How Do Pensions Affect Replacement Rates?

Alicia H. Munnell Mauricio Soto

IB#37

Introduction

Do today’s retirees have sufficient income to meet their needs? One common way to address this question is to determine a household’s “replacement rate.” The replacement rate gauges the extent to which retirement income allows workers to maintain their pre-retirement standard of living. This brief is the second in a series examining replacement rates for current retirees. The first one looked solely at Social Security, the single most important source of retirement income. This brief adds employer-sponsored pensions and household saving outside of employer plans to provide a more comprehensive picture of replacement rates. A final brief will consider how the addition of housing equity may affect replacement rates.