Determine The Retirement Savings Gap with an Income Replacement Study

An income replacement study is a common exercise used when first evaluating the need for a SERP. During this study, an executive’s existing benefit package along with their assumed social security benefit is evaluated to determine any additional retirement savings need. Often times employees and employers overlook this shortfall as retirement contribution limits prohibit high earning executives from saving enough for retirement to maintain their current lifestyle.

The example below demonstrates that a 45-year-old executive earning $150,000 annually and maximizing their 401(k) each year until age 67 would accumulate only about half the savings needed to produce the same income from interest during retirement.

An income replacement study can help to better identify the retirement savings gap needed and to determine a fair benefit amount for the executive. This often serves as a key starting point when an organization is evaluating an executive benefit offering.