updated 7/1/2008 3:41:23 PM ET 2008-07-01T19:41:23

Fewer than one in five workers will be able to maintain their lifestyle upon retirement, with women being at a disadvantage because of their longer life spans and lower pay, according to a study released Tuesday.

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On average, employees are projected to replace just 85 percent of their income in retirement, compared to the 126 percent they would need when factoring in inflation, longer life spans and medical costs, the study by Hewitt Associates found.

The study looked at the projected retirement levels of nearly 2 million current workers of varying ages at 72 large U.S. companies and used actual employee balances.

Of those studied, more than 1.2 million employees (67 percent) are expected to have less than 80 percent of what they would need to maintain their lifestyle at retirement.

Those who don't contribute to 401(K) plans face an even bleaker future; these workers will likely only be able to provide less than 40 percent of their projected needs, according to the study.

The study found 19 percent of workers were on track to be able to maintain their standard of living upon retirement.

While the same percentage of men and women contributed to retirement plans, women faced an 8 percent greater shortfall in savings.

The biggest reason for the gap was a disparity in pay; women earned an average of $57,000 while men earned an average of $84,000. Since medical costs are not adjusted by gender, women's savings didn't go as far.

Women are also expected to live longer than men, meaning they have to spend at a lower rate while also covering medical costs for a longer period. Finally, women tend to be in and out of the work force more frequently for family reasons, leading to breaks in savings.

The result was that women had accumulated 84 percent of pay, while men of the same age accumulated 101 percent.

The Hewitt study projects workers will need to save enough to receive 126 percent of their income each year to maintain their standard of living, thanks to rising medical costs, inflation and longer life spans mean.

Traditionally, it was thought people needed to replace about 80 percent of their income to maintain their lifestyle after retirement. That level assumes workers will be paying fewer taxes and will no longer need to save for retirement.

It also assumes people have paid off mortgages and debt, which will not be the case for many.

"Many of us will have years left on our mortgages when we retire," said Sheryl Garrett, founder of Garrett Planning in Shawnee Mission, Kan.

Many people are also forced out of work sooner than 65.

Staying in the work force longer can have a dramatic impact on retirement savings, Garrett said. Working even just a few extra years can make a difference, she said.

"It's that many fewer years you're drawing on your nest egg, and that many more years that you're saving," she said.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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