What is a Replacement Ratio?

One way to measure retirement readiness is based on income "replacement ratios." A "replacement ratio" represents the percentage of your pre-retirement salary (in the year just prior to retirement) that you will be able to replace throughout your retirement given the amount of assets you have accumulated. For instance, if you were earning a $50,000 salary the year before retirement and your replacement ratio was 80 percent, you would need to live on an annual income equivalent to $40,000 throughout your retirement years. Most financial planners advise that you will need a replacement ratio of approximately 80 percent in order to maintain your lifestyle into retirement.

The following chart depicts the estimated replacement ratios provided by the company's retirement plans, combined with Social Security, for someone who works 30 years with the company and retires at age 65.

Starting Salary
	<$35,000	$35,000 - $50,000	$50,000 - $75,000	$75,000 - $100,000
401(k) - Employee Contributions	25%	25%	25%	25%
401(k) - Company Match*	25%	25%	22%	19%
Pension Plan	16%	16%	16%	16%
Social Security	37%	33%	28%	23%
Income Replacement Ratio at Retirement	103%	99%	91%	83%

*The Company Match is currently capped at $5,000 annually which results in lower replacement ratios as your salary surpasses $100,000.

It is important to realize that while the pension and Social Security components of your retirement income do not require any actions on your part, the 401(k) plan, which comprises approximately 50 percent of the retirement picture, requires your active involvement. The above chart uses the following assumptions:

• You contribute 5 percent of your pay on a pre-tax basis to the 401(k) Savings Plan to take full advantage of the company match
• You earn an 8 percent rate of return on your 401(k) investments by investing prudently
• Your salary increases over the course of your career by 4 percent per year

If you do not achieve the above assumptions for the 401(k) plan or if you do not work a full career with the company, it may be necessary for you to supplement your company-provided retirement benefits with personal savings.

How do I determine my own personal replacement ratio?

With the personal replacement ratio feature on myComp, you can now measure your own retirement readiness. Newly added in January 2008, this feature allows you to model your own personal replacement ratio based on the benefits you have earned in the Travelers retirement plans and the retirement age you select.

Review your own Replacement Ratio on myComp

This description of Retirement Readiness provides information about replacement ratios and other benefits based on the current terms of the benefit plans maintained by Travelers. Travelers reserves the right to change these plans at any time or to terminate the plans, subject to any express limitations imposed under the plans or by law. This description of Retirement Readiness does not create an express or implied contract with employees regarding employment or any benefit associated with employment, nor does it in any way obligate Travelers to continue to provide any particular level of compensation or benefits. In the event of a discrepancy between this description and the plan document governing any plan described herein, the plan document will control. fb.us.2339603.02

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* This link is accessible only to employees logged into Travelers secure network.