RETIREMENT 

SECURITY

Better Information on 

Income Replacement 

Rates Needed to Help 

Workers Plan for 

Retirement

Report to Congressional Requesters

March 2016

GAO-16-242

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-16-242, a report to 

congressional requesters

March 2016

RETIREMENT SECURITY

Better Information on Income Replacement Rates 

Needed to Help Workers Plan for Retirement 

Why GAO Did This Study

Part of DOL’s mission is to promote the 

retirement security of America’s 

workers, a goal that has become 

increasingly challenging. One tool for 

assessing the adequacy of retirement 

income is the replacement rate. 

However, recommendations for the

replacement rate that a household 

should target vary widely, in part 

because of the diverse underlying 

assumptions used to develop the rates. 

GAO was asked to review what 

consumption in retirement looks like 

and how target replacement rates are 

developed.

GAO examined (1) whether and how 

spending patterns vary by age, (2) key 

factors used to develop target

replacement rates, and (3) the 

usefulness of information on such rates 

provided by DOL. GAO analyzed data 

from the BLS’s 2013 Consumer 

Expenditure Survey, the most recent 

available; analyzed 59 articles and 

reports that discussed how to develop,

calculate, or evaluate replacement 

rates; collected non-generalizable 

information from 14 retirement services

firms and financial planners 

recommended by researchers and 

actuaries who have studied

replacement rates; and reviewed DOL

materials and interviewed officials. 

What GAO Recommends

GAO recommends that DOL provide

additional examples and guidance on 

using a replacement rate for estimating 

retirement savings needs in its 

planning tools, and modify the planning 

tools so the rate can be adjusted. DOL 

generally agreed with our 

recommendations and plans to add 

information and provide options for 

adjusting replacement rates in its 

planning tools by June 2017.

What GAO Found

Household spending patterns varied by age, with mid-career households (those 

aged 45-49) spending more than older households. For example, according to 

2013 survey data from the Bureau of Labor Statistics (BLS), mid-career 

households spent an estimated average of around $58,500, while young retiree 

households (those aged 65-69) spent about 20 percent less. While the share of 

spending was consistent for some categories, other categories had larger 

variations across age groups. For example, housing expenses comprised the 

largest share of spending regardless of age, while older households spent more 

out of pocket on health care than mid-career households. Spending was less 

variable across age for low-income households compared to other households.

For example, there was not a significant difference in average spending between 

mid-career and young retiree households in the lowest income quartile, 

compared to an approximately $20,000 difference for the highest income quartile. 

These variations in spending patterns have implications for the resources 

households need to maintain their standard of living in retirement. 

Researchers and financial industry professionals develop target replacement 

rates—the percentage of income to aim for in retirement— based on certain key 

factors, including spending, household characteristics, and pre-retirement 

earnings. GAO’s analysis of the literature found that calculating an appropriate 

replacement rate can be complex. For example, there is debate over whether 

households that have raised children should target a lower replacement rate than 

households that have not. In addition, a worker’s pre-retirement earnings could 

be defined as earnings at the end of the worker’s career or as average earnings 

over the course of the career. Despite these complicated considerations, target 

replacement rates cited in the articles and reports GAO reviewed typically range 

between 70 and 85 percent. Some financial industry professionals told GAO that 

they develop customized targets that take into account workers’ assets and 

expected spending, while others questioned the usefulness of replacement rates.

The information and tools on replacement rates that the Department of Labor

(DOL) provides may be too limited to help workers understand how to use such 

rates for retirement planning. DOL’s Employee Benefits Security Administration’s

(EBSA) website provides information and tools to help American workers better 

plan for retirement, including a tool to help workers calculate their retirement 

income needs as a percentage of preretirement income. While EBSA’s materials 

note that a target replacement rate can vary based on individual circumstances, 

they do not include specific examples of demographic groups that research 

indicates can result in higher or lower income replacement needs, or how much a

replacement rate might need to be adjusted for those groups or for other 

individual circumstances. Without additional information, workers may not 

understand how to adjust target replacement rates when planning for retirement. 

Further, EBSA’s worksheet and online tool for calculating how much to save use 

a default replacement rate with no opportunity for a user to adjust the rate based 

on individual circumstances. Without the ability to adjust the replacement rates 

used in planning tools, workers may over- or under-estimate how much they 

need to save for retirement. View GAO-16-242. For more information, 

contact Charles A. Jeszeck at (202) 512-7215 

or jeszeckc@gao.gov.
Page i GAO-16-242 Retirement Replacement Rates

Letter 1

Background 3

Mid-Career Households Spent More than Older Households, and 

Spending Patterns Varied by Expenditure and Income Level 7

Spending, Household Characteristics, and Earnings Are Key 

Factors Used by Researchers and Financial Professionals to 

Develop Target Replacement Rates 19

Limited Explanation of Replacement Rates in Department of Labor 

Retirement Planning Materials May Leave Workers Uncertain 

about How to Use Them 32

Conclusions 37

Recommendations for Executive Action 38

Agency Comments and Our Evaluation 38

Appendix I Objectives, Scope, and Methodology 40

Appendix II Home Mortgage Outlays 48

Appendix III Confidence Intervals for Select Spending Estimates 51

Appendix IV Other Factors That Could Inform Target Replacement Rates 54

Appendix V Long-term Care Costs and Effect on Retirement Resources 56

Appendix VI Comments from the Department of Labor 59

Appendix VII Comments from the Social Security Administration 61

Contents
Page ii GAO-16-242 Retirement Replacement Rates

Appendix VIII GAO Contact and Staff Acknowledgments 62

Bibliography 63

Related GAO Products 69

Tables

Table 1: Estimated Average Annual Household Expenditures 

across Pre- and Post-Retirement Age Groups, 2013 10

Table 2: Estimated Average Annual Household Expenditures for 

Select Age Groups, 2013 11

Table 3: Spending Considerations That Could Inform a Target 

Replacement Rate 21

Table 4: Household Characteristic Considerations That Could 

Inform a Target Replacement Rate 24

Table 5: Pre-Retirement Earnings Considerations That Could 

Inform a Target Replacement Rate 26

Table 6: Age-Specific Income Quartiles, 2013 43

Table 7: Estimated Average Annual Housing Expenditures and

Mortgage Outlays by Age, 2013 49

Table 8: Comparison of Estimated Average Annual Household 

Expenditures across Pre- and Post-Retirement Age 

Groups, 2013 with Confidence Intervals 51

Table 9: Estimated Average Annual Household Expenditures and 

Shares for Select Age Groups, 2013 52

Table 10: Estimated Average Annual Household Housing 

Expenditures and Housing Status 2013 with Confidence 

Intervals 53

Table 11: Additional Considerations That Could Inform the 

Development of a Target Replacement Rate 54

Table 12: Studies Analyzing the Effects of Long-term Care Costs 

on Retirement 57
Page iii GAO-16-242 Retirement Replacement Rates

Figures

Figure 1: Estimated Average Annual Household Expenditures by 

Age, 2013 9

Figure 2: Estimated Average Annual Household Housing 

Expenditures and Housing Status, 2013 14

Figure 3: Estimated Average Annual Household Expenditures by 

Income Quartile, 2013 17

Figure 4: Many Target Replacement Rate Recommendations Are 

between 70 and 85 Percent 30

Figure 5: Excerpt from EBSA’s Savings Fitness: A Guide to Your 

Money and Your Financial Future 33

Figure 6: Excerpt from Savings Fitness: A Guide to Your Money 

and Your Financial Future, Worksheet 4 35

Figure 7: Housing Status, 2013 48
Page iv GAO-16-242 Retirement Replacement Rates

Abbreviations

BLS Bureau of Labor Statistics

CE Consumer Expenditure Survey 

CFPB Consumer Financial Protection Bureau 

DOL Department of Labor 

EBSA Employee Benefits Security Administration 

ERISA Employee Retirement Income Security Act of 1974 

IRA Individual Retirement Account 

LTC Long-term care 

NRRI National Retirement Risk Index 

RRR Retirement readiness rating 

SSA Social Security Administration

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-16-242 Retirement Replacement Rates

441 G St. N.W.

Washington, DC 20548

March 1, 2016

The Honorable Patty Murray

Ranking Member

Committee on Health, Education, Labor and Pensions

United States Senate

The Honorable Robert C. “Bobby” Scott

Ranking Member

Committee on Education and the Workforce

House of Representatives

Whether older Americans will have adequate income in retirement has 

been a longstanding concern for several reasons including the decline in 

defined benefit pensions, the growing responsibility for individuals to save 

for retirement through employer-sponsored defined contribution plans or 

on their own, and the financial challenges facing Social Security.1 To 

better predict how much income Americans will need once they leave the 

workforce, many researchers use target replacement rates—the 

percentage of pre-retirement income needed to maintain a certain 

standard of living in retirement. In recent years, numerous studies on the 

replacement rates that households should target have not resulted in a 

consensus recommendation, in part because estimates are heavily 

dependent on the underlying assumptions used to develop them. To 

accurately interpret the implications for retirement adequacy it is 

important for policy makers and individuals to better understand how 

these targets are developed.

You asked us to review what consumption looks like in retirement and 

how replacement rates are defined, calculated, and used to assess 

retirement preparedness. This report assesses (1) whether and how 

spending patterns vary by age, (2) key factors used to develop target 

 1 Defined benefit plans are “traditional” employer-sponsored pension plans that offer 

benefits typically determined by a formula based on factors specified by the plan, such as 

salary and years of service. Defined benefit plans typically pay lifetime annuity benefits in 

retirement, although some plans also offer a lump-sum distribution option. In contrast, in 

defined contribution plans, workers accumulate savings over their careers and manage 

withdrawals in retirement.

Letter
Page 2 GAO-16-242 Retirement Replacement Rates

replacement rates, and (3) the usefulness of information on retirement 

replacement rates provided to workers by the Department of Labor.

To assess whether spending patterns vary across working and retired 

households, we used 2013 expenditure data from the Bureau of Labor 

Statistics’ Consumer Expenditure Survey (CE). This was the most 

recently available data at the time of our review. The CE is a sample 

survey designed to be representative of the total U.S. noninstitutionalized 

civilian population and is used to collect data on consumers’

characteristics and buying habits. We conducted a cross-sectional 

analysis to see how spending patterns vary across different age groups. 

We also conducted a regression analysis to understand how the effects of 

age vary by spending category, such as health care and housing, and 

household income level. To ensure the variables we analyzed in the 2013 

CE data were reliable for our purposes, we reviewed survey 

documentation, compared results to published tables, and interviewed 

agency officials. Based on this, we found the data to be reliable for the 

purposes used in this report.

To understand the various factors considered when developing a target 

replacement rate, we conducted a literature search from January 2015 

through January 2016, which generated a total of 630 results. We 

reviewed abstracts, when available, to identify which articles (1) 

contained information on target replacement rates or assumptions 

needed to calculate a replacement rate and (2) were published in or after 

2005 in academic journals or by research centers or international 

organizations. We determined 59 articles and reports met these criteria 

and included them in our analysis. In addition, we used a questionnaire—

coupled with interviews—to assess whether financial firms use target 

replacement rates and, if they do, what factors financial industry 

professionals considered when developing these targets. To determine 

which firms to contact, we relied on suggestions from several researchers 

and actuaries who have studied replacement rates. In total, we collected 

information from 14 firms—7 service providers, 3 retirement services 

consulting firms, and 4 financial planners. While these firms provided 

valuable insight into target replacement rate recommendations, our 

findings are not generalizable to the full population of service providers, 

retirement consulting firms, and financial planners. To identify the range 

of target replacement rates recommended to U.S. workers, we 

catalogued references to such recommendations in the studies we 

selected for review. Our analysis focused on total replacement rates—the 

ratio of all income in retirement (including Social Security, pension 

benefits, and retirement savings) to pre-retirement earnings. We sought 
Page 3 GAO-16-242 Retirement Replacement Rates

to identify a number of considerations that researchers, policy makers, 

and financial professionals incorporate into their assumptions when 

developing, calculating, or evaluating target replacement rates. However, 

because analyzing the merits and disadvantages of each consideration 

was outside the scope of our work, we are not endorsing any of the 

considerations presented in this report.

To assess the usefulness of the information on replacement rates 

provided to workers by the Department of Labor (DOL), we reviewed 

relevant retirement planning materials produced by the agency and we 

interviewed agency officials. Lastly, we reviewed relevant federal laws 

and regulations. Although we found references to replacement rates in 

Social Security Administration (SSA) and Consumer Financial Protection 

Bureau documents, we focused our review on DOL materials as DOL is 

required by law to provide a means of calculating retirement savings 

needs using a replacement rate.2 For more information on our objectives, 

scope, and methodology, please see appendix I and the bibliography at 

the end of this report.

We conducted this performance audit from January 2015 to March 2016 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Some key sources of retirement income are Social Security benefits,3

defined benefit plans, defined contribution plans, Individual Retirement 

Accounts (IRAs), as well as personal savings. In recent years, 

employment-based retirement plan coverage, especially in the private 

sector, has shifted from defined benefit to defined contribution plans. 

Under “traditional” defined benefit plans, workers typically receive 

benefits—based on factors such as salary and years of service—in the 

 2 See 29 U.S.C. § 1146(d).

3 Social Security benefits are progressive. That is, Social Security provides 

disproportionately higher benefits, as a percentage of earnings, to lower earners than to 

higher earners.

Background
Page 4 GAO-16-242 Retirement Replacement Rates

form of a lifetime annuity that provides a guaranteed monthly payment. 

Defined benefit plans are, in most cases, financed by employers, who are 

responsible for managing plan assets. Defined contribution plans and 

IRAs are two primary types of retirement savings vehicles in which

benefits accrue in the form of account balances, which grow from 

contributions made by workers (and sometimes by their employers) and 

investment returns. Workers and employers who contribute to retirement 

savings accounts generally receive favorable federal tax treatment, such 

as tax deductions for contributions and tax-deferred or even tax-free 

returns on investment. In addition to tax advantages, defined contribution 

plans and IRAs provide portability of savings and transparency of known 

account balances.4 However, they also place the primary responsibility on 

individuals to participate in, contribute to, and manage their accounts 

throughout their working careers. Moreover, individuals must manage 

their savings throughout retirement, including deciding whether and how 

to convert an account balance into an income stream, in order to avoid 

running out of money.5

This shift in responsibility is further compounded by the low levels of 

financial literacy in the United States. As we have previously reported, 

numerous studies have found that many Americans lack basic financial 

literacy, including an understanding of fundamental investment concepts, 

such as the benefits of compounding interest and risk diversification and 

the potential impact of inflation. We concluded that such basic financial 

literacy is necessary for making well-informed decisions and evaluating 

 4 However, we have previously reported on a number of issues that limit portability and 

transparency for individuals. For instance, we found that participants may find the process 

of rolling over defined contribution plan balances confusing and administratively 

burdensome. See GAO, 401(k) Plans: Labor and IRS Could Improve the Rollover Process 

for Participants, GAO-13-30 (Washington, D.C.: Mar. 7, 2013). In addition, we have 

reported that participants may be unaware of the fees they are paying due to 

shortcomings in participant fee disclosures. See GAO, Defined Contribution Plans: 

Approaches in Other Countries Offer Beneficial Strategies in Several Areas, GAO-12-328

(Washington, D.C.: Mar. 22, 2012). For a complete list of GAO reports related to this 

study, please see the Related GAO Products page at the end of this report.

5 We have previously reported on challenges and issues related to individuals managing 

their income during retirement. For more information on these issues, see GAO, 401(k) 

Plans: Other Countries’ Experiences Offer Lessons in Policies and Oversight of Spenddown Options, GAO-14-9 (Washington, D.C.: Nov. 20, 2013) and Retirement Income: 

Ensuring Income throughout Retirement Requires Difficult Choices, GAO-11-400

(Washington, D.C.: June 7, 2011).
Page 5 GAO-16-242 Retirement Replacement Rates

recommendations.6 Financial literacy research has also pointed to the 

need to educate individuals to improve their investment decision-making 

and savings outcomes.

