Why Raises are Required in the Batch Processing Tool
Contents
Given the economic environment, advisors have indicated that many plan sponsors are not providing raises to their employees and prefer to account for no raises configured in the reports. However, TRAK requires raises be included.
The reason for this is what happens to purchasing power of the participants who have a number of years until retirement: their real-dollar income can be reduced significantly.
| For Example | The grid below illustrates the buying power If inflation is 3%. So, for a person 20 years from retirement and a inflation rate of 3%, with no raises until retirement, the purchasing power is reduced to 55% of their current income level. |
Years Until Retirement |
Annual Raise |
||
0% |
1% |
2% |
|
5 |
86% |
91% |
95% |
10 |
74% |
82% |
91% |
20 |
55% |
68% |
82% |
30 |
41% |
56% |
75% |
The grid below illustrates the buying power of $1,000 with an inflation rate of 3%. So, for a person 20 years from retirement, if the inflation is 3%, with no raises until retirement, the purchasing power is reduced to 55% of their current income level.
Years Until Retirement |
Annual Raise |
||
0% |
1% |
2% |
|
5 |
$863 |
$907 |
$952 |
10 |
$744 |
$822 |
$907 |
20 |
$554 |
$676 |
$823 |
30 |
$412 |
$555 |
$746 |
Not having any raises over a significant period of time will result in a a much lower income at retirement. TRAK calculates the income needed in retirement as a percentage of the income at retirement. Therefore not having any raises until retirement can significantly reduce the savings needed for retirement.