Outlook improving

Those worried about their retirement readiness have reason to be a bit more optimistic.

There’s still room for improvement, but better retirement savings behaviors and stronger market returns have improved savers’ footing, according to research from Aon Hewitt.

A record high 76% of eligible employees participated in a defined-contribution plan in 2011, according to a new survey by the benefits firm. Workers who contribute to a company retirement plan are on track to accumulate savings — counting personal savings — equaling 8.8 times their final yearly salary, the survey found.

That’s short of the 11 times final pay that experts say employees will need to maintain their lifestyle in retirement (beyond Social Security), but the gap has decreased to 2.2 times final pay, from 2.4 in 2010.

Aon Hewitt calculated that workers who begin saving at 25 and target 11 times pay at retirement need to contribute 12% to 18% of their pay annually to accomplish the goal by 65. The average contribution rate is 7.2%, which means that fewer than 30% of full-career employees are on track for adequate retirement income. A hike in contributions of just 1% a year for five straight years would increase that figure to 46%.

Rob Reiskytl, leader of retirement plan strategy and design at Aon Hewitt, said that companies can help close the distance between the current accumulation rate and the amount of money needed for retirement with little or no rise in their costs.

“Employers should design their 401(k) plans in a way that harnesses inertia, such as matching at higher rates of savings and combining automatic enrollment with automatic contribution escalation for all employees,” Mr. Reiskytl said.

Aon Hewitt’s study analyzed the resources and needs of more than 2.2 million employees at 78 large businesses in the U.S.