7 For example, one study found that a large 

percentage of American workers has not conducted meaningful 

retirement planning, even when retirement is in the near future.8 Another 

study found that most workers acknowledge they do not know as much as 

they should about retirement planning and that many workers actually 

guessed at their retirement savings needs.9 Further, our past work has 

found that ensuring income in retirement requires workers to make 

difficult choices and that workers may not have sufficient information to 

determine which choices are in their best interest.10

Many studies have evaluated the retirement readiness of workers and the 

economic well-being of retirees. These studies have used a variety of 

benchmarks for assessing retirement readiness or well-being, including 

assorted measures of retirement saving, income, consumption, wealth, 

and standard of living.11 Economists broadly agree that a conceptual 

benchmark measure for adequate retirement saving is an amount that 

will, along with other sources of retirement income, allow a household to 

maintain its pre-retirement standard of living into retirement. A key 

 6 GAO-13-30; Financial Literacy: Enhancing the Effectiveness of the Federal 

Government’s Role, GAO-12-636T (Washington, D.C.: Apr. 26, 2012); GAO-11-400; and 

GAO, 401(k) Plans: Improved Regulation Could Better Protect Participants from Conflicts 

of Interest, GAO-11-119 (Washington, D.C.: Jan. 28, 2011).

7 See, Annamaria Lusardi and Olivia S. Mitchell, “The Economic Importance of Financial 

Literacy: Theory and Evidence,” Journal of Economic Literature, vol. 52, issue 1 (2014); 

FINRA Investor Education Foundation, Financial Capability in the United States (May 

2013); “Bridging the Gap Between Employers’ and Workers’ Understanding of 401(k) 

Fees,” Transamerica Center for Retirement Studies (July 2010); Angela A. Hung, et al., 

“Building Up, Spending Down: Financial Literacy, Retirement Savings Management, and 

Decumulation,” RAND Working Paper 712 (2009); Annamaria Lusardi, “Household 

Saving Behavior: The Role of Financial Literacy, Information, and Financial Education 

Programs,” National Bureau of Economic Research Working Paper no. 13824 (February 

2008). 

8 Lusardi (2008). 

9 Transamerica (2010). 

10 For more information, see GAO-11-400.

11 For more information see GAO, Retirement Security: Most Households Approaching 

Retirement Have Low Savings, GAO-15-419 (Washington, D.C.: May 12, 2015).
Page 6 GAO-16-242 Retirement Replacement Rates

concept underlying such a measure is the lifecycle model of savings, 

which suggests that individuals will adjust their saving and spending to 

ensure a consistent level of consumption over their lifetime.12

Income replacement rates, measured as a percentage of pre-retirement 

income, are one common method for analyzing the retirement readiness 

of individuals and providing information to help individual workers plan for 

retirement.13 Plan sponsors and researchers have long used them to 

assess the adequacy of pension plan benefit levels. Replacement rates 

can also show the extent to which individuals are able to replace their 

pre-retirement earnings with other sources of income in retirement, such 

as Social Security benefits, pension benefits, or retirement savings. While 

there is no consensus about how much income is required to ensure a 

stable standard of living, economists and financial planners generally 

agree that many retirees do not need to replace 100 percent of their preretirement income to maintain their standard of living because most 

retirees probably have reduced expenses relative to when they were 

working. For example, spending on transportation may be reduced for 

those who no longer need to commute to work. As a benchmark of how 

much income will be needed in retirement, a target replacement rate can 

help alert workers about how much to save as well as how long to work or 

how much to spend. However, while a replacement rate provides an 

individual with important information for developing a long-term savings 

goal, it does not provide a plan for achieving it. Converting a target 

replacement rate to a savings plan—such as how much to set aside from 

each paycheck—over a number of years is a complicated exercise and 

may prove daunting, especially in light of the limited financial literacy of 

many Americans.

DOL is responsible for providing guidance on retirement income savings 

for workers. The Employee Retirement Income Security Act of 1974, as 

amended (ERISA), directs the Secretary of Labor to “maintain an ongoing 

 12 A lifecycle model of saving in economics tries to explain patterns of consumption and 

saving over an individual or household’s lifetime. The model generally predicts that 

individuals seek to smooth consumption over their lives, leading to a prediction of 

borrowing during younger years, saving during middle-age years, and living off 

accumulated savings in retirement. However, because consumption is difficult to measure 

income is frequently used as a proxy.

13 For other measures of retirement adequacy see GAO-15-419. 
Page 7 GAO-16-242 Retirement Replacement Rates

program of outreach to the public designed to effectively promote 

retirement income savings by the public.” With regard to replacement 

rates specifically, ERISA also directs the Secretary of Labor to establish a 

website that includes a “means for individuals to calculate their estimated 

retirement savings needs, based on their retirement income goal as a 

percentage of their preretirement income.”14

Based on our analysis of 2013 CE data, mid-career households had one 

of the highest spending levels, while older households generally spent 

less.15 More specifically, in 2013, mid-career households—those aged 45-

49—spent an estimated average of about $58,500, while young retiree 

households—those aged 65-69— spent about $46,800, or 20 percent 

 14 29 U.S.C. § 1146. 

15We analyzed the 2013 CE data, which was the most current version of the survey at the 

time of our analysis. The unit of analysis in the CE is consumer units that comprise (1) all 

members of a household related by blood, marriage, or other legal arrangement, (2) a 

person living alone or sharing a household but who is financially independent, or (3) two or 

more persons living together who make joint expenditures. For the purposes of this report, 

we refer to consumer units as households and we define spending as direct out-of-pocket 

expenditures. The 95 percent confidence intervals for average total spending are between 

$56,014 and $60,890 for mid-career households (aged 45-49) and between $43,586 and 

$49,996 for young retiree households (aged 65-69). The 95 percent confidence interval for 

the difference in spending levels between the two groups is between $7,634 and $15,688. 

For exact estimates and additional information on the confidence intervals, see appendix 

III. 

Mid-Career 

Households Spent 

More than Older 

Households, and 

Spending Patterns 

Varied by Expenditure 

and Income Level

Older Households Spent 

about 20 Percent Less 

than Mid-Career 

Households in 2013
Page 8 GAO-16-242 Retirement Replacement Rates

less overall (see fig. 1).16 We also analyzed spending across two broader 

age groups: pre-retirement households (aged 50-64) and post-retirement 

households (65-79) (see table 1). We found that the difference in 

spending between broader age groups was similar to the comparison 

between mid-career and young retiree households using 5-year age 

groups. The estimated average total spending for post-retirement 

households was about 77 percent of the spending levels for preretirement households.

 16For ease of presentation in this report, we used various age groups as proxies to 

represent different stages of working and retired life for points of comparison. Similar to 

other literature analyzing retirement consumption, we use age 65 as a representation of 

retirement age. Accordingly, we selected 5-year age groupings based on their relation to 

this retirement age. For example, we used households aged 45-49, who are near the 

middle of the age group range and younger than retirement age, as a representation of 

the mid-career stage. We also chose three different age groups as points of comparison 

for various stages of retirement: young retirees are represented by households aged 65-

69, those closest to retirement age; mid-retirees by households 75-79, who are several 

years older than retirement age; and older retirees by the oldest households, those aged 

80 and older. However, actual career and retirement status by age would depend on 

individual household circumstances and is not known based on their age grouping. For 

example, some households in the “young retiree” group may not yet be retired, and some 

households younger than 65 could be retired. 
Page 9 GAO-16-242 Retirement Replacement Rates

Figure 1: Estimated Average Annual Household Expenditures by Age, 2013

Notes: Age groupings are based on the age of the reference person, or the person who rents or owns 

the home, for the consumer unit. There may be adults in the in the consumer unit who are older or 

younger than the reference person. A consumer unit can comprise (1) all members of a household 

related by blood, marriage, or other legal arrangement, (2) a person living alone or sharing a 

household but who is financially independent, or (3) two or more persons living together who make 

joint expenditures. For the purposes of this report, we refer to consumer units as households. We did 

not adjust spending levels for household size. The “other” category of spending includes expenditures 

for reading, tobacco, alcoholic beverages, education, cash contributions, personal care, and 

miscellaneous expenses. The “personal insurance and pensions category” includes deductions for 

government and railroad retirement, private pensions, and Social Security. According to Bureau of 

Labor Statistics officials, the private pensions category includes defined benefit, defined contribution, 
Page 10 GAO-16-242 Retirement Replacement Rates

and individual retirement accounts. Housing expenditures include expenses such as rent, utilities, and 

mortgage interest payments, but do not include payments on mortgage principal. For more 

information on mortgage principal, see appendix II. For more information on Consumer Expenditure 

Survey expenditure categories and treatment of taxes, see appendix I. For average total spending, 95 

percent confidence intervals are less than +/-9 percent of the estimate itself for all age groups.

Table 1: Estimated Average Annual Household Expenditures across Pre- and PostRetirement Age Groups, 2013

Average annual household expenditures (rounded to 

nearest $100)

Expenditure type Pre-retirement (50-64) Post-retirement (65-79)

Housing $17,000 $13,700

Transportation $9,600 $7,100

Food $7,700 $6,400

Personal insurance and pensions $7,200 $2,800

Health $3,900 $5,000

Entertainment $2,300 $2,000

Apparel $1,100 $800

Other $5,600 $4,100

Total $54,400 $41,900

Source: GAO analysis of 2013 Bureau of Labor Statistics Consumer Expenditure Survey, Interview Survey data. | GAO-16-242

Notes: Age groupings are based on the age of the reference person, or the person who rents or owns 

the home, for the consumer unit. There may be adults in the consumer unit who are older or younger 

than the reference person. Similar to other literature analyzing retirement consumption, we use age 

65 as a representation of retirement age. For ease of comparison purposes, we used broad age 

groups in this table to represent pre- and post-retirement age households. However, actual career 

and retirement status would depend on individual household circumstances and would not be known 

based on their age grouping. A consumer unit can comprise (1) all members of a household related 

by blood, marriage, or other legal arrangement, (2) a person living alone or sharing a household but 

who is financially independent, or (3) two or more persons living together who make joint 

expenditures. For the purposes of this report, we refer to consumer units as households. We did not 

adjust spending levels for household size. The “other” category of spending includes expenditures for 

reading, tobacco, alcoholic beverages, education, cash contributions, personal care, and 

miscellaneous expenses. The “personal insurance and pensions” category includes deductions for 

government and railroad retirement, private pensions, and Social Security. According to Bureau of 

Labor Statistics officials, the private pensions category includes defined benefit, defined contribution, 

and individual retirement accounts. Housing expenditures include expenses such as rent, utilities, and 

mortgage interest payments, but do not include payments on mortgage principal. For more 

information on mortgage principal, see appendix II. For more information on Consumer Expenditure 

Survey expenditure categories and treatment of taxes, see appendix I. Numbers may not add to 

column totals due to rounding. Ratios comparing spending levels between these two age groups are 

based on our unrounded estimates and are presented in appendix III. For average total expenditures 

in the table, 95 percent confidence intervals are less than +/- 6 percent of the estimate itself. Some 

expenditure categories may have larger variance. For exact estimates and additional information on 

the confidence intervals for the estimates in this table, see appendix III.
Page 11 GAO-16-242 Retirement Replacement Rates

Spending was lower among mid-retiree and older retiree households 

compared to mid-career and young retiree households (see table 2). For 

example, mid-retiree households (aged 75-79) spent an average of 

around $34,700, or 26 percent less, than young retiree households.17

Average spending for older retiree households (aged 80 and older) was 

slightly less than mid-retiree households at around $31,400, although 

differences were not statistically significant.18

Table 2: Estimated Average Annual Household Expenditures for Select Age Groups, 2013

Average annual household expenditures (rounded to nearest $100)

Expenditure type

Mid-career

(45-49)

Young retirees

(65-69) 

Mid-retirees

(75-79) 

Older retirees

(80+)

Housing $18,400 $15,200 $11,400 $11,300

Transportation $10,200 $7,900 $5,900 $3,600

Food $8,500 $6,900 $5,600 $4,800

Personal insurance and pensions $7,800 $4,100 $1,300 $900

Health $3,500 $4,900 $4,800 $4,700

Entertainment $3,000 $2,400 $1,400 $1,100

Apparel $1,400 $900 $500 $400

Other $5,600 $4,500 $3,600 $4,700

Total $58,500 $46,800 $34,700 $31,400

Source: GAO analysis of 2013 Bureau of Labor Statistics Consumer Expenditure Survey, Interview Survey data. | GAO-16-242

Notes: Age groupings are based on the age of the reference person, or the person who rents or owns 

the home, for the consumer unit. There may be adults in the consumer unit who are older or younger 

than the reference person. Similar to other literature analyzing retirement consumption, we use age 

65 as a representation of retirement age. For ease of comparison purposes, we use age groups to 

represent various stages of working and retired life based on their relation to this retirement age. 

However, actual career and retirement status would depend on individual household circumstances 

and would not be known based on their age grouping. A consumer unit can comprise (1) all members 

of a household related by blood, marriage, or other legal arrangement, (2) a person living alone or 

sharing a household but who is financially independent, or (3) two or more persons living together 

who make joint expenditures. For the purposes of this report, we refer to consumer units as 

households. We did not adjust spending levels for household size. The “other” category of spending 

includes expenditures for reading, tobacco, alcoholic beverages, education, cash contributions, 

personal care, and miscellaneous expenses. The “personal insurance and pensions” category 

 17The 95 percent confidence interval for the difference between average spending levels 

for mid-retiree households (aged 75-79) and young retiree households (aged 65-69) is 

between $7,823 and $16,369. 

18The 95 percent confidence intervals for average total spending are between $31,868 

and $37,522 for mid-retiree households (aged 75-79) and between $28,767 and $34,022 

for older retiree households (aged 80 and older). 
Page 12 GAO-16-242 Retirement Replacement Rates

includes deductions for government and railroad retirement, private pensions, and Social Security. 

According to Bureau of Labor Statistics officials, the private pensions category includes defined 

benefit, defined contribution, and individual retirement accounts. Housing expenditures include 

expenses such as rent, utilities, and mortgage interest payments, but do not include payments on 

mortgage principal. For more information on mortgage principal, see appendix II. For more 

information on Consumer Expenditure Survey expenditure categories and treatment of taxes, see 

appendix I. Numbers may not add to column totals due to rounding. For average total expenditures in 

the table, 95 percent confidence intervals are less than +/- 9 percent of the estimate itself. Some 

expenditure categories may have larger variance. For exact estimates, shares of total spending, and 

additional information on the confidence intervals for the estimates in this table, see appendix III.

The patterns in total spending may, in part, reflect variations in average 

household size and priorities. The average household size for mid-career 

households was about 2.9 people as compared to about 2.1 people for 

young retiree households. The average household size was 

approximately 1.7 people for mid-retirees and 1.5 people for older 

retirees. Patterns in spending may also be affected by the age 

composition of other members of the household. Lower spending for older 

households could also be indicative of different priorities. For example, 

one large relative difference in spending was attributable to the personal 

insurance and pensions category.19 Mid-career households may be more 

concerned with contributions toward retirement resources than older 

households who could already be retired. Moreover, we found that in 

2013, age groups varied in how much they spent, including on basic 

needs, such as food, and non-essential items, such as entertainment. 

Such fluctuations in spending have implications for the resources 

households will need to maintain their standard of living. More 

specifically, spending levels are indicative of how households allocate 

resources based in part on different needs and lifestyle preferences, and 

are an important consideration when planning for retirement.

