How Do Pensions Affect Replacement Rates?
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.
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Alicia H. Munnell is the Peter F. Drucker Professor of Management Sciences in Boston College's Carroll School of Management and Director of the Center for Retirement Research at Boston College. Mauricio Soto is an Economics graduate student at Boston College and a Senior Research Associate at the Center. Natalia A. Jivan, Marric Buessing, and Nadezhda Karamcheva did a fabulous job programming the Health and Retirement Study. Andrew Varani, Jamie Lee, and Reed Hatch provided extraordinary research assistance. The authors benefited greatly from discussion with Center colleagues. This brief is adapted from a longer paper by Alicia H. Munnell and Mauricio Soto entitled "What Replacement Rates Do Households Actually Experience in Retirement?" that is available here.