By Ashlea Ebeling
How much income will you need in retirement compared to what you’re earning now? Less than half? Nearly five times as much? Target retirement income replacement rate recommendations ranged from 43% to 476% in 52 articles and reports the Government Accountability Office reviewed in a new study, Better Information on Income Replacement Rates Needed to Help Workers Plan for Retirement. Typical recommended rates ranged from 70% to 85%, but low-income households need more like 100%.
Is knowing your target replacement rate really important? Some financial advisors customize target replacement rates for clients, while others question the usefulness of the whole exercise: Income needs are unique and will change over time.
The GAO looked at this issue because the Department of Labor is supposed to help American figure this out, via a website where individuals can calculate their estimated retirement savings needs, based on their retirement income goal as a percentage of their pre-retirement income. The DOL uses a static ‘easy rule of thumb” 80% replacement rate in its Savings Fitness worksheets, and the GAO says that’s misleading
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