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 as wage increases it becomes more difficult to rely on qualified plans and social security alone to provide sufficient retirement income. Nonqualified plans can serve as a great tool to fill this income replacement gap.
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.