 19 The “personal insurance and pensions” category includes deductions for private 

pensions, which are paycheck contributions to any type of employer sponsored retirement 

plan or to individual retirement accounts. 
Page 13 GAO-16-242 Retirement Replacement Rates

While the share of spending was relatively consistent across age groups 

in some categories, there were larger variations by age for other 

categories. On average, housing was the largest spending category for all 

age groups. For example, households aged 45 and older consistently 

spent about a third of total expenditures on housing.20 More specifically, 

young retiree households spent about 83 percent of the amount that midcareer households spent for housing, on average (see fig. 2). However, 

the composition of homeowners varied widely by age group. For example, 

the proportion of homeownership without a mortgage for young retiree 

households was three times higher than for mid-career households.21

Housing expenditures include expenses such as maintenance, 

operations, and utility costs that can be incurred regardless of ownership 

status.

 20 Housing expenditures include mortgage interest payments but not payments on 

mortgage principal. While mortgage principal payments may be significant for some 

families, we found that including these payments did not substantially alter spending 

patterns observed since housing was a major expense regardless of whether mortgage 

payments are included. For more information on our analysis of mortgage principal, see 

appendix II. For the share of spending on housing for households aged 45 and older, the 

95 percent confidence intervals are within +/- 2 percentage points. For additional 

information on housing expenditure estimates and confidence intervals see appendix III. 

21 According to Survey of Consumer Finances estimates, homeownership has declined 

from a rate of 68.6 percent in 2007 to 65.2 percent in 2013. According to the American 

Housing Survey, about one-third of elderly households had a mortgage in both 2007 and 

2013. Specifically, from the 2007 American Housing Survey, an estimated 5.3 million out 

of 18.3 million (or 29 percent) of elderly homeowners had a regular or home equity 

mortgage. According to data from the 2013 American Housing Survey, an estimated 7.1 

million of 21.6 million (or 33 percent) of elderly homeowners had a regular or home equity 

mortgage. See Board of Governors of the Federal Reserve System, “Changes in U.S. 

Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances” 

Federal Reserve Bulletin, vol. 100, no. 4 (2014); U.S. Census Bureau, American Housing 

Survey for the United States: 2007, Series H150/07 (Washington, D.C.: 2008); and U.S. 

Census Bureau, 2013 American Housing Survey for the United States (Washington, D.C.: 

2015). 

Housing Was the Top 

Expense Regardless of 

Age, and Older 

Households Spent More 

Out-of-Pocket on Health 

Care
Page 14 GAO-16-242 Retirement Replacement Rates

Figure 2: Estimated Average Annual Household Housing Expenditures and Housing Status, 2013

Notes: Age groupings are based on the age of the reference person, or the person who rents or owns 

the home, for the consumer unit. There may be adults in the consumer unit who are older or younger 

than the reference person. A consumer unit can comprise (1) all members of a household related by 

blood, marriage, or other legal arrangement, (2) a person living alone or sharing a household but who 

is financially independent, or (3) two or more persons living together who make joint expenditures. 

For the purposes of this report, we refer to consumer units as households. We did not adjust 

spending levels for household size. Housing expenditures include expenses such as rent, utilities, 

and mortgage interest payments, but do not include payments on mortgage principal. For more 

information on mortgage principal, see appendix II. The “no cash or student” category represents 

housing that is occupied as student housing or without payment of cash rent. The percentage of 

households in this category for all age groups over 45 was around 1 percent or less. For all average 

housing expenditure estimates in this figure, 95 percent confidence intervals are within +/- 9 percent 

of the estimate itself. For housing status shares in this figure, 95 percent confidence intervals are 

within +/- 4 percentage points. For additional information on the confidence intervals for the estimates 

in this figure, see appendix III.
Page 15 GAO-16-242 Retirement Replacement Rates

In contrast to other spending categories, health care was a larger 

expense for older households.22 For example, young retiree households 

spent an average of around $4,900 on health care, compared to about 

$3,500 for mid-career households.23 Older retiree households spent a 

large share on health care—15 percent of total spending—which was 

more than double the share that mid-career households spent on health 

care.24

The age at which expenditures peak also shows how spending patterns 

varied. For example, the amount a household spends on apparel was 

estimated to peak at age 42, which was significantly younger than for 

entertainment, where the amount a household spends was estimated to 

peak around age 52. Spending on items such as apparel and 

transportation may be more relevant during a household’s working years. 

Further, spending in some categories may increase with age as 

households have more time or resources for certain expenses, such as 

recreational activities.

 22There are multiple federal agency data sources that estimate health care expenditures 

for different populations. For example, we have previously estimated out-of-pocket health 

care spending for Medicare beneficiaries using the Centers for Medicare and Medicaid 

Service’s Medicare Current Beneficiary Survey. Estimated average spending per person 

in 2010 ranged from $1,737 to $2,343 depending on supplemental coverage type. For 

more information, see GAO, Medicare Supplemental Coverage: Medigap and Other 

Factors Are Associated with Higher Estimated Health Care Expenditures, GAO-13-811

(Washington, D.C.: Sept. 19, 2013). The Bureau of Labor Statistics (BLS) provides 

comparisons of CE estimates to other federal data on health care expenditures. One 

article found that estimates can vary due to different definitions, methodology, and 

sources of information. See Ann C. Foster, “Household Health Care Spending: Comparing 

the Consumer Expenditure Survey and the National Health Expenditure Accounts, 2009-

2012” CE Data Comparison Articles and Presentations, accessed December 22, 2015, 

http://www.bls.gov/cex/cecomparison.htm#NHEA.

23The 95 percent confidence interval for average health care spending for young retiree 

households (aged 65-69) is between $4,661 and $5,165. For mid-career households 

(aged 45-49), the 95 percent confidence interval for average health care spending is 

between $3,327 and $3,765. 

24 The 95 percent confidence intervals for the share of spending on health care are 

between 13.9 and 15.9 percent for older retiree households (aged 80 and older) and 

between 5.7 and 6.5 percent for mid-career households (aged 45-49). 
Page 16 GAO-16-242 Retirement Replacement Rates

Spending levels across age groups were relatively similar for low-income 

households, while spending levels were more variable for high-income 

households (see fig. 3).25 More specifically, the difference in average total 

spending for low-income households between the mid-career and young 

retiree age groups was not statistically significant, while the difference 

across these same age groups was over $20,000 for the highest income 

quartile.26

 25 Income categories were defined by age-specific income brackets. As a result, for a 

given age group, each income bracket has approximately the same number of 

households. For income quartile ranges, see appendix I. 

26The 95 percent confidence interval for the difference between average spending 

between mid-career households (aged 45-49) and young retiree households (aged 65-69) 

in the highest income quartile is between $11,412 and $28,806. The difference in 

spending between mid-career households and young retiree households across all 

income quartiles was about $11,700.

Unlike for Other 

Households, Spending 

Was Relatively Flat Across 

Low-Income Households 

Regardless of Age
Page 17 GAO-16-242 Retirement Replacement Rates

Figure 3: Estimated Average Annual Household Expenditures by Income Quartile, 2013

Notes: Age groupings are based on the age of the reference person, or the person who rents or owns 

the home, for the consumer unit. There may be adults in the consumer unit who are older or younger 

than the reference person. A consumer unit can comprise (1) all members of a household related by 

blood, marriage, or other legal arrangement, (2) a person living alone or sharing a household but who 
Page 18 GAO-16-242 Retirement Replacement Rates

is financially independent, or (3) two or more persons living together who make joint expenditures. 

For the purposes of this report, we refer to consumer units as households. We did not adjust 

spending levels for household size. Income categories were defined by age-specific income brackets. 

As a result, each income bracket at each age group has approximately the same number of 

households. See appendix I for income quartile ranges. Income includes some non-wage sources 

from public programs, such as Supplemental Security Income and unemployment compensation. The 

“other” category of spending includes expenditures for reading, tobacco, alcoholic beverages, 

education, cash contributions, personal care, and miscellaneous expenses. The “personal insurance 

and pensions” category includes deductions for government and railroad retirement, private pensions, 

and Social Security. According to Bureau of Labor Statistics officials, the private pensions category 

includes defined benefit, defined contribution, and individual retirement accounts. Housing 

expenditures include expenses such as rent, utilities, and mortgage interest payments, but do not 

include payments on mortgage principal. For more information on mortgage principal, see appendix 

II. For more information on Consumer Expenditure Survey expenditure categories and treatment of 

taxes, see appendix I. For average total spending, the 95 percent confidence intervals are within +/-

17 percent of the estimate itself for all age groups.

Though low-income households had much lower overall spending than 

mid- or high-income levels, they spent a larger share on necessities like 

housing and food, which could have implications for their respective 

replacement rates. Low-income young retiree households had an average 

of around $23,500 in out-of-pocket spending, with 39 percent spent on 

housing and 19 percent on food.27 In comparison, high-income 

households in the same age group spent about $82,200, of which 31 

percent was spent on housing and 12 percent on food.28 While spending 

levels provide information on consumption, expenditures do not 

necessarily equate to a household’s level of consumption. For example, a 

household could consume the same amount of food at different 

expenditure levels based on the difference in cost between preparing 

food at home versus eating out. Additionally, households may spend 

money on goods they are not consuming themselves, such as charitable 

contributions or gifts. Alternatively, some low-income families may receive 

benefits from public assistance programs that allow for higher levels of 

consumption than out-of-pocket spending indicates. For example, 

households may be eligible for programs that offset some of the costs of 

certain expenses, such as reduced-price school lunch or subsidized 

 27The 95 percent confidence interval for average total spending is between $21,675 and 

$25,307 for young retiree households (aged 65-69) in the lowest income quartile. For this 

same group, the 95 percent confidence intervals for the share of spending are between 37 

and 41 percent for housing, and between 18 and 20 percent for food.

28The 95 percent confidence interval for average total spending is between $74,961 and 

$89,485 for young retiree households (aged 65-69) in the highest income quartile. For this 

same group, the 95 percent confidence intervals for the share of spending are between 29 

and 33 percent for housing and between 12 and 13 percent for food. 
Page 19 GAO-16-242 Retirement Replacement Rates

housing.29 Nevertheless, with a substantial portion of spending going 

toward basic expenses, households with limited resources may not have 

much flexibility to adjust spending levels. Consequently, a household’s 

socioeconomic status could affect the level of resources required to plan 

for future spending needs.

 29For more information on federal programs for low-income families, see GAO, Federal 

Low-Income Programs: Multiple Programs Target Diverse Populations and Needs, 

GAO-15-516 (Washington, D.C.: July 30, 2015). 

Spending, Household 

Characteristics, and 

Earnings Are Key 

Factors Used by 

Researchers and 

Financial 

Professionals to 

Develop Target 

Replacement Rates
Page 20 GAO-16-242 Retirement Replacement Rates

We found that accounting for how a household’s spending may change in 

retirement is an important step in determining a target replacement rate—

that is, a recommendation for how much pre-retirement income an 

individual or household needs to replace in retirement.30 According to the 

articles and reports we reviewed, assumptions need to be made about 

the direction and size of a number of expenses, including housing, health 

care, entertainment, and consumer goods. For example, a retired 

household may spend less on housing if it pays off a mortgage or 

downsizes at retirement (see table 3). Alternatively, spending on housing 

may increase if a retiree moves into specialized senior housing. The 

amount a retired household will spend on health care may fluctuate 

because health care costs can be variable and premiums and out-ofpocket medical costs may rise.31 Further, spending on entertainment and 

consumer goods may also fluctuate, according to the articles and reports 

we analyzed. Entertainment spending could increase because retirees 

have more leisure time, or alternatively, it is possible that it decreases 

due to the prevalence of entertainment-related senior discounts.32 In 

addition, spending on consumer goods and services, such as ready-toeat foods or car repairs, may be less in retirement than before because 

retired households have more free time to engage in in-home production, 

which includes activities like cooking and household chores and repairs. 

Moreover, consumer durables purchased prior to retirement, such as 

 30 Our analysis focused on total replacement rates, that is, the ratio of all income in 

retirement—including from Social Security, pension benefits, and retirement savings—to 

pre-retirement earnings. For this analysis, we reviewed 59 articles and reports discussing 

income replacement rates in retirement. These reports were published in academic 

journals or by research centers or international organizations. We sought to identify a 

number of considerations that researchers, policy makers, and financial professionals 

incorporate into their assumptions when developing, calculating, or evaluating target 

replacement rates. However, because analyzing the merits and disadvantages of each 

consideration was outside the scope of our work, we are not endorsing any of the 

considerations presented in this report. For a complete list of reports and articles reviewed 

and more information on our methodology, please see the bibliography at the end of this 

report. Also, for more information on factors that could inform a target replacement rate in 

addition to spending, household characteristics, and pre-retirement earnings, see 

appendix IV.

31 For more information on the role long-term care costs may play in retirement, 

specifically, see appendix V.

32 Retirees may also look for discounts and bargains on other expenditures in addition to 

discounts on entertainment activities. Pursuing such discounts could lower overall 

spending.

Changes in Spending Are 

Important to Account for 

When Deciding How Much 

Income Should Be 

Replaced in Retirement
Page 21 GAO-16-242 Retirement Replacement Rates

furniture or household appliances, may continue working well into 

retirement and may not need to be replaced.

Table 3: Spending Considerations That Could Inform a Target Replacement Rate

Spending on housing Housing expenses may change in retirement. For example, housing costs may go down if a 

retiree pays off a mortgage right before or during retirement or a retiree downsizes or moves 

to an area with less expensive housing. On the other hand, housing costs may go up if a 

retiree moves to specialized senior housing.

Mortgages may not be paid off at the beginning of retirement. According to our analysis of the 

2013 Consumer Expenditure Survey data, 35 percent of households aged 65-69 are paying 

down a mortgage.

Spending on health care Health care costs may be more variable in retirement.

Health care premiums and out-of-pocket medical costs may change.

a

Spending on work-related expenses Work-related expenses, such as work clothing, meals outside the home, and transportation 

decline after retirement.

Spending on education Retirees who finish paying off their children’s education right before retirement may need to 

replace less income.

Spending on entertainment Entertainment expenses may go up for some retirees and down for others. For example, 

retirees have more leisure time and may spend more on entertainment. On the other hand, 

retirees may be able to stretch their dollars on entertainment due to senior discounts.

Spending on other consumer goods Households may engage in more in-home production after retirement and, therefore, spend 

less money overall.

Consumer durables purchased prior to retirement may last into retirement or may need to be 

replaced less often.

Theoretical views on consumption Individuals may want to smooth consumption over a lifetime, or, more specifically, the 

marginal utility of consumption. However, consumption or spending patterns in retirement 

may fluctuate over time. For example, at the beginning of retirement, retirees may spend 

money on things like travel. Later on, their overall expenses may drop. As retirees age, 

expenses may rise again due to increased need for health care.

Households may spend less in retirement for two reasons. On the one hand, they may spend 

less because they are content with consuming less, in part because they enjoy leisure time in 

addition to consumption. Alternatively, they may spend less because they have less income.

Spending from savings and assets Some researchers have suggested considering whether people use their savings and assets 

for spending, and how to account for that when developing a target replacement rate.

Debt Retirees may have major debts to pay off. Debt accumulation or reduction could affect the 

replacement rate a household will need to maintain its standard of living.

Socioeconomic status before 

retirement

Replacement rate targets may vary by income level. For example, lower-income households 

may need a higher replacement rate because they spend a relatively high proportion of their 

income on non-discretionary expenses such as food, clothing, shelter, and health care.
Page 22 GAO-16-242 Retirement Replacement Rates

Taxes Taxes may be different before and after retirement. After retirement, many retirees pay less 

of their income to taxes because they are no longer subject to Social Security payroll taxes, 

Social Security benefits are partially or fully tax free, and, according to some researchers,

there are more income tax deductions for those aged 65 and over. In addition, retirees may 

be in a lower income tax bracket than prior to retirement. This decreases the percentage of 

income that needs to be replaced in retirement.b

People may move to a different state at retirement and, consequently, face higher or lower 

income taxes.

