What Replacement Rates Do Households Actually Experience in Retirement?

49 Pages Posted: 23 Jun 2008

See all articles by Alicia H. Munnell

Alicia H. Munnell

Boston College - Center for Retirement Research

Mauricio Soto

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2005

Abstract

This paper estimates how much people actually receive in retirement relative to earnings before retirement when all sources of income, including income generated by homeownership, are combined. Previous studies find that middle class people need between 70 and 75 percent of their pre-retirement earnings to maintain their life style once they stop working. The objective of this study is to determine what people are actually receiving in retirement.

Regardless of how retirement income and pre-retirement income are defined, households with pensions appear to meet the threshold of adequacy. Those without pensions do not fare as well, and some must be really struggling. Taking into account a comprehensive measure of income both before and after retirement - including housing - produces replacement rates for those with pensions of 79 percent for couples and 89 percent for single person households. Those without pensions have replacement rates of 62 percent for couples and 63 percent for singles. These replacement rates drop about 15 percentage points, however, when recent earnings (the highest five years of the last ten) are used as the benchmark. The overall picture is good...

Suggested Citation

Munnell, Alicia and Soto, Mauricio, What Replacement Rates Do Households Actually Experience in Retirement? (August 2005). Available at SSRN: https://ssrn.com/abstract=1150172 or http://dx.doi.org/10.2139/ssrn.1150172

Alicia Munnell (Contact Author)

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States
617-552-1762 (Phone)

Mauricio Soto

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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