The fact that the median 55-year-old is already on track to replace 69% of pre-retirement income is good news, especially since younger pre-retirees should have more time to increase contributions and improve their position. But the 26% gap that the median 64-year-old faces to replace 80% of pre-retirement income is more daunting. And for workers who expect to make up at least some of the difference by staying on the job past age 65, it’s important to note that EBRI’s 2014 Retirement Confidence Survey has found that 49% of retirees left their jobs earlier than they had planned.
One potential mitigating circumstance is that workers in their 60s are far more likely to receive some sort of traditional pension to supplement their retirement. A more detailed review can be found in our first CoRI Retirement Indexes Analysis.
Cost of Future Income Has Risen It’s worth noting that in the year since we began tracking the cost of future retirement income, the estimated cost of income has increased. For someone age 55, for example, every $1 of lifetime retirement income was estimated to cost $14.09 as of June 30 – a 7.15% increase from what that same income would have cost a 55-year-old a year ago.
The relationship between market returns and the price of future income is a complex one, but in this case, strong market returns may have helped keep many people on track.
Chip Castille, Managing Director, is head of the BlackRock US Retirement Group. You can find more of his posts here.
1Aon Hewitt’s 2008 Replacement Ratio Study, which finds that an 80% income replacement rate is needed for single people with $50,000 in pre-retirement income who retire at age 65 to maintain their standard of living. Data is as of 6/30/14 and is subject to change.