Source: GAO analysis of articles and reports discussing income replacement rates in retirement. | GAO-16-242

Notes: We sought to identify a number of considerations that researchers, policy makers, and 

financial professionals could incorporate into their assumptions when calculating target replacement 

rates. However, GAO is not endorsing any of the considerations presented in this report.

a

The Patient Protection and Affordable Care Act may affect out-of-pocket health care costs and 

insurance premiums.

b

Individuals need to take into account whether their retirement savings are in tax-deferred or after-tax 

accounts when planning for retirement. Often, participants have tax-deferred accounts and the 

balances they see on account statements do not account for taxes that will be owed when a retiree 

begins withdrawing funds from these accounts. Thus, the full amounts are not available for 

consumption spending.

Further, researchers make assumptions about why overall spending 

might change in retirement and the role of socioeconomic status, or 

income level, before retirement. For example, some researchers have 

proposed that consumption, for which spending is a proxy, declines in 

retirement and households are generally content with consuming less as 

retirement progresses. Alternatively, households may aim to smooth their 

consumption over their lifetime and, thus, the goal in retirement is to 

maintain the same level of consumption or spending as prior to 

retirement. Under this theory, households that spend less in retirement 

may do so because of income constraints.33 Some researchers have 

explored the role that socioeconomic status plays in determining target 

replacement rates. They have found that targets may vary by income 

level. Lower-income households may need a higher replacement rate 

because they spend a relatively high proportion of their income on 

nondiscretionary items, such as food. Theoretical perspectives about 

spending could influence the assumptions used to calculate a target 

replacement rate.

Assumptions about households’ tax liabilities also affect estimates of how 

much income is needed to cover expenses in retirement, and target 

 33 It is possible that spending declines in retirement for other reasons as well. For 

example, as previously mentioned, retirees may find they have more time to compare the 

price of goods and services across retailers or businesses.
Page 23 GAO-16-242 Retirement Replacement Rates

replacement rates. Not only do tax liabilities vary across households, they 

can also vary before and after retirement. For example, retirees may be in 

a lower tax bracket after retirement. In addition, Social Security benefits 

are partially or fully tax free, and according to some researchers, there 

are more income tax deductions for those aged 65 and older.

According to the articles and reports we reviewed, household 

characteristics, particularly household size, play an important role in 

determining a household’s expenses, its income needs in retirement, and 

a target replacement rate (see table 4). For example, the presence of 

children could also affect what a target replacement rate should be. 

Researchers do not agree on how having had children affects a retired 

household’s income needs. According to some researchers, retirees will 

focus on maintaining spending on themselves and will not need to replace 

income that went toward their children’s consumption. Further, some 

researchers have hypothesized that after children move out, the 

household will save more; and because the household saves more, 

leaving less money to spend during its remaining working years, the 

percentage of income that needs to be replaced in retirement is reduced. 

On the other hand, other researchers have theorized that once children 

move out, households may not actually consume less. Instead, the 

parents may choose to use the money they had spent on their children on 

themselves. Thus, the percentage of income needed to be replaced in 

retirement may not be lower for retirees who had children versus those 

who did not.34

 34 A recent working paper found that households increase contributions to 401(k) plans by 

only a small amount when children leave home and project that these households may not 

have sufficient resources in retirement to maintain their standard of living. See Irena 

Dushi, Alicia H. Munnell, Geoffrey T. Sanzenbacher, and Anthony Webb, “Do Households 

Increase Their Savings When the Kids Leave Home?” Center for Retirement Research at 

Boston College Working Paper, vol. 2015 no. 26 (September 2015).

Household Size Also 

Affects Income Needs in 

Retirement
Page 24 GAO-16-242 Retirement Replacement Rates

Table 4: Household Characteristic Considerations That Could Inform a Target Replacement Rate

Marital status of household The replacement rate needed for a married versus single household may be different because 

the cost of living for a couple is not twice the cost of living for a single person. Couples benefit 

from economies of scale because they share some resources, such as housing. Accounting for 

these economies of scales may be useful.

Different target replacement rates may be useful for married households where only one 

spouse worked versus married households where both spouses worked.

It may be difficult to identify a target replacement rate for a married household if the members of 

the couple retire at different times, especially if there is a substantial age difference between 

the two members of the couple.

Potential changes in the composition of the household (e.g., change from married to single or 

vice-versa) could affect the replacement rate a household will need in retirement.

Role of children in the household Some researchers have argued that retirees’ goal will be to maintain spending on themselves 

only and, thus, households that had children before but not after retirement will need a lower 

replacement rate in retirement. 

Researchers have also hypothesized that after children move out, a household not yet retired 

will start saving at a higher rate, which could reduce the percentage of income needed to be 

replaced in retirement. 

On the other hand, other researchers have hypothesized that once children leave, households 

may not actually consume less and save more. Households may have become accustomed to 

a certain level of spending. Thus, the amount of income needed to be replaced in retirement 

may not be lower for retirees who had children.

Retirees may have adult children move back into their house and, as a result, these children 

continue to be an expense.

Age of household at retirement Target replacement rates for those retiring earlier may be lower. These households may be 

saving at a higher rate since they will not have as many years to save for retirement. As a 

result, they will be living off a smaller percentage of their income before retirement.

Source: GAO analysis of articles and reports discussing income replacement rates in retirement. | GAO-16-242

Notes: We sought to identify a number of considerations that researchers, policy makers, and 

financial professionals could incorporate into their assumptions when calculating target replacement 

rates. However, GAO is not endorsing any of the considerations presented in this report.

However, household characteristics may not be static, making choosing a 

target replacement rate even more complex. For example, spouses may 

not retire at the same time. Further complicating matters is the fact that 

retirees may marry, divorce, or become widowed, changing the size of 

their household and the replacement rate needed to cover the 

household’s income needs.35

 35 Our past work has shown that becoming divorced or widowed can have detrimental 

effects on income security for people who are approaching or in retirement. Moreover, 

these effects are more pronounced for women than men. See GAO, Retirement Security: 

Women Still Face Challenges, GAO-12-699 (Washington, D.C.: July 19, 2012).
Page 25 GAO-16-242 Retirement Replacement Rates

Low earners had the highest target replacement rates and high earners 

the lowest target rate, according to studies we reviewed. Some of the 

studies in our review developed different target rates for workers based 

on earnings level before retirement. While these studies did not use the 

same earnings-level groups, their conclusions were consistent.36

Specifically, Aon Hewitt projected that workers earning under $30,000 

would need a 98 percent replacement rate and that workers earning 

$90,000 would need to replace 79 percent of their income.37 Lower 

earners may need a higher replacement rate for three reasons. First, as 

discussed earlier, they may spend a relatively high amount of their 

income on non-discretionary items. Second, research has shown lowincome households save less than higher-income households. Thus, the 

reduction in saving in retirement will be less substantial for low-income 

households and they may need a higher replacement rate.38 Third, 

because low-income households pay little in taxes, they receive little in 

the way of tax saving in retirement.

In addition, how pre-retirement earnings are defined and calculated can 

have important implications for target replacement rates. More 

specifically, developers of target replacement rates must decide upon a 

period of earnings to use (see table 5). Two options cited by the articles 

and reports in our review are final average earnings and average 

earnings over the course of a career. A final average earnings measure 

uses the average of annual earnings for a period of time leading up to 

 36 For example, Aon Hewitt developed unique targets for multiples of $10,000 (i.e., one 

target for workers earning $10,000 a year, one for workers earning $20,000, another for 

$30,000 and so on). Alternatively, Pang and Warshawsky calculated target replacement 

rates for low, medium, high, and “rapid” growth earners. For comparison, the Office of the 

Chief Actuary in the Social Security Administration has developed hypothetical earnings 

levels for very low, low, medium, and high earners where career average indexed 

earnings in 2014 were $11,697, $21,054, $46,787, and $74,859, respectively. See Aon 

Hewitt, The Real Deal: 2012 Retirement Income Adequacy at Large Companies (2012); 

Gaobo Pang and Mark J. Warshawsky, “Implications of Some Deficit Reduction Proposals

for Retirement Savings,” Benefits Quarterly, vol. 28, no. 2 (2012); and Social Security 

Administration, Office of the Chief Actuary, “Replacement Rates for Hypothetical Retired 

Workers,” Actuarial Note 2014.9 (Baltimore, MD: July 2014).

37 Aon Hewitt (2012).

38 Scholz and Seshadri (2009).

Target Replacement Rates 

Can Vary by PreRetirement Earnings Level 

or if Different Definitions of 

Earnings Are Used
Page 26 GAO-16-242 Retirement Replacement Rates

retirement.39 Career average earnings measures, on the other hand, use 

the average of annual earnings over the course of someone’s career, 

adjusted for inflation or wage growth. Furthermore, because different 

definitions of earnings can affect the final target replacement rate, it is 

important to understand how earnings were calculated and indexed. For 

example, adding up separate replacement rates provided by defined 

benefit plans and Social Security benefits to come up with a total 

replacement rate may not be accurate if the two rates did not use the 

same type of pre-retirement earnings or index these earnings the same 

way.

Table 5: Pre-Retirement Earnings Considerations That Could Inform a Target Replacement Rate

Choosing earnings Pre-retirement earnings could be measured in many ways, including as final average earnings, 

wage-indexed average career earnings, inflation-adjusted average career earnings, or constant 

income payable from present value of lifetime earnings. 

The goal of the target replacement rate may be to replace earnings right before retirement or to 

smooth consumption over a retiree’s life.

Many people do not have steady earnings histories, making it unclear what earnings should be 

replaced. For example, if income was irregular over an individual’s work history, final earnings 

may not be a good measure of earnings.

Using final average earnings over career average earnings, or vice-versa, can have a large 

effect on the resulting replacement rate. Different earnings calculations may be relevant to 

different circumstances.

Comparing target replacement rates using final average earnings versus career average 

earnings could be considered comparing apples to oranges. When comparing separate target 

replacement rates provided by retirement savings or pensions to Social Security benefits, users 

may want to think about the implications of the earnings choices.

Substantial changes in earnings Substantial changes in earnings late in a career can have a large effect on calculating a 

household’s replacement rate. For example, if final earnings are used to calculate a target 

replacement rate, then unemployment late in a worker’s career could alter the target rate. 

Using final average earnings Final earnings could be measured many ways. For example, a final earnings calculation could 

use the last 5 years of earnings or the best 3 years out of the last 10 years of work.

Using career average earnings Target replacement rates using career average earnings could also be measured in different 

ways. For example, they could be measured and compared for hypothetical workers, such as a 

stylized medium earner. However, calculating earnings for hypothetical workers requires 

numerous assumptions. Further, stylized earnings represent the situation of only a handful of 

individuals. On the other hand, one researcher argued that the pattern of earnings is not 

important for calculating indexed career average earnings; rather, what matters is whether the 

average wage index matches up with the earnings experience of actual workers.

 39 For example, final earnings could be the average of annual earnings for the last 5 years 

of work. Another example would be to use the average of the best 3 years of earnings out 

of the last 10 years of work.
Page 27 GAO-16-242 Retirement Replacement Rates

Women tend to have shorter careers than men because they take a greater number of career 

breaks from the workforce to care for family members.

Indexing earnings Earnings could be indexed using inflation. Using the consumer price index to adjust earnings 

compares an individual’s retirement income to the absolute level of real pre-retirement spending 

the individual actually experienced. Alternatively, indexing earnings to wage growth also 

incorporates a comparison to the consumption of current workers.

Phased retirement It is harder to calculate replacement rates if retirement is phased because the phasing of 

retirement has implications for calculating pre-retirement earnings and retirement income. For 

example, should earnings from work be considered retirement income?

Defining pre-retirement income Measures of pre-retirement income could include other sources of income besides wages, such 

as government transfers.

Source: GAO analysis of articles and reports discussing income replacement rates in retirement. | GAO-16-242

Notes: We sought to identify a number of considerations that researchers, policy makers, and 

financial professionals could incorporate into their assumptions when calculating target replacement 

rates. However, GAO is not endorsing any of the considerations presented in this report.

Other decisions may need to be made about how to account for work 

histories or changes in earnings or phased retirement. For example, 

women often have shorter careers than men. They tend to take a greater 

number of breaks from the labor force to care for children and elderly 

relatives. As a result, a replacement rate that uses career average 

earnings could be distorted by these breaks. In addition, changes to 

earnings late in a career can have a substantial effect on target 

replacement rates if final average earnings are used to calculate preretirement income. Phased retirement could also change a target 

replacement rate, depending on how it is incorporated into the calculation. 

For example, if workers phase into retirement by reducing their hours and 

earnings over a number of years, then using the average of the final 5 

years of earnings could result in a much lower measure of pre-retirement 

income than using career average earnings. Similarly, how retirement 

income is defined can have implications for target replacement rate 

recommendations. For more information on how the definition of 

retirement income and other factors can affect target replacement rates, 

see appendix IV.
Page 28 GAO-16-242 Retirement Replacement Rates

Six of 14 (or 43 percent) of the service providers, consultants, and 

financial planners who responded to our questionnaire recommend a 

target replacement rate to plan participants or clients.40 Four of the six 

developed customized replacement rate targets for plan participants and 

used information such as asset levels, expected spending, and household 

composition to calculate target rates. One service provider told us it uses 

answers to five multiple-choice questions that ask about lifestyle 

preferences and spending patterns, along with information about 

retirement accounts, to calculate customized target replacement rates for 

most plan participants. Two other respondents reported using simplified 

“rules of thumb.”

The remaining eight service providers, consultants, and financial planners 

do not recommend a retirement replacement rate and questioned their 

usefulness for plan participants or clients. For example, according to one 

consultant, using a set rate or a rule of thumb is not appropriate for 

everyone. In addition, two financial planners told us that income needs in 

retirement are typically expense- or goals-based or income-based. 

Further, they explained each household’s income needs are unique and 

may change over time.

Researchers have also cited concerns about the usefulness of 

replacement rates in their current form. In particular, a 2011 report by 

MacDonald and Moore found that any one target rate fits relatively very 

few individuals.41 Further, the authors explained that there is no 

consensus on the best approach to estimate replacement rates and that 

its conceptual grounding in past research has often been weak.

The number of different replacement rates cited in the literature also calls 

into question the extent to which replacement rates are useful. We 

identified about 500 references to target replacement rate 

 40 We collected information from 14 service providers, retirement services consulting 

firms, and financial planners using a questionnaire. We asked the respondents a series of 

questions about target replacement rates they use in their work or alternative metrics, if 

they did not use replacement rates. See appendix I for more information on the 

questionnaire.

41 Bonnie-Jeanne MacDonald and Kevin D. Moore, Moving Beyond the Limitations of 

Traditional Replacement Rates, sponsored by the Society of Actuaries’ Pension Section 

(September 2011).

Some Financial 

Professionals 

Recommend Target 

Replacement Rates While 

Others Question Their 

Usefulness
Page 29 GAO-16-242 Retirement Replacement Rates

recommendations in 52 articles and reports (see fig. 4).42 These 

recommendations were either cited as rules of thumb or analysis results. 

The recommendations ranged from 43 to 476 percent of pre-retirement 

income, with the majority of the references being between 70 and 85 

percent of pre-retirement income; the median recommended target 

replacement rate was 77 percent.43

 42 We did not include reports and articles published by international organizations, leaving 

us with 52 of the 59 selected studies for this particular analysis. Countries have different 

pension and social safety net systems, making it hard to compare the rates calculated and 

used in these studies with those found in studies that focus solely on the United States. 

For more on our methodology, see appendix I.

