulating $420,000 from an employer retirement plan and/or their own savings by the time they retire will allow them to maintain their pre-retirement standard of living. If the couple were more conservative and wanted a 95 percent chance they would not outlive their assets, they should plan for at least 38 years. This translates into approximately $715,000 in savings by the time they retire. See chart at the end of this release for additional breakouts.

"The most significant issue retirees will face moving forward is outliving assets," said Hemingway. "The convergence of medical advancements, enabling people to live longer, and worker apathy toward retirement savings is creating a 'perfect storm,' which may result in millions of Americans with little money left as they advance through their 'golden years.' The Pension Protection Act of 2006 includes provisions so employees can be automatically enrolled in company retirement plans. However, the responsibility of retirement still rests with the employee to determine if that's enough to ensure a well-funded retirement."

It's Not Too Late to Start Saving

In addition, the Replacement Ratio Study shows the percentage of a person's earnings that need to be saved annually until age 65, if a worker were to start saving at various ages and salary levels. For example, a 25-year-old male earning $30,000 who has not started saving for retirement will need to save at least 4.2 percent of his pay each year until 65 to have a chance of retiring with an appropriate amount of savings. If this worker were age 35 making $60,000, the number jumps to 7.5 percent of pay each year until 65. See chart at the end of this release for additional breakouts.

"An employee with a typical 401k, for example, has to bear all equity, interest rate/inflation and longevity risk that employers used to bear, so the bottom line is save," said Hemingway. "If you're saving now, make sure it's an appropriate amount, based on all factors. If you're not saving, start doing so today. It's never too late to start saving, but the later you start, the more you will need to save to make up for years of not doing so."

About the Replacement Ratio Study

The primary data source for this information is the U.S. Department of Labor's Bureau of Labor Statistics' Consumer Expenditure Survey (CES). This is essentially the same database that is used to construct the Consumer Price Index. The CES is done annually. Aon Consulting and Georgia State University used data from the most recent years available-2003, 2004, and 2005. This data includes information on approximately 12,823 "working" consumer units and 6,498 "retired" consumer units.

About Aon Consulting

Aon Consulting Worldwide (http://www.aon.com/hcc) is among the top global human capital consulting firms, with 2007 revenues of $1.352 billion and 6,335 professionals in 117 offices worldwide. Aon Consulting is shaping the workplace of the future through benefits, talent management and rewards strategies and solutions. Aon Consulting was named the best employee benefit consulting firm by the readers of Business Insurance magazine in 2006 and 2007.

About Aon

Aon Corporation (NYSE: AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting. Through its 36,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources, technical expertise and industry knowledge are delivered locally through more than 500 offices in more than 120 countries. Aon was named the world's best broker by Euromoney magazine's 2008 Insurance Survey. In 2008, Aon ranked highest on the Business Insurance ranking of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues. Aon also was ranked by A.M. Best as the number one insurance broker based on brokerage revenues in 2007 and 2008, and was voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 by the readers of Business Insurance. For more information on Aon, log onto http://www.aon.com/.

  Replacement Ratios Translated into Dollars

                                Private and                Private and
  Pre-Retirement    Social       Employer                Employer Sources
  Income           Security(%)   Sources(%)    Total(%)     (Annual $)

  $50,000             51           30           81            $15,000
  $60,000             46           32           78            $19,200
  $70,000             42           35           77            $24,500
  $80,000             39           38           77            $30,400
  $90,000             36           42           78            $37,800
  $150,000            23           61           84            $91,500
  $200,000            17           69           86           $138,000
  $250,000            14           74           88           $185,000

  This assumes a family situation in which there is one wage earner who
  retires at age 65, with a spouse at age 62.  The Social Security includes
  the spouse's Social Security he/she will collect at age 62.



  Number of Years a Retirement Account Should Last

  Desired Probability That You    Number of Years You Should Prepare For
  Will Not Outlive Your Assets
                                                             Married Couple
                                 Male only    Female only    (Male 65, and
                                   (65)           (62)         Female 62)*

              50%                   19             24              27
              75%                   24             30              31
              95%                   31             38              38

  For example: If a 65-year-old male is counting on a 95% probability that
  he will not outlive his assets, he should plan for his retirement savings
  to last 31 years.
  * This assumes a family situation in which there is one wage earner who
    retires at age 65, with a spouse at age 62.



  Number of Years a Retirement Account Should Last - Dollars Needed on the
  Day of Retirement

                                                  50% Desired   95% Desired
                                                  Probably of   Probably of
                                                 Not Outliving Not Outliving
                                       Private    Assets (27    Assets (38
                      Private            and        years)-       years)-
     Pre-     Social    and            Employer  Private and   Private and
  Retirement Security Employer   Total Sources    Employer      Employer
    Income     (%)    Sources(%)  (%) (Annual $)   Dollars       Dollars

  $80,000      39       38        77   $30,400    $420,000      $715,000
  $90,000      36       42        78   $37,800    $525,000      $890,000
  $150,000     23       61        84   $91,500  $1,260,500    $2,150,000
  $200,000     17       69        86  $138,000  $1,905,000    $3,250,000
  $250,000     14       74        88  $185,000  $2,555,000    $4,355,000

  This assumes a family situation in which there is one wage earner who
  retires at age 65, with a spouse at age 62.  Social Security includes the
  payments made to both spouses.  Annual investment returns are expected to
  average 7.8% with a standard deviation of 10.7%.



  Yearly Savings as a Percentage of Pay - Males

  Current                  % of pay that needs to be saved each year until
  Salary                            age 65, if saving starts at age x

                              25           35           45             55

  $20,000                    3.5          5.8          10.9           26.7
  $30,000                    4.2          7.1          13.3           32.8
  $40,000                    4.2          7.1          13.3           32.8
  $50,000                    4.1          6.9          13.0           31.9
  $60,000                    4.5          7.5          14.0           34.5
  $70,000                    4.8          8.1          15.1           37.1
  $80,000                    5.2          8.8          16.5           40.5
  $90,000                    5.8          9.7          18.2           44.9

  For example: A 35-year-old male making $60,000 who hasn't saved anything
  for retirement, will need to save 7.5% of his salary per year to retire at
  age 65. If a 45-year-old making $60,000 begins saving for retirement, he
  will need to save 14% of his annual salary per year to retire at age 65.



  Yearly Savings as a Percentage of Pay - Females

  Current                  % of pay that needs to be saved each year until
  Salary                            age 65, if saving starts at age x

                             25            35           45             55

  $20,000                   3.7           6.2          11.6           28.5
  $30,000                   4.6           7.7          14.4           35.4
  $40,000                   4.6           7.7          14.4           35.4
  $50,000                   4.5           7.5          14.0           34.5
  $60,000                   4.8           8.1          15.1           37.1
  $70,000                   5.2           8.8          16.5           40.5
  $80,000                   5.7           9.5          17.9           44.0
  $90,000                   6.2          10.5          19.6           48.3

  For example: A 35-year-old female making $60,000 who hasn't saved anything
  for retirement, will need to save 8.1% of her salary per year to retire at
  age 65. If a 45-year-old making $60,000 begins saving for retirement, she
  will need to save 15.1% of her annual salary per year to retire at age 65.


   For more information, contact:
   Joe Micucci
   312-381-4786
   joe_micucci@aon.com

Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO
AP Archive: http://photoarchive.ap.org/
PRN Photo Desk, photodesk@prnewswire.com

SOURCE: Aon Corporation

CONTACT: Joe Micucci of Aon Corporation, +1-312-381-4786,
joe_micucci@aon.com

Web site: http://www.aon.com/

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