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Defined Contribution

Empower: Participants prepare better for retirement if they’re given income replacement rates

Defined contribution plan participants who have received a detailed view of their retirement future do a better job of preparing for it, according to new research by Empower Retirement.

The record keeper found that income replacement scores for participants receiving a projected view of future monthly income were higher than the scores of participants who didn't receive such a projection.

For the former group, Empower found that projected income replacement scores rose to 77.8% from 68% during a roughly six-year period from December 2010 to September 2016. Empower tracked more than 300,000 active participants among its record-kept plans, said Peter Kapinos, head of client engagement.

Empower compared those results to a national survey that Empower conducts annually, noting that projected income replacement rates remained relatively flat between 2013 and 2016 — hovering each year between 58% and 62%, Mr. Kapinos added. The national survey of about 4,000 people per year isn't restricted to Empower clients.

"Traditionally, retirement savers were presented with an accumulated balance of assets to demonstrate retirement savings," said an Empower report describing its findings. In 2010, Empower began including the monthly income replacement rate with accumulated balances "based on the idea that the monthly income rate was more meaningful to individuals."

Empower analyzes participants' retirement readiness using a variety of data points such as salary, age, contributions, outside income and expected retirement age​ as well as other assorted estimates such as future wage growth and Social Security to produce a lifetime income score. This score helps participants understand where they are financially vs. where they want to be, and it enables them to track their progress in achieving their goals.