43 Replacement rates may be more than 100 percent to account for certain risks, such as 

longevity, catastrophic health care costs, and investment risk. For example, one 

researcher accounted for these three risks and calculated target replacement rates. The 

recommended target rates in this researcher’s study ranged from 43 percent to 476 

percent. For instance, to achieve a 90 percent probability of having adequate retirement 

income once longevity, investment, and catastrophic health care risks have been 

accounted for, a low-income male who plans on retiring at age 62 should have a target 

replacement rate of 476 percent. See Jack VanDerhei, “Measuring Retirement Income 

Adequacy: Calculating Realistic Income Replacement Rates,” Employee Benefit Research 

Institute Issue Brief, no. 297 (September 2006). For more on the cost of long-term health 

care, see appendix V.
Page 30 GAO-16-242 Retirement Replacement Rates

Figure 4: Many Target Replacement Rate Recommendations Are between 70 and 85 

Percent

Note: The citations came from our selected studies, excluding those published by international 

organizations, for a total of 52 studies and reports. Countries have different pension and social safety 

net systems, making it hard to compare the rates calculated and used in these studies with those 

found in studies that focus solely on the United States. The citations were grouped into the ranges 

above. They did not encompass the entire range. For example, if the study cited a target replacement 

rate of 75 percent, it is included in the “from 70 percent through 85 percent” bar. See the bibliography 

at the end of this report for a complete list of studies.

Despite their inherent limitations, particular groups of workers may find 

replacement rates to be a useful planning tool, making it important that 

these groups receive clear information on replacement rate 

recommendations, according to the articles and studies in our review. For 

example, target replacement rates may be more useful for low- and 

middle-income households in part because they are more likely to face 

budget constraints in retirement and will likely need a higher replacement 

rate compared to high-income households. Also, many individuals lack 

basic financial knowledge, and lower- and middle-income individuals 
Page 31 GAO-16-242 Retirement Replacement Rates

scored lower on a recent national financial capability assessment.44

Replacement rates may also be useful for younger individuals because 

they can use a replacement rate as a metric to estimate if their projected 

retirement savings are reasonable.45

Further, the 2011 MacDonald and Moore report concluded that the 

replacement rate literature is becoming more sophisticated and capable 

of providing better guidance. It found that incorporating some individual 

characteristics—such as income and family size—could improve the 

usefulness of replacement rate calculations. Customizable replacement 

rates could be one alternative to universal target replacement rate 

recommendations. We found that there are numerous calculators and 

tools available online to help individuals determine how much they need 

to save, but research has found wide variability in how such programs 

work and in the outcomes they produce.46 Given that variability, some 

researchers have expressed concern that individuals may be unable to 

identify tools that are relevant for their individual circumstances. With 

regard to target replacement rates, we found some online tools that used 

target replacement rates in calculations did not permit users to adjust the 

value of the rate. Though we also found several that allowed users to 

adjust the rate used and provided additional—but still concise—

information to help users select an appropriate rate.47 For example, 

 44 In addition, fewer than half of low- and moderate-wealth consumers have ever used the 

services of a financial professional for retirement planning. See FINRA Investor Education 

Foundation, Financial Capability in the United States: Report of Findings from the 2012 

National Financial Capability Study (May 2013); Dan Iannicola Jr., and Jonas Parker, 

Barriers to Financial Advice for Non-Affluent Consumers, Sponsored by the Society of 

Actuaries’ Actuary of the Future and Product Development Sections (September 2010).

45 However, using such a metric would require that workers be able to crosswalk 

replacement rates with specific savings levels. Vickie Bajtelsmit, Anna Rappaport, and 

LeAndra Foster. Measures of Retirement Benefit Adequacy: Which, Why, for Whom, and 

How Much? Sponsored by the Society of Actuaries’ Pension Section and Pension Section 

Research Committee (January 2013).

46 For example, see John A. Turner, “Rating Retirement Advice: A Critical Assessment of 

Retirement Planning Software.” Pension Research Council Working Paper, vol. 2010, no. 

3 (April 2010) and John A. Turner and Hazel A. Witte, Retirement Planning Software and 

Post-Retirement Risks (Schaumburg, IL: Society of Actuaries, 2009).

47 For example, see AARP’s retirement calculator 

(https://secure.aarp.org/ws/info-2015/retirement-calculator.html) and the Ballpark E$timate 

(http://www.choosetosave.org/ballpark/).
Page 32 GAO-16-242 Retirement Replacement Rates

AARP’s retirement saving calculator provides replacement rate defaults 

corresponding to three different lifestyle options as well as the ability to 

adjust the replacement rate to any whole number.

DOL’s Employee Benefits Security Administration (EBSA) provides 

guidance on retirement income savings for workers via a number of 

publications available in print and online. For example, EBSA provides a 

brief and simple explanation of retirement replacement rates in retirement 

planning materials and guidance for workers.48 Among EBSA’s retirement 

planning publications is one that is intended to help younger workers 

understand how much they need to save for retirement.49 The publication 

includes worksheets to help workers calculate their savings needs and it 

is available in print and as an interactive online tool. This document notes 

that replacement rates might vary depending on an individual’s 

circumstances (see fig.5).

 48 We also reviewed the websites of the SSA, Consumer Financial Protection Bureau, 

Pension Benefit Guaranty Corporation, Securities and Exchange Commission, and the 

Administration on Aging for retirement planning documents that might contain references 

to replacement rates. We found text in SSA and Consumer Financial Protection Bureau 

documents that allude to the concept of replacement rates, but do not include a definition 

of replacement rate or provide any information on how to calculate them. For example, an 

insert SSA includes in the statements it provides to workers aged 25-34 includes the 

following statement: “Financial planners generally agree retirees will need about 70-80 

percent of preretirement earnings to enjoy a comfortable retirement. For an average 

worker, Social Security replaces about 40 percent of annual preretirement earnings, so 

you will need to save and invest to ensure an adequate income during retirement for you 

and your family.” Social Security Statement Sample for young Workers (ages 25-34), 

Form SSA-7005-SM-SI (09/14), Social Security Administration. We found no references to 

replacement rates in retirement planning materials from the other agencies.

49 U.S. Department of Labor, Employee Benefits Security Administration, Savings Fitness: 

A Guide to Your Money and Your Financial Future. Another EBSA publication, Taking the 

Mystery Out of Retirement Planning, published in December 2014, is designed specifically 

to help older workers nearing retirement determine how much they need for retirement. 

Taking the Mystery is also available in print and as an interactive tool. The print version of 

this tool for older workers tells users: “If you want a quick estimate of how much monthly 

income you'll need to cover expenses in retirement, figure on at least 70 percent of your 

preretirement income. Many experts are now increasing that figure to 80 or 90 percent." 

However, it does not use a replacement rate in any of the worksheets.

Limited Explanation 

of Replacement 

Rates in Department 

of Labor Retirement 

Planning Materials 

May Leave Workers 

Uncertain about How 

to Use Them
Page 33 GAO-16-242 Retirement Replacement Rates

Figure 5: Excerpt from EBSA’s Savings Fitness: A Guide to Your Money and Your Financial Future

The publication notes that no rule of thumb is appropriate for all 

individuals and also includes information that some expenses may 

change in retirement and descriptions of some lifestyle choices that may 

affect how much income workers need to replace (see fig. 5).50 Despite 

DOL’s appropriate acknowledgement of such considerations, its 

worksheet for calculating how much to save each year assumes a fixed 

replacement rate of 80 percent. The worksheet assumes that Social 

Security benefits will provide about 40 percent of pre-retirement income 

and the remaining 40 percent would need to come from savings. While 

the previous page explains that the replacement rate provided is an 

 50 U.S. Department of Labor, Employee Benefits Security Administration (EBSA), Savings 

Fitness: A Guide to Your Money and Your Financial Future.
Page 34 GAO-16-242 Retirement Replacement Rates

estimate and the user may need more or less depending on their 

circumstances, “x .40” is pre-printed in the worksheet for users to

calculate the amount of savings needed when they retire (see fig. 6).

Similarly, in the interactive online version of Savings Fitness, the fixed 

target replacement rate is coded into the calculation and cannot be 

changed. DOL officials told us that they worked to balance accuracy with 

simplicity by presenting information in a concise manner that will not 

overwhelm users. Specifically, they said that they did not make the rate 

adjustable in order to limit user flexibility and prevent too wide a range in 

assumptions. They also indicated that they limited the information on 

factors that could affect replacement rates to keep the document from 

being too complex and cluttered. ERISA calls for DOL to provide on its 

website “a means for individuals to calculate their estimated retirement 

savings needs based on their retirement income goal as a percentage of 

their preretirement income”.

51 While the planning tool allows workers to 

estimate their savings needs based on a percentage of their 

preretirement income, they are constrained in setting an individual 

retirement income goal as the replacement rate is preset by DOL. Without 

the ability to adjust the replacement rate used in the tools, workers may 

over- or under-estimate how much they need to save for retirement.

 51 29 U.S.C. § 1146(d). 
Page 35 GAO-16-242 Retirement Replacement Rates

Figure 6: Excerpt from Savings Fitness: A Guide to Your Money and Your Financial Future, Worksheet 4

In addition, the Savings Fitness explanations provided concerning the 

replacement rate in the calculation do not include specific information on 

demographic groups that studies suggest generally need higher or lower 
Page 36 GAO-16-242 Retirement Replacement Rates

replacement rates, such as low-income and single workers. For example, 

one study found that the median optimal target replacement rate for 

singles was 55 percent compared to 75 percent for married couples.52

Also, we found no discussion in the EBSA materials about how much the 

replacement rate provided might need to be adjusted for the examples of 

circumstances that might affect an individual’s desired replacement rate. 

For instance, though it suggests that someone who wants to travel 

extensively will need more money in retirement, there is no information on 

how to adjust the replacement rate to account for such a situation. Such 

information and guidance could help workers assess whether they need 

to customize the rate used in their own calculations.

Academic and industry-based researchers consistently state that there is 

no one-size-fits-all target, and some note that averages can be 

misleading and dangerous for personal planning purposes.53 They also 

highlight particular demographic groups that often need higher or lower 

income replacement (married vs. single; with/without children; by income 

level). Financial literacy research highlights the necessity of using 

relatable examples and realistic scenarios, targeting by income, and 

tailoring communications as effective means of educating and motivating. 

For instance, one review of retirement planning software suggests that 

such tools should provide the user assistance in setting a target 

replacement rate and should recognize the different needs of those with 

and without children.54 Similarly, an ERISA Advisory Council report cited 

research that found that communications specifically targeted to

 52 Scholz and Seshadri (2009).

53 For example, Bajtelsmit, Rappaport, and Foster (2013).

54 John A. Turner, “Rating Retirement Advice: A Critical Assessment of Retirement 

Planning Software.” Pension Research Council Working Paper, vol. 2010, no. 3 (April 

2010).
Page 37 GAO-16-242 Retirement Replacement Rates

participants based upon their interests, background, and/or economic 

status were more successful than providing general communications.55

Income replacement rates may be a helpful gauge for younger workers 

who have time to contribute more to retirement plans or adjust their 

saving. They can also be a useful metric for low- and middle-income 

households that may find they need to plan for replacing a substantial 

portion of their pre-retirement income in retirement. These households, in 

particular, may find they need to spend a sizable portion of their 

retirement income on basic needs, such as housing and health care. 

Social Security’s progressive benefit structure will help these households, 

but they will need other sources of income in retirement through defined 

contribution plans, pension benefits, or other means to make up the 

difference. At the same time, however, reports and articles we reviewed 

demonstrate that developing a customized replacement rate requires 

careful consideration to appropriately balance all of the underlying 

assumptions, including those related to determining pre-retirement and 

retirement income. The wide range of recommended target replacement 

rates cited in research indicates that there is no rule-of-thumb that will 

work for everyone.

Given these factors, workers may have difficulty understanding what 

target replacement rate to use based on their circumstances. Further, 

workers may have trouble operationalizing this information into a realistic 

savings strategy. This difficulty could be compounded by challenges in 

understanding how to convert defined contribution account balances into 

a potential income stream. If workers are unable to translate retirement 

account balances into income replacement goals, the benefit of 

replacement rates as a metric or guide is limited.

 55 In 2013, the Advisory Council on Employee Welfare and Pension Benefit Plans, also 

known as the ERISA Advisory Council, received testimony during 2 days of public 

hearings on June 6, 2013, and August 27, 2013, on plan communication and design 

options to increase participant and savings for participants. The Council received 

testimony from a wide range of representatives including trade and other associations, 

corporations, service providers, consulting firms, third party administrators, communication 

companies, and academia. Based on that testimony, the Advisory Council issued a report 

providing recommendations to DOL of best practices for participant communication and 

plan design. See Advisory Council on Employee Welfare and Pension Benefit Plans, 

Successful Plan Communications for Various Population Segments, (Washington, D.C.: 

November 2013). 

Conclusions
Page 38 GAO-16-242 Retirement Replacement Rates

Despite their complexity, replacement rates are used in some of the 

retirement planning tools produced by the financial industry to give 

workers a general sense of their progress toward achieving a secure 

retirement. DOL’s tools, however, lack targeted information and guidance 

that could help different groups of workers make reasonable adjustments 

to the replacement rates used in estimating their savings needs. This type 

of clarifying information is particularly important given the challenges 

workers may face in understanding the multitude of factors that could 

affect a target replacement rate. Additionally, DOL’s tools do not provide 

flexibility to allow a user to customize or compare rates. Stating a rule-ofthumb target replacement rate, for example, and then using it in planning 

tools without an option to adjust it, may inadvertently and implicitly 

endorse a “right” rate. Without additional information and guidance on 

how to estimate how much money they will need in retirement and the 

flexibility to adjust the rate used in the calculations, workers could over- or 

under-estimate how much they need to save. As a result, they may give 

up on saving if estimates seem unattainable or they could unknowingly 

save too little. In both cases, workers could reach retirement without 

adequate savings.

To help workers make appropriate adjustments to the replacement rates 

used in calculating their specific retirement income needs, the Secretary 

of Labor should take the following two actions:

• Include in its retirement planning tools information about examples of 

individual circumstances that research has shown to result in higher 

or lower income replacement needs (e.g., household characteristics 

and income level) and guidance on the direction and magnitude of the 

changes attributable to such circumstances as well as those due to 

particular lifestyle choices.

• Modify its retirement planning tools to allow for some user flexibility in 

adjusting the replacement rate used in calculating retirement income 

needs.

We provided a draft of this product to the Department of Labor (DOL), 

Department of the Treasury, Social Security Administration, and 

Consumer Financial Protection Bureau. DOL provided written comments 

which are reprinted in appendix VI. DOL also provided technical 

comments that were incorporated as appropriate. The Social Security

Administration (see letter in app. VII), the Department of the Treasury, 

and the Consumer Financial Protection Bureau did not have any 

comments on our report. 

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
Page 39 GAO-16-242 Retirement Replacement Rates

In its written comments, DOL generally agreed with our findings and 

recommendations. In its response, DOL cited steps taken by the 

Employee Benefits Security Administration (EBSA) to ensure that 

retirement planning materials balance key information with usability of the 

tools, including working with key stakeholders and experts to develop and 

test materials. DOL also noted that EBSA has worked to identify the most 

common circumstances relevant to replacement rates to help make 

workers aware of the possible impacts, rather than to create an 

individualized tool. To address our recommendations for providing more 

information on using replacement rates and modifying tools to allow for 

more flexibility, EBSA plans to make two changes by June 2017. First, 

EBSA plans to add an example about replacement rates specifically for 

married couples. Second, EBSA plans to add options to its online 

retirement savings rate tool to allow users to adjust their income 

replacement rate and their Social Security replacement rate within an 

accepted range. We agree that additional information on using 

replacement rates and increased user flexibility will further help workers 

make appropriate adjustments in calculating their specific retirement 

income needs.

We are sending copies of this report to the appropriate congressional 

committees, the Secretary of Labor, the Secretary of the Treasury, the 

Acting Commissioner of the Social Security Administration, and the 

Director of the Consumer Financial Protection Bureau. In addition, the 

report is available at no charge on GAO’s website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

me at (202)-512-7215 or jeszeckc@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made major contributions to 

this report are listed in appendix VIII.

