MetLife Mature Market Institute and GFK North America conducted an online retirement income test. They asked employees between ages 56 and 65 who plan to retire in the next five years what percentage of preretirement income they considered as a benchmark in determining the amount of Retirement Calc.. The results are as follows:

 
As the survey shows, there is no one correct income replacement rate. Various factors can influence the saving level, including retirement expenditure, asset allocation, gender, retirement age, and percentage of annuitized savings. Unpredictable variables such as longevity, Return On Investment (ROI), and medical costs can escalate the income replacement rate.

Even experts have trouble defining the average amount of income employees should tuck away. For example, after examining 2 million employees at 72 companies, human resources consulting firm Hewitt Associates reported that most workers are placing an adequate 85% of their income into retirement savings. Adjusting for inflation and medical costs, workers would need to invest a staggering 126% of their final paycheck. 

On the other hand, a Government Accountability Office (GAO) report claimed that an income replacement rate of 65 to 85% is adequate for most people. Social Security takes care of part of that investment: 54.2% for low earners and 33.5% for high earners. The difference, which can be further reduced by pensions or other benefits, is covered by the employee.

The GAO also found that workers born in 1990 will only have enough savings in 401(k) type plans to cover 20% of their income replacement rate. About 37% of those workers won’t have any retirement savings at all. 

While the GAO predictions aren’t the most positive, it is important to remember that everyone’s situation is different. Your spending rate can fluctuate throughout your lifetime. If your nest of egg has a return higher than the recommended 4% withdrawal rate, there is no reason why you can’t take out more. If you invested in longevity annuities or similar vehicles, then you can enjoy a guaranteed stream of income for the rest of your life and not worry about outliving your savings.

Of course, there are many factors that can muddle savings predictions. Most of us probably didn’t expect gas prices to run this high. So why are these statistics important? They provide a basic benchmark for the amount of saved income that’s adequate for retirement, so that the uncertain worker knows that he or she is on the right track. But the replacement rate should be adjusted for each person to make the most accurate prediction.