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.