Key Findings Details
What Replacement Rates Should Households Use?
John Karl Scholz and Ananth Seshadri
- Common financial planning advice calls for households to ensure that retirement income fall between 70 and 85 percent of pre-retirement income in order to maintain pre-retirement living standards.
- However, the common rules of thumb do not consider important factors that impact lifetime earnings and consumption, such as marital status, level of education, race, and number of children.
- We find that 48 percent of married couples have an optimal replacement rate of less than 65 percent of pre-retirement income.