Calculate your retirement income replacement ratio or the additional annual income needed to reach a target percentage based on expected retirement income.
Retirement Income Replacement Ratio Formula
The replacement ratio compares annual retirement income with annual income before retirement, using the selected gross or after-tax basis consistently. All amounts are annual USD for the same individual or household and dollar year; the calculator does not calculate taxes or adjust different years for inflation.
The ratio is:
ReplacementRatio (%)=RetirementIncome/PreRetirementIncome*100
The target is:
TargetIncome=PreRetirementIncome*TargetRatio
The remaining gap is:
AdditionalIncome=max(0,TargetIncome-KnownIncome)
Variables:
- retirement income is the sum of Social Security, pension, portfolio withdrawals, and other income
- pre-retirement income is gross annual income
- the target ratio is entered as a decimal in the formula
Ratio mode measures the entered income plan. Income-gap mode rounds the required annual target up to a whole USD cent, then finds additional annual income needed. It reports zero when entered income meets or exceeds the target, and separately shows any surplus.
Replacement ratios are a screening tool because taxes, saving, payroll costs, and household expenses change at retirement.
Use gross amounts consistently unless every input has been converted to after-tax income.
Illustrative Replacement Targets
Illustrative annual income at several percentages of pre-retirement income. These percentages are arithmetic examples, not recommended targets for every household.
| Pre-retirement income | 70% ratio | 80% ratio | 90% ratio |
|---|---|---|---|
| $60,000 | $42,000 | $48,000 | $54,000 |
| $100,000 | $70,000 | $80,000 | $90,000 |
| $150,000 | $105,000 | $120,000 | $135,000 |
| $200,000 | $140,000 | $160,000 | $180,000 |
Example Problems
Example 1: Calculate a ratio.
Retirement income of $83,000 divided by $100,000 of pre-retirement income produces an 83 percent replacement ratio.
Example 2: Calculate the gap.
An 80 percent target on $100,000 requires $80,000. If known income is $70,000, the gap is $10,000 per year.
Frequently Asked Questions
What is a good replacement ratio?
Rules of thumb often fall below 100 percent, but the right target comes from expected spending and taxes.
Should portfolio withdrawals be gross or net?
Use gross withdrawals when the other income and pre-retirement salary are gross.
Can the ratio exceed 100 percent?
Yes. Some households intentionally plan higher retirement spending or have substantial pension and investment income.
