Deferred Compensation Fills A Void

Shortfall - An Example

Qualified retirement plans often cannot provide adequate retirement income for highly compensated key employees. A Deferral plan may provide the extra retirement income. But, which employees are most in need of the plan? An Example:

  • Three Employees, each 45 years Old
  • Each plans to retire at 65
  • Each salary will increase 3% annually
  • Each makes the maximum allowable contribution to his/her 401(k) Plan
  • Each earns exactly the same return on his/her investments
  • Each requires 70% of his/her final salary for retirement

Employee A

Employee B

Employee C

Current Salary: $50,000

Current Salary: $100,000

Current Salary: $300,000

401(k) Balance @ 7%: $25,000

401(k) Balance @ 7%: $50,000

401(k) Balance @ 7%: $100,000

Final Pay: $87,675

Final Pay: $175,351

Final Pay: $526,052

Estimated Retirement Income

Estimated Retirement Income

Estimated Retirement Income

401(k): $82,631

401(k): $92,558

401(k): $129,838

Social Security: 17,292

Social Security: 24,420

Social Security: 25,536

Total: 99,923

Total: 116,978

Total: 155,374

Income Needed: 61,373

Income Needed: 122,745

Income Needed: 368,236

Annual Excess: $38,550

Annual Excess: ($5,767)

Annual Excess: ($212,862)

Income Replacement Ratio: 114%

Income Replacement Ratio: 67%

Income Replacement Ratio: 30%

Sufficient Retirement Income Expected

Insufficient Retirement Income Expected

Insufficient Retirement Income Expected

This material is intended for informational purposes only and is not intended to replace the advice of a qualified tax advisor.