Some retirees approach a retirement strategy with precision. They know exactly how much income they will need. For the rest of us, using a “replacement ratio” is a good approach to estimating retirement income.
This simple calculation allows you to quickly estimate the percentage of your working income you’ll need once you retire. It assumes that your post-retirement lifestyle will mirror the lifestyle supported by your current income.
What the replacement ratio assumes
The replacement ratio helps you figure out how much income you’ll need to maintain your pre-retirement lifestyle. The ratio most commonly cited is 70 to 85 percent of pre-retirement income. Those percentages are based on the assumption that you’ll need less income at retirement because: