Some of the financial burdens that bedevil your working life—mortgage payments, savings, work-related expenses—may disappear altogether during retirement. Life is generally less expensive for a retiree, and to maintain your current standard of living, you’ll need only a portion of your current income. This “wage replacement ratio” is different for every individual, but experts predict you’ll need around 70% to 80% of your pre-retirement income to maintain your pre-retirement lifestyle.


Your own wage replacement ratio will depend on personal factors, like whether you’ve paid off your mortgage or are still renting during retirement. If you’re especially frugal, you may need as little as 40% to get by.


Calculating your wage replacement ratio can be extremely useful, since it determines how much you’ll need to save for retirement:


  • Grab a pen and paper, and list all the items you spend money on, from food to income taxes to savings.
  • Next to each item, write down what you spend in dollars in a typical year (your current budget). Then add it up. The total should equal your current annual income.
  • Create a third column: Your estimated retirement budget. Some of the values will be zero (e.g. Social Security taxes and possibly mortgage payments). Tally up the numbers; the sum total will be your estimated retirement income.
  • Use a calculator to divide your estimated retirement income by your current annual income, and then multiply it by 100: This will give you your wage replacement ratio. 


A single worker who earned $75,000 per year and reached normal retirement age in 2015, saw only 36% of their wages replaced by Social Security benefits. This kind of wage replacement ratio may be okay for the extremely thrifty, but most retirees will need to reconcile that shortfall by using income from other sources, such as the savings accumulated in employer retirement plans and IRAs. Work with your financial advisor to gauge if you’re on target for saving all you need for the kind of retirement you want and deserve.