The replacement rate is the portion of your pre-retirement income that will be replaced by your retirement income. Many experts agree that a replacement rate of 75 to 85% will provide adequate retirement income.
When determining your goal, you need to think about the type of lifestyle you would like in retirement. Do you want the cruise-of-the-month retirement or are you planning to spend your time in the garden? You may want to consider using a higher percentage of your current gross income if:
If you make $100,000 a year now, and select a Replacement Rate of 70%, your target goal for your combined retirement income stream would be $70,000 per year in today's dollars. Due to the effects of inflation, this number would actually be higher when you retire.
For purposes of the Federal Ballpark E$timate, we calculate an average lifetime replacement rate. What this means is that the FBE will take the number of years you expect to live in retirement and average the replacement rate during that time. The Federal Ballpark E$timate uses 70% as a default rate, but will allow you to choose any rate between 20% and 120%.