Study: $50K Employee Will Need to Replace 81% of Pre-Retirement Income

An Aon study found that workers trying to keep their standard of living when they retire will need to be able to generate from $15,000 to around $185,000 annually.

Aon Consulting Worldwide said its annual Replacement Ratio Study conducted with Georgia State University found that a worker earning $50,000 at retirement will need to replace 81% of that amount annually to continue the same standard of living. On a yearly basis, this worker may receive 51% ($25,500) from Social Security (including spousal benefits), while the remaining 30% ($15,000) needs to come from an employer retirement plan and/or the worker’s own savings, according to the study.

Meanwhile, a worker earning $150,000 at retirement will need to replace 84% of that salary to continue the same pre-retirement standard of living. Social Security will provide only 23% ($34,500), while the employer retirement plan and/or worker’s own savings must account for the remaining 61% ($91,500) each year.

The study also reveals the number of years an average person should plan for their retirement assets to last. If a married couple is comfortable with a 50% chance they will not outlive their assets, they need to plan for 27 years, the study asserts. In terms of dollars, if this couple were earning $80,000 annually before retiring, then accumulating $420,000 from an employer retirement plan and/or their own savings by the time they retire will allow them to maintain their pre-retirement standard of living.

If the couple were more conservative and wanted a 95% chance they would not outlive their assets, they should plan for at least 38 years, the study says. This translates into approximately $715,000 in savings by the time they retire.

According to the release, the study shows the percentage of a person’s earnings that need to be saved annually until age 65, if a worker were to start saving at various ages and salary levels.

For example, a 25-year-old male earning $30,000 who has not started saving for retirement will need to save at least 4.2% of his pay each year until 65 to have a chance of retiring with an appropriate amount of savings. If this worker were age 35 making $60,000, the number jumps to 7.5% of pay each year until 65.

The primary data source for this information is the U.S. Department of Labor’s Bureau of Labor Statistics’ Consumer Expenditure Survey (CES). Aon Consulting and Georgia State University used data from the most recent years available: 2003, 2004, and 2005. This data includes information on approximately 12,823 working consumers and 6,498 retired consumers.