Charles A. Jeszeck

Director, Education, Workforce,

and Income Security
Appendix I: Objectives, Scope, and 

Methodology

Page 40 GAO-16-242 Retirement Replacement Rates

To analyze consumption in retirement and how target replacement rates 

are defined and used to assess retirement readiness, we examined (1) 

whether and how spending patterns have varied by age; (2) the key 

factors used to develop target replacement rates for how much income 

workers need to replace in retirement; and (3) the usefulness of 

information on replacement rates provided to workers by the Department 

of Labor. This appendix provides a detailed account of the data sources 

used to answer these questions and the analyses we conducted. The 

appendix is organized into three sections. Each section presents the 

methods we used for the corresponding objective. Specifically, section I 

describes the information sources and methods we used to analyze 

whether and how spending patterns have varied by age. Section II 

describes the information sources and methods we used to identify key 

factors used to develop target income replacement rates for retirement. 

Section III describes the information sources and methods we used to 

examine the information on replacement rates provided by federal 

agencies.

To understand how spending patterns varied by age, we analyzed data 

from the 2013 Consumer Expenditure Survey (CE). This was the most 

recently available data at the time of our review. CE is a program that 

consists of two ongoing surveys, the Quarterly Interview Survey and the 

Diary Survey, that provide information on the buying habits of American 

consumers, including data on their expenditures, income, and consumer 

unit characteristics. The survey data are collected for the Bureau of Labor 

Statistics (BLS) by the U.S. Census Bureau. Based on our interest in 

conducting a broad analysis of spending patterns, we chose to use the 

Interview Survey rather than the Diary Survey, since the Diary Survey is 

designed to capture information on small, frequently purchased items. In 

contrast, the Interview Survey is designed to collect data on major items 

of expense, which respondents can be expected to recall for 3 months or 

longer. In practice, the Interview Survey collects detailed data on an 

estimated 60 to 70 percent of total household expenditures. In addition, 

Appendix I: Objectives, Scope, and 

Methodology

Section I: Analyzing 

Spending Patterns 

Using Consumer 

Expenditure Survey 

Data

Consumer Expenditure 

Survey
Appendix I: Objectives, Scope, and 

Methodology

Page 41 GAO-16-242 Retirement Replacement Rates

global estimates are obtained for food and other selected items, which 

account for an additional 20 to 25 percent of total expenditures. The 

Interview Survey does not collect expenses on housekeeping supplies, 

personal care products, and nonprescription drugs, which contribute 

about 5 to 15 percent of total expenditures. Thus, up to 95 percent of total 

expenditures are covered by the Interview Survey.

CE uses a probability sample of households designed to be 

representative of the total U.S. non-institutionalized civilian population. 

Prior to 2015, the sampling frame was generated from the 2000 Census 

of Population. The Interview Survey is a rotating panel survey. According 

to a BLS official, consumer units in each panel complete four interviews 

conducted every 3 months and are then dropped. Each month new 

consumer units enter the survey as other consumer units complete their 

participation. The quarterly target sample size for the Interview Survey is 

7,060 participating sample units. Data are weighted to adjust sample 

estimates to national population estimates. The results for our weighted 

data represent approximately 125.7 million households. We also 

accounted for the number of months a household is interviewed. Sample 

surveys are subject to two types of errors, sampling and non-sampling. 

Sampling errors occur because observations are not taken from the entire 

population. To estimate sampling error, we calculated 95 percent 

confidence intervals. Total expenditure data estimates reported have 95 

percent confidence intervals that are within +/- 17 percent of the estimate 

itself, and additional confidence interval information on individual 

spending categories are provided in appendix III. We followed BLS 

guidance and estimated standard errors using a replicate weight 

methodology, which involved taking the variance across 44 separate 

values of differently weighted estimates. Non-sampling error can be 

attributable to many sources, such as differences in interpreting 

questions, inability or unwillingness of the respondent to provide correct 

information, and mistakes in recording or coding data. These nonsampling errors can influence the accuracy of information presented in 

the report, although the magnitude of their effect is unknown.

We found the 2013 CE Interview Survey data to be reliable for the 

purposes of our report. To assess reliability, we reviewed survey 

documentation, compared results to published tables, and interviewed 

agency officials to ensure the variables we analyzed were reliable for our 

purposes. Estimates produced in this report may differ from published 

BLS tables. For our analysis, we only analyzed Interview Survey data, 

whereas BLS integrates some Diary Survey data into published tables. 

For the purposes of our analysis, we used different age groups than those 
Appendix I: Objectives, Scope, and 

Methodology

Page 42 GAO-16-242 Retirement Replacement Rates

in BLS published tables, which can also account for differences. 

Additionally, averages for some income and expenditure items in CE 

publications differ from those derived from Interview Survey public-use 

microdata because some variables are top coded or suppressed for 

public-use files.

We compared estimates for average household spending levels and 

shares of expenditure categories across 5-year age groups. Expenditure 

data are tracked for each consumer unit, which can comprise (1) all 

members of a household related by blood, marriage, or other legal 

arrangement, (2) a person living alone or sharing a household but who is 

financially independent, or (3) two or more persons living together who 

make joint expenditures. For the purposes of this report, we refer to 

consumer units as households. Households were included in age groups 

depending on the age of the reference person of the consumer unit. The 

reference person is the first member mentioned by the respondent when 

asked to identify the name of the person or one of persons who owns or 

rents the home.

We defined spending as direct out-of-pocket expenditures. In our 

analysis, each household had an observation for each expenditure type. 

Indirect expenditures, which may be significant, may be reflected 

elsewhere. For example, consumer units with members whose employers 

pay for all or part of their health or life insurance would have lower direct 

expenses for these items than those who pay the entire amount 

themselves. All monthly expenses were summed to obtain quarterly 

estimates for each household. In cases where no expenditure was 

reported, the expenditure was coded as a zero. We then multiplied 

expenditures by four to annualize quarterly expenditure estimates. 

Households in the four quarters of data were then averaged to obtain 

annual expenditures. To analyze the shares of different categories of 

spending, we grouped detailed level expenditures into broader 

categories, such as health and housing, based on BLS’s aggregation 

method. One exception was that we combined some broad expenditure 

categories into an “other” category for reporting purposes.

The personal insurance and pensions category includes private pensions. 

According to BLS officials, private pensions capture contributions to 

defined benefit, defined contribution, and individual retirement accounts. 

CE expenditure variables do not include payments on loans, such as 

principal payments on home mortgages because BLS considers these 

data as shifts in assets and liabilities, and would be captured in outlays. 

Cross-Sectional Spending 

Analysis
Appendix I: Objectives, Scope, and 

Methodology

Page 43 GAO-16-242 Retirement Replacement Rates

Outlays include out-of-pocket expenditures plus spending that “stays 

within the consumer unit” such as paying down principal on a loan. The 

figures in this report that are based on our analysis of the Consumer 

Expenditure Survey reflect data that are defined as expenditures in BLS 

documentation. However, since mortgages can play an important role in 

homeownership, we conducted an additional analysis where we added 

lump sum and mortgage principal payments to housing expenditures to 

understand the difference between housing outlays and expenditures. We 

found that including mortgage outlays does not substantially alter the 

spending patterns observed. For information on home mortgage outlays, 

see appendix II. Property taxes are included in housing expenditures. 

Lastly, income tax estimates are separate from expenditure variables. In 

2013, CE started using the National Bureau of Economic Research 

TAXSIM program to estimate tax liabilities because it can be difficult for 

respondents to accurately recall and estimate income taxes.

We also analyzed expenditure levels by age-specific income quartiles. 

The income quartile thresholds for each age group are presented in 

table 6.

Table 6: Age-Specific Income Quartiles, 2013

Income quartile ranges

Age group Lowest income quartile 2nd income quartile 3rd income quartile Highest income quartile

Under 25 Up to $7,722 $7,723-$19,254 $19,255-$38,000 Over $38,000

25-29 Up to $23,502 $23,503-$42,966 $42,967-$68,157 Over $68,157

30-34 Up to $29,124 $29,125-$52,000 $52,001-$85,000 Over $85,000

35-39 Up to $31,800 $31,801-$57,000 $57,001-$95,041 Over $95,041

40-44 Up to $34,658 $34,659-$63,000 $63,001-$105,876 Over $105,876

45-49 Up to $33,229 $33,230-$65,000 $65,001-$106,760 Over $106,760

50-54 Up to $27,255 $27,256-$59,451 $59,452-$101,797 Over $101,797

55-59 Up to $28,049 $28,050-$57,964 $57,965-$101,000 Over $101,000

60-64 Up to $22,000 $22,001-$50,631 $50,632-$92,414 Over $92,414

65-69 Up to $20,355 $22,356-$39,069 $39,070-$70,118 Over $70,118

70-74 Up to $18,374 $18,375-$30,572 $30,573-$55,022 Over $55,022

75-79 Up to $16,127 $16,128-$26,338 $26,339-$46,215 Over $46,215

80+ Up to $14,736 $14,737-$22,778 $22,779-$37,514 Over $37,514

Source: GAO analysis of 2013 Bureau of Labor Statistics Consumer Expenditure Survey, Interview Survey data. | GAO-16-242

Note: Because the table does not present decimals, the ranges shown may not reflect exact ranges 

due to rounding.
Appendix I: Objectives, Scope, and 

Methodology

Page 44 GAO-16-242 Retirement Replacement Rates

We also analyzed spending patterns by age for expenditures related to 

long-term care services since long-term care costs may be a particularly 

salient issue for older households. Specifically, we looked at spending on 

long-term care insurance; care in convalescent or nursing home; adult 

day care; and care for elderly, those who are incapacitated, individuals 

with disabilities, etc. However, there are challenges with measuring 

household spending for long-term care because there is uncertainty 

surrounding the extent to which households will need long-term care 

services and how they will finance these costs. Since many people may 

not have spending in this area, average spending levels are not 

necessarily indicative of the potential costs people may face. Thus, to 

better understand how long-term care costs would factor into retirement 

considerations, we compared the results of four academic studies that 

studied the potential effect of these costs on retirement resources. We 

selected these articles based on our general literature search results and 

citations in relevant studies. See appendix V for more information on 

long-term care costs.

Using the same CE Interview Survey data, we analyzed whether there 

were differences in spending patterns by category using a regression 

analysis. Specifically, we estimated the following aspects of spending 

patterns: (1) the age at which the expenditure category is at its maximum, 

and (2) whether there is a significant relationship between age and 

expenditures. Our regression model tested the effect of age on 

expenditures while controlling for education, race, and ethnicity. We used 

the natural log of expenditures as the dependent variable in order to 

obtain results for the percentage effect of age on expenditures rather than 

the absolute effect. Based on the results of our cross-sectional analysis, 

which showed a parabolic pattern in expenditure levels by age, we used a 

quadratic form of age. We included a limited set of control variables that 

were not affected by age so as to capture the effect of age as well as 

other characteristics that may change with age. Because we used crosssectional data, the results may not accurately describe how an actual 

cohort might behave over time.

Our regression model is represented by the following equation:

Ln(expenditure) = α + β1*age + β2*age2 + control variables. We then 

solved for the age at which expenditure is maximized by taking the first 

derivative with respect to age, and solving for the age at which the first 

derivative is equal to zero, - β1/(2∗β2).

Regression Analysis
Appendix I: Objectives, Scope, and 

Methodology

Page 45 GAO-16-242 Retirement Replacement Rates

To identify key factors used to develop target replacement rates, we (1) 

analyzed articles and reports published in academic journals or by 

research centers or international organizations and (2) gathered 

information from financial firms through questionnaires and interviews. To

identify the range of target replacement rates recommended to U.S. 

workers, we catalogued references to such recommendations in the 

studies we selected for review. Our analysis focused on total replacement 

rates, that is, the ratio of all income in retirement—including from Social 

Security, pension benefits, and retirement savings—to pre-retirement 

earnings. We sought to identify a number of considerations that 

researchers, policy makers, and financial professionals incorporate into 

their assumptions when developing, calculating target, or evaluating 

replacement rates. However, because analyzing the merits and 

disadvantages of each consideration was outside the scope of our work, 

GAO is not endorsing any of the considerations presented in this report.

To select articles and reports for our analysis, we used ProQuest, 

WorldCat, and PolicyFile to search various library databases such as 

EconLit and ABI/INFORM Global. We also searched the OECD library. 

We also reviewed websites of research centers and industry 

organizations that work on retirement security issues, such as the Center 

for Retirement Research at Boston College, the University of Michigan 

Retirement Research Center, the Society of Actuaries, the Employee 

Benefit Research Institute, and the World Bank. We also reviewed written 

statements of witnesses at congressional hearings held by the House 

Committee on Ways and Means; House Education and the Workforce 

Committee; Senate Committee on Finance; Senate Committee on Health, 

Education, Labor and Pensions; and Senate Special Committee on 

Aging. Our ProQuest and PolicyFile searches generated 555 results. Our 

OECD library searches generated 35 results and our web searches 

generated another 40 results. We reviewed relevant abstracts, when 

available, to determine which articles (1) contained information on target 

replacement rates or assumptions needed to calculate a replacement rate 

and (2) were published in or after 2005, and reviewed those articles. We 

selected 59 articles and reports for analysis (see bibliography at the end 

of this report for the list of reports and articles selected). We performed 

these searches and identified articles from January 2015 through January 

2016. We included reports published by international organizations 

because these reports include detailed information on assumptions and 

methods used to calculate replacement rates. These reports generally 

Section II: Identifying 

Key Factors Used by 

Researchers and 

Financial 

Professionals to 

Develop Target 

Replacement Rates
Appendix I: Objectives, Scope, and 

Methodology

Page 46 GAO-16-242 Retirement Replacement Rates

use replacement rates primarily for cross-country comparisons. For 

example, the OECD’s Pensions Outlook calculates replacement rates for 

cross-country comparisons.1 This OECD report considers several 

definitions of pre-retirement earnings to compute replacement rates and 

shows the proportion of workers in a given country who may fail to reach 

the OECD average replacement rate and the country-specific target 

replacement rate, if any.

To gather information from financial industry firms, we used a 

combination of questionnaires and interviews. To determine which firms 

to contact, we relied on suggestions from several researchers and 

actuaries who have studied replacement rates. We collected information 

from 14 firms—7 service providers, 3 retirement services consulting firms, 

and 4 financial planners. While these firms provided valuable insight into 

target replacement rate recommendations, our findings are 

nongeneralizable. We asked the firms to respond to a questionnaire we 

developed, either by completing the questionnaire and sending it back to 

us or by going through the questionnaire during an interview. The 

questionnaire asked about how, if at all, the firm uses replacement rates 

in its work. If the firm uses target replacement rates, we asked a series of 

questions about the origin of the target rate used by the firm, when and 

how it was developed, and the various economic and demographic 

factors considered, if any, when the firm developed the replacement rate. 

For example, the questionnaire asks about individual or household 

demographic factors, economic factors specific to an individual or a 

household, and macroeconomic factors, like inflation and wage growth. If 

the firm does not use a target replacement rate, we asked about 

alternative measures it uses in lieu of replacement rates.

To identify target replacement rates recommended to U.S. workers, we 

reviewed our selected studies for (1) references to rules of thumb for 

income replacement rates in retirement, (2) references to target rates 

recommended by other researchers or organizations, and (3) target 

replacement rates recommended or developed by the report’s authors. 

For this particular part of analysis, we excluded articles and reports 

written by international organizations because of our focus on 

recommendations for U.S. workers.

 1 OECD, OECD Pensions Outlook 2014 (Paris, France: OECD Publishing, 2014).
Appendix I: Objectives, Scope, and 

Methodology

Page 47 GAO-16-242 Retirement Replacement Rates

To identify the information on replacement rates provided to workers by 

federal agencies, we interviewed officials and reviewed relevant 

retirement planning materials produced by the Department of Labor 

(DOL), the Social Security Administration (SSA), and the Consumer 

Financial Protection Bureau (CFPB). We also interviewed officials at all 

three agencies. In addition to reviewing documents provided to us by 

agency officials, we conducted web searches to identify any additional 

relevant materials. We also reviewed the websites of the Pension Benefit 

Guaranty Corporation, the Securities and Exchange Commission, and the 

Administration on Aging for retirement planning documents that might 

contain references to replacement rates. We included these agencies 

because of references we found in DOL and SSA retirement planning 

materials. Although we found references to replacement rates in SSA and 

CFPB documents, we focused our review on DOL materials as DOL is 

required by law to provide a means of calculating retirement savings 

needs using a replacement rate.2 We also reviewed relevant federal laws 

and regulations.

To assess information on replacement rates provided to workers by 

federal agencies, we reviewed best practices for financial literacy and 

financial planning. We found practices related to federal plain language 

writing requirements and ensuring that financial planning tools account for 

differences in individual circumstances. To identify these best practices, 

we used web searches, interviewed academic researchers about the 

advantages and disadvantages of target replacement rates, and analyzed 

financial industry professionals’ views on replacement rates from 

interviews, questionnaires, and sample materials. We also reviewed 

public comments in response to DOL’s Employee Benefits Security 

Administration’s 2010 Request for Information Regarding Lifetime Income 

Options for Participants and Beneficiaries in Retirement Plans3 and 2013 

Advanced Notice of Proposed Rulemaking on Pension Benefit 

Statements4 for remarks specific to the provision of information about 

replacement rates or pension benefits in individual benefit statements.

 2 See 29 U.S.C. § 1146(d).

3 See 75 Fed. Reg. 5253 (Feb. 2, 2010).

4 See 78 Fed. Reg. 26,727 (May 8, 2013).

Section III: Assessing 

the Usefulness of 

Information on 

Replacement Rates 

Provided by Federal 

Agencies to Workers
Appendix II: Home Mortgage Outlays

Page 48 GAO-16-242 Retirement Replacement Rates

Housing is unique from most spending categories in that certain financial 

aspects of homeownership are considered an asset for households, and 

financing plays an important role in purchasing a home. For several age 

groups, we found that a large portion of households owned a home with a 

mortgage (see fig. 7).

Figure 7: Housing Status, 2013

Notes: The “no cash or student” category represents housing that is occupied as student housing or 

without payment of cash rent. The percentage of households in this category for all age groups over 

45 was around 1 percent or less.

Appendix II: Home Mortgage Outlays
Appendix II: Home Mortgage Outlays

Page 49 GAO-16-242 Retirement Replacement Rates

While certain out-of-pocket expenses associated with homeownership, 

such as mortgage interest payments and property taxes, are captured by 

the Consumer Expenditure Survey (CE) expenditure variables, mortgage 

principal payments are not included in expenditures.1 Rather, payments 

of mortgage principal are considered a shift in a household’s assets and 

liabilities. To get a sense of the household’s total outlays for housing, we 

conducted an additional analysis of 2013 CE data on owned and vacation 

home mortgage principal and lump sum payments, referred to here as 

mortgage outlays. When mortgage outlays were added to housing 

expenditures, the share of spending on housing increased somewhat 

(see table 7).

Table 7: Estimated Average Annual Housing Expenditures and Mortgage Outlays by Age, 2013

Age group

Housing

expenditures only

Share of

total spending Mortgage outlays

Share of total spending 

with mortgage outlays

45-49 $18,360 31% $2,942 35%

50-54 $17,285 31% $3,170 35%

55-59 $17,246 31% $2,754 35%

60-64 $16,364 31% $2,763 35%

65-69 $15,191 32% $2,850 36%

70-74 $13,296 33% $1,350 35%

75-79 $11,379 33% $839 34%

80+ $11,331 36% $392 37%

Source: GAO analysis of 2013 Bureau of Labor Statistics Consumer Expenditure Survey, Interview Survey data.| GAO-16-242

Notes: “Housing expenditures only” include expenses such as rent, utilities, and mortgage interest 

payments, but do not include mortgage principal payments. “Mortgage outlays” represent mortgage 

principal and lump sum payments for owned and vacation homes. Age groupings are based on the 

age of the reference person, or the person who rents or owns the home, for the consumer unit. There 

may be adults in the consumer unit who are older or younger than the reference person. A consumer 

unit can comprise (1) all members of a household related by blood, marriage, or other legal 

arrangement, (2) a person living alone or sharing a household but who is financially independent, or 

(3) two or more persons living together who make joint expenditures. For the purposes of this report, 

we refer to consumer units as households. We did not adjust spending levels for household size.

Mortgage outlays were larger for some age groups than others. For 

example, estimated average mortgage outlays were around $3,000 for 

mid-career households (aged 45-49). However, for some age groups, 

such as households aged 75 and older, average mortgage outlays were 

 1

Housing expenditures also include utilities and maintenance costs, as well as household 

operations expenses, such as child care and housekeeping. 
Appendix II: Home Mortgage Outlays

Page 50 GAO-16-242 Retirement Replacement Rates

quite small.2 While mortgage principal payments are an important 

expense for some households, their inclusion does not substantially alter 

the spending patterns observed. More specifically, housing was a major 

household expense across all age groups regardless of whether or not 

mortgage outlays are included.

 2 The 95 percent confidence intervals for mortgage outlays are between $2,635 and 

$3,249 for households aged 45-49, between $541 and $1,136 for households aged 75-79, 

and between $230 and $554 for households aged 80 and older. 
Appendix III: Confidence Intervals for Select 

Spending Estimates

Page 51 GAO-16-242 Retirement Replacement Rates

The tables below provide the underlying spending estimates and 

confidence intervals for table 1, table 2, and figure 2.

Table 8: Comparison of Estimated Average Annual Household Expenditures across Pre- and Post-Retirement Age Groups, 

2013 with Confidence Intervals

Average household expenditures Ratio of expenditures

Expenditure type

Pre-retirement

(50-64)

(95% confidence interval)

Post-retirement

(65-79)

(95% confidence interval)

Comparing ages

65-79 to 50-64

(95% confidence interval)a

Housing $16,998

(+/-$557)

$13,699

(+/-$728)

81%

(+/-6)

Transportation $9,557

(+/-$561)

$7,113

(+/-$660)

74%

(+/-9)

Food $7,703

(+/-$198)

$6,420

(+/-$231)

83%

(+/-4)

Personal insurance and 

pensions

$7,154

(+/-343)

$2,839

(+/-$436)

40%

(+/-6)

Health $3,935

(+/-181)

$4,959

(+/-$190)

126%

(+/-8)

Entertainment $2,317

(+/- $112)

$2,008

(+/-$219)

87%

(+/-10)

Apparel $1,124

(+/- $70)

$751

(+/- $81)

67%

(+/-8)

Other $5,567

(+/-480)

$4,115

(+/-$566)

74%

(+/-13)

Total $54,356

(+/-$1,647)

$41,904

(+/-$2,343)

77%

(+/-6)

Source: GAO analysis of 2013 Bureau of Labor Statistics Consumer Expenditure Survey, Interview Survey data. | GAO-16-242

Notes: Age groupings are based on the age of the reference person, or the person who rents or owns 

the home, for the consumer unit. There may be adults in the consumer unit who are older or younger 

than the reference person. A consumer unit can comprise (1) all members of a household related by 

blood, marriage, or other legal arrangement, (2) a person living alone or sharing a household but who 

is financially independent, or (3) two or more persons living together who make joint expenditures. 

For the purposes of this report, we refer to consumer units as households. We did not adjust 

spending levels for household size. The “other” category of spending includes expenditures for 

reading, tobacco, alcoholic beverages, education, cash contributions, personal care, and 

miscellaneous expenses. The “personal insurance and pensions” category includes deductions for 

government and railroad retirement, private pensions, and Social Security. According to Bureau of 

Labor Statistics officials, the private pensions category includes defined benefit, defined contribution, 

and individual retirement accounts. Housing expenditures include expenses such as rent, utilities, and 

mortgage interest payments, but do not include payments on mortgage principal.

a

Ratio estimate confidence intervals are provided in percentage points.

Appendix III: Confidence Intervals for Select 

Spending Estimates
Appendix III: Confidence Intervals for Select 

Spending Estimates

Page 52 GAO-16-242 Retirement Replacement Rates

Table 9: Estimated Average Annual Household Expenditures and Shares for Select Age Groups, 2013

Average household expenditures and share of total spending

Expenditure type

Mid-career

(45-49)

(95% confidence interval)

Young retirees

(65-69)

(95% confidence interval)

Mid-retirees

(75-79)

(95% confidence interval)

Older retirees

(80+)

(95% confidence interval)

Housing $18,360

(+/-$890)

31%

$15,191

(+/-$1,127)

33%

$11,379

(+/-$1,040)

33%

$11,331

(+/-$722)

36%

Transportation $10,230

(+/-$890)

18%

$7,851

(+/-$817)

17%

$5,904

(+/-$1,098)

17%

$3,576

(+/-$700)

11%

Food $8,489

(+/-$282)

15%

$6,885

(+/-$302)

15%

$5,644

(+/-$389)

16%

$4,755

(+/-$255)

15%

Personal insurance 

and pensions

$7,815

(+/-585)

13%

$4,099

(+/-$737)

9%

$1,307

(+/-$465)

4%

$872

(+/-$277)

3%

Health $3,546

(+/-219)

6%

$4,913

(+/-$252)

11%

$4,839

(+/-$366)

14%

$4,666

(+/-$379)

15%

Entertainment $2,957

(+/- $372)

5%

$2,442

($+/-470)

5%

$1,441

(+/-$145)

4%

$1,081

(+/-$120)

3%

Apparel $1,412

(+/- $136)

2%

$887

(+/- $133)

2%

$545

(+/-$120)

2%

$384

(+/-$54)

1%

Other $5,643

(+/-$763)

10%

$4,524

(+/-$889)

10%

$3,636

(+/-$791)

10%

$4,730

(+/-$1,224)

15%

Total $58,452

(+/-$2,438)

$46,791

(+/-$3,205)

$34,695

(+/-$2,827)

$31,395

(+/-$2,627)

Source: GAO analysis of 2013 Bureau of Labor Statistics Consumer Expenditure Survey, Interview Survey data. | GAO-16-242

Notes: Age groupings are based on the age of the reference person, or the person who rents or owns 

the home, for the consumer unit. There may be adults in the consumer unit who are older or younger 

than the reference person. A consumer unit can comprise (1) all members of a household related by 

blood, marriage, or other legal arrangement, (2) a person living alone or sharing a household but who 

is financially independent, or (3) two or more persons living together who make joint expenditures. 

For the purposes of this report, we refer to consumer units as households. We did not adjust 

spending levels for household size. The “other” category of spending includes expenditures for 

reading, tobacco, alcoholic beverages, education, cash contributions, personal care, and 

miscellaneous expenses. The “personal insurance and pensions” category includes deductions for 

government and railroad retirement, private pensions, and Social Security. According to Bureau of 

Labor Statistics officials, the private pensions category includes defined benefit, defined contribution, 
Appendix III: Confidence Intervals for Select 

Spending Estimates

Page 53 GAO-16-242 Retirement Replacement Rates

and individual retirement accounts. Housing expenditures include expenses such as rent, utilities, and 

mortgage interest payments, but do not include payments on mortgage principal.

Table 10: Estimated Average Annual Household Housing Expenditures and Housing Status 2013 with Confidence Intervals

Age group

Average housing 

expenditure

(95% confidence 

interval)

% Renter

(95% confidence 

interval)a

% Own with 

mortgage

(95% confidence 

interval)a

% Own without 

mortgage

(95% confidence 

interval)a

% No cash or 

student

(95% confidence 

interval)a

45-49 $18,360

(+/-$890)

33

(+/-3)

51

(+/-3)

15

(+/-3)

1

(+/-0)

50-54 $17,285

(+/-$902)

28

(+/-3)

50

(+/-4)

21

(+/-3)

1

(+/-1)

55-59 $17,246

(+/-$1,167)

22

(+/-3)

45

(+/-3)

32

(+/-3)

1

(+/-1)

60-64 $16,364

(+/-$842)

19

(+/-2)

40

(+/-3)

40

(+/-3)

1

(+/-1)

65-69 $15,191

(+/-$1,127)

18

(+/-3)

35

(+/-4)

47

(+/-4)

0

(+/-0)

70-74 $13,296

(+/-$1,085)

18

(+/-3)

27

(+/-4)

54

(+/-3)

1

(+/-1)

75-79 $11,379

(+/-$1,040)

19

(+/-3)

17

(+/-3)

64

(+/-4)

1

(+/-1)

80+ $11,331

(+/-$722)

21

(+/-3)

8

(+/-2)

70

(+/-3)

1

(+/-1)

Source: GAO analysis of 2013 Bureau of Labor Statistics Consumer Expenditure Survey, Interview Survey data. | GAO-16-242

Notes: Age groupings are based on the age of the reference person, or the person who rents or owns 

the home, for the consumer unit. There may be adults in the consumer unit who are older or younger 

than the reference person. A consumer unit can comprise (1) all members of a household related by 

blood, marriage, or other legal arrangement, (2) a person living alone or sharing a household but who 

is financially independent, or (3) two or more persons living together who make joint expenditures. 

For the purposes of this report, we refer to consumer units as households. We did not adjust 

spending levels for household size. Housing expenditures include expenses such as rent, utilities, 

and mortgage interest payments, but do not include payments on mortgage principal. For more 

information on mortgage principal, see appendix II. The “no cash or student” category represents 

housing that is occupied as student housing or without payment of cash rent. Percentages may not 

add to 100 percent due to rounding.

a

Percent estimate confidence intervals are provided in percentage points.
Appendix IV: Other Factors That Could Inform 

Target Replacement Rates

Page 54 GAO-16-242 Retirement Replacement Rates

We identified four factors from the articles and reports we reviewed in 

addition to spending, household characteristics, and pre-retirement 

earnings that raised important considerations for developing the 

underlying assumptions behind a target replacement rate. As shown in 

table 11, these four factors are (1) the income to be replaced, (2) sources 

of income in retirement, (3) saving patterns, and (4) risks.

Table 11: Additional Considerations That Could Inform the Development of a Target Replacement Rate

Income to be replaced A target replacement rate could be designed to replace gross or after-tax income. 

How much pre-retirement income an individual needs to replace in retirement may change throughout 

retirement. Replacement rates could be for a broad “retirement average” time period rather than a 

single point in time—for example, at retirement—because retirement income varies over time. 

Alternatively, target replacement rates could be calculated for different points in retirement. For 

example, there could a target rate for how much income needs to be replaced immediately at 

retirement and then a different target for 10 years into retirement. Income may vary for a number of 

reasons. For example, if members of a couple retire at different times, the retirement income they 

receive will be different in the years where only one member of the couple is retired compared to years 

when both members are retired. In addition, if a retiree has a pension benefit that is not indexed to 

inflation, or has converted some or all of his or her defined contribution savings to a non-inflation 

indexed annuity, the real value of income from these benefits or annuities will erode over time. Further, 

with the shift from defined benefit to defined contribution plans, and a high level of aversion to 

annuitizing defined contribution savings, there may be more unpredictability in how much income a 

household will have in any particular year. 

Women tend to have lower earnings over the course of their careers. As a result, they may need to 

replace more income to maintain their standard of living in retirement.

What non-earnings sources, if any, should be replaced? Non-earnings sources of income could include 

government transfers such as social assistance, unemployment insurance, and capital income, such as 

interest on investments or imputed rent from housing.

Sources of income in

retirement

In addition to Social Security, pension benefits, and retirement savings, households may also have 

non-retirement savings or assets. These assets could be converted into an income stream in 

retirement. However, one researcher recommends not including sources like inheritances because they 

are not related to the retirement system or pre-retirement income. 

Some of the financial aspects of home ownership could be considered income sources. For example, 

researchers have raised the question of whether imputed rent could be considered income. 

Alternatively, an individual could convert their housing equity into a reverse mortgage, providing an 

additional income stream.

Outside of the tax-qualified plan environment, retail annuity rates for women are typically less generous 

than for men because women have a longer average life expectancy. According to DOL, annuities

offered within a pension plan must be offered on a gender neutral basis. However, 401(k) plans do not 

typically offer a lifetime annuity option within the plan. Women face the risk of receiving less generous 

income streams if they annuitize their 401(k) balances outside the plan, and they face a higher risk of 

outliving their assets if they do not annuitize their balances. Depending on how a replacement rate is 

constructed, women may need a higher replacement rate than men to account for these risks.

Saving patterns After retirement, the need to save for retirement is reduced or eliminated. Any income devoted to 

saving for retirement does not need to be replaced.

Appendix IV: Other Factors That Could 

Inform Target Replacement Rates
Appendix IV: Other Factors That Could Inform 

Target Replacement Rates

Page 55 GAO-16-242 Retirement Replacement Rates

Those who save less prior to retirement will need a higher replacement rate because more of their preretirement income will have gone towards spending. For example, retirees with a defined benefit plan 

may need a higher replacement rate. They likely saved less before retirement, and thus, do not have 

the same gain from a decline in saving upon retirement as workers who have saved in a defined 

contribution account.a

Risks Target replacement rate assumptions, even after taking into account the considerations raised in this 

report, still may not incorporate a variety of post-retirement risks including accelerating inflation, death 

of a spouse, divorce, insurer default, low investment returns, annuitization rates, longevity, developing 

a health condition with significant out-of-pocket expenses, tax increases, and changes in pension or 

Social Security benefits.

Source: GAO analysis of articles and reports discussing income replacement rates in retirement. | GAO-16-242

Notes: We sought to identify a number of considerations that researchers, policy makers, and 

financial professionals could incorporate into their assumptions when calculating target replacement 

rates. However, GAO is not endorsing any of the considerations presented in this report.

a

Individuals will need to take into account whether their retirement savings are in tax-deferred or aftertax accounts when planning for retirement. Often, participants have tax-deferred accounts and the 

balances they see on account statements do not account for taxes that will be owed when a retiree 

begins withdrawing funds from these accounts. Thus, the full amounts are not available for 

consumption spending.
Appendix V: Long-term Care Costs and Effect 

on Retirement Resources

Page 56 GAO-16-242 Retirement Replacement Rates

Based on the studies we reviewed in table 12, long-term care (LTC) is an 

important consideration for retirement, particularly since a majority of 

users for these services are elderly.1 About 70 percent of those aged 65 

and older are likely to need long-term services and supports at some 

point in their lives.2 However, it is difficult to plan for LTC costs as part of 

income replacement in retirement because of challenges in determining 

spending needs, high service rates,3 and limited government coverage for 

financing costs. Average LTC spending is not necessarily indicative of the 

potential costs individuals may face because the distribution of costs is 

skewed. While many may not require LTC services, those who do may 

have significant spending. For example, in our analysis of 2013 

Consumer Expenditure Survey data, we found that only 3 percent of 

households we analyzed had out-of-pocket spending on LTC-related 

expenses. Estimated expenditures were sizeable in some age groups for 

those who had spending on these services. For example, households 

aged 80 and older that did have long-term care expenses spent an 

average of about $6,900 in 2013.

4 Further, LTC service rates can be 

expensive. According to 2015 Genworth Cost of Care Survey data, the 

national median annual service rate for nursing homes was $80,000 and 

was $46,000 for full-time home health care. Although government 

programs can help individuals finance LTC costs, coverage from these 

programs is limited. For example, Medicaid does provide coverage for 

some long-term care services, but coverage is limited to individuals who 

are within certain eligibility categories and meet functional and financial 

criteria. Individuals who pay for an extended stay in a nursing home can 

quickly deplete their resources for retirement and subsequently quality for 

Medicaid.

 1

According to a National Health Care Statistics report, data from 2011 and 2012 indicate 

that about 7 million people were served by nursing homes, residential care communities, 

home health agencies, and adult day services. See National Center for Health Statistics, 

Long-Term Care Services in the United States: 2013 Overview, National Health Care 

Statistics Reports, no. 1 (Hyattsville, MD: 2013). 

2

Peter Kemper, Harriet L. Komisar and Lisa Alecxih, “Long-Term Care Over an Uncertain 

Future: What Can Current Retirees Expect?” Inquiry, vol. 42, Winter 2005/2006 (2005).

3 Service rates refer to how much providers charge for long-term care services. 

4

The 95 percent confidence interval for average spending on long-term care services for 

households aged 80 and older that had these expenses is between $4,683 and $9,014. 

Appendix V: Long-term Care Costs and 

Effect on Retirement Resources
Appendix V: Long-term Care Costs and Effect 

on Retirement Resources

Page 57 GAO-16-242 Retirement Replacement Rates

To understand how the potential for LTC costs affects retirement 

adequacy, we reviewed four academic studies (see table 12). The results 

show that incurring long-term care costs can have a negative impact on 

retirement readiness, particularly for low- and middle-income households.

Table 12: Studies Analyzing the Effects of Long-term Care Costs on Retirement

Organization Modeling methodology Examples of effect on retirement resources

Center for Retirement 

Research at Boston 

College (2009)

This study analyzes the impact of strategies for 

covering long-term care costs on the National 

Retirement Risk Index (NRRI) benchmark to show how 

the potential for long-term care expenditures affects 

households’ ability to maintain their pre-retirement nonhealth-related spending. The strategies used to 

demonstrate the potential for long-term care costs are 

purchasing long-term care insurance and not having a 

reverse mortgage, so that home equity is available to 

finance long-term care.

The results show how the NRRI is affected by 

incorporating potential long-term care costs. The 

NRRI shows the percentage of households that are at 

risk of not being within 10% of their target 

replacement rate when long-term care is and is not 

incorporated:

• Original NRRI (long-term care not incorporated): 

44% of households

• NRRI with cost of long-term care insurance: 64%

of households

• NRRI without reverse mortgages (equity is 

available to finance long-term care costs): 65% of 

households

Employee Benefit 

Research Institute 

(2006)

For various stylized examples, this paper simulates the 

replacement rates necessary to provide adequate 

retirement resources at different probability levels to 

account for investment, longevity, and long-term health 

care risks.

The results show how the replacement rates 

associated with having a 90% probability of adequate 

resources are affected when long-term health care 

risks are incorporated into the simulations. Results 

are shown for a hypothetical worker.

Low-income male retiring at age 65 with no equity 

allocation and no annuity

• Replacement rate without stochastic long-term 

health care costs replacement rate: 241%

• Replacement rate with stochastic long-term 

health care costs: 394% 

Employee Benefit 

Research Institute 

(2014)

This purpose of this study is to show results for the 

probability of not running short of money in retirement. 

This study uses a model to simulate the percentage of 

the population at risk of not having retirement income 

adequate to cover average expenses and uninsured 

health costs. Longevity, investment, and stochastic 

long-term health care risks were incorporated into the 

model similar to the approach in EBRI’s 2006 work.

This study uses the retirement readiness rating (RRR) 

as a benchmark to compare results between those 

who do and do not incur long-term health care costs 

at various income levels. The RRR is equal to the 

percentage of simulated life paths that do not run 

short of money in retirement, and are shown below for 

the various scenarios:

Lowest income quartile

• RRR without long-term care costs: 38.9%

• RRR with long-term care costs: 10.6%

2nd income quartile

• RRR without long-term care costs: 89.2%

• RRR with long-term care costs: 42.3% 
Appendix V: Long-term Care Costs and Effect 

on Retirement Resources

Page 58 GAO-16-242 Retirement Replacement Rates

Organization Modeling methodology Examples of effect on retirement resources

Society of Actuaries 

(2014)

This study simulates the retirement wealth needed to 

be sufficient for meeting household needs at the 50th 

and 95th percentiles across stylized examples across 

two income levels. Long-term care risk is defined as 

events that require institutional care and assumes that 

long-term care insurance only covers this type of care. 

Probability of needing care is based on age and 

gender, and the length of care is either 3 months or 

life.

This study uses the level of wealth that is sufficient to 

maintain standard of living in retirement without 

running out of investment wealth and without having 

to sell home (except where the second spouse enters 

permanent long-term care and the home is no longer 

needed) as a benchmark. The difference between the 

50th and 95th percentile success levels of having 

sufficient wealth shows the combination of the effects 

of investment, inflation, health, longevity, and longterm care risks on retirement resources.

Results for 50th income percentile, couple with no 

long-term care insurance

• Sufficient wealth for 50th percentile success 

level: $169,628

• Sufficient wealth for 95th percentile success 

level: $686,264

Source: GAO analysis of the following research papers: Alicia H. Munnell, Anthony Webb, Francesca Golub-Sass, and Dan Muldoon, “Long-Term Care Costs and the National Retirement Risk Index,”

Center for Retirement Research at Boston College, no. 9-7 (March 2009); Jack VanDerhei, “Measuring Retirement Income Adequacy: Calculating Realistic Income Replacement Rates,” Employee Benefit 

Research Institute Brief, no. 297 (September 2006); Jack VanDerhei, “What Causes EBRI Retirement Readiness Ratings to Vary: Results from the 2014 Retirement Security Projection Model,” Employee 

Benefit Research Institute Brief, no. 396 (February 2014); Vickie Bajtelsmit and Anna Rappaport, The Impact of Long-Term Care Costs on Retirement Wealth Needs (Washington, D.C.: Society of 

Actuaries, 2014). | GAO-16-242
Appendix VI: Comments from the Department 

of Labor

Page 59 GAO-16-242 Retirement Replacement Rates

Appendix VI: Comments from the 

Department of Labor
Appendix VI: Comments from the Department 

of Labor

Page 60 GAO-16-242 Retirement Replacement Rates
Appendix VII: Comments from the Social 

Security Administration

Page 61 GAO-16-242 Retirement Replacement Rates

Appendix VII: Comments from the Social 

Security Administration
Appendix VIII: GAO Contact and Staff 

Acknowledgments

Page 62 GAO-16-242 Retirement Replacement Rates

Charles A. Jeszeck, (202) 512-7215 or jeszeckc@gao.gov

In addition to the contact named above, Kimberley Granger (Assistant 

Director), Jennifer Gregory (Analyst in Charge), Mindy Bowman, and 

Amrita Sen made key contributions to this report. Also contributing to this 

report were Benjamin Bolitzer, David Chrisinger, John Dicken, Gustavo 

Fernandez, Alexander Galuten, Mark Glickman, Isabella Johnson, Kathy 

Leslie, Mimi Nguyen, Oliver Richard, Frank Todisco, Walter Vance, and 

Seyda Wentworth.

Appendix VIII: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments
Bibliography

Page 63 GAO-16-242 Retirement Replacement Rates

Altman, Nancy. “A Silver Lining to the Economic Crisis: The Case for 

Improving Social Security and Medicare.” Generations, vol. 33, no. 3 

(2009).

Aon Consulting. Aon Consulting’s 2008 Replacement Ratio Study: A 

Measurement Tool for Retirement Planning. Global Corporate Marketing 

and Communications, 2008.

Aon Hewitt. The Real Deal: 2012 Retirement Income Adequacy at Large 

Companies. 2012.

Bajtelsmit, Vickie, Anna Rappaport, and LeAndra Foster. Measures of 

Retirement Benefit Adequacy: Which, Why, for Whom, and How Much?

Sponsored by the Society of Actuaries’ Pension Section and Pension 

Section Research Committee. Schaumburg, IL: Society of Actuaries, 

January 2013.

Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. 

“Behavioral Economics Perspectives on Public Sector Pension Plans.”

Journal of Pension Economics & Finance, vol. 10, no. 2 (2011).

Biggs, Andrew G. “Will You Have Enough to Retire On? The Retirement 

Security ‘Crisis’.” Retirement Policy Outlook, no. 2 (2009).

Biggs, Andrew G. Resident Scholar, American Enterprise Institute for 

Public Policy Research. What Workers Need to Know about Social 

Security as They Plan for Retirement. Statement before the United States 

House of Representatives, Committee on Ways and Means, 

Subcommittee on Social Security, 113th Cong., 2nd sess., July 29, 2014.

Biggs, Andrew G. Resident Scholar, American Enterprise Institute for 

Public Policy Research. Retirement Savings 2.0: Updating Savings Policy 

for the Modern Economy. Statement before the United States Senate, 

Committee on Finance, 113th Cong., 2nd sess., September 16, 2014.

Biggs, Andrew G. Better No Social Security Replacement Rates Than 

Wrong Replacement Rates. American Enterprise Institute. Accessed 

December 22, 2014. 

http://www.aei.org/publication/better-no-social-security-replacement-rates

-than-wrong-replacement-rates/

Bibliography
Bibliography

Page 64 GAO-16-242 Retirement Replacement Rates

Biggs, Andrew G., Gaobo Pang, and Sylvester J. Schieber. Measuring 

and Communicating Social Security Earnings Replacement Rates, 

January 2015.

Biggs, Andrew G. and Sylvester Schieber. “Is There a Retirement Crisis?”

National Affairs, no. 20 (2014).

Biggs, Andrew G. and Glenn R. Springstead. “Alternate Measures of 

Replacement Rates for Social Security Benefits and Retirement Income.”

Social Security Bulletin, vol. 68, no. 2 (2008).

Blahous, Charles P. Public Trustee for Social Security. What Workers 

Need to Know about Social Security as They Plan for Their Retirement. 

Statement before the United States House of Representatives, 

Committee on Ways and Means, Subcommittee on Social Security, 113th 

Cong., 2nd sess., July 29, 2014.

Brady, Peter J. “Measuring Retirement Resource Adequacy.” Journal of 

Pension Economics & Finance, vol. 9, no. 2 (2010).

Brady, Peter J. “Can 401(k) Plans Provide Adequate Retirement 

Resources?” Public Finance Review, vol. 40, no. 2 (2012).

Center for Retirement Research at Boston College. Retirements at Risk: 

A New National Retirement Risk Index. Chestnut Hill, MA: Trustees of 

Boston College, Center for Retirement Research, 2006.

Congressional Budget Office. CBO’s 2015 Long-Term Projections for 

Social Security: Additional Information. December 2015.

European Commission, Employment, Social Affairs and Equal 

Opportunities DG. Portfolio of Indicators for the Monitoring of the 

European Strategy for Social Protection and Social Inclusion – 2009 

Update. Brussels, Belgium: 2009.

European Commission, Indicator Sub-Group of the Social Protection 

Committee. Updates of Current and Prospective Theoretical Pension 

Replacement Rates 2006-2046. Brussels, Belgium: July 1, 2009.

Ghilarducci, Teresa. Chair, Economics Department and Bernard L. and 

Irene Schwartz Chair in Economic Policy Analysis, The New School for 

Social Research. Fixing the US Retirement System. Statement before the 

United States Senate, Committee on Finance, Subcommittee on Social 
Bibliography

Page 65 GAO-16-242 Retirement Replacement Rates

Security, Pensions, and Family Policy. 113th Cong., 2nd sess., May 21, 

2014.

Haveman, Robert, Karen Holden, Barbara Wolfe, and Shane Sherlund. 

“Do Newly Retired Workers in the United States Have Sufficient 

Resources to Maintain Well-Being?” Economic Inquiry, no. 44, vol. 2 

(2006).

Hershey, Douglas A. and Joy M. Jacobs-Lawson. “Bridging the Gap: 

Anticipated Shortfalls in Future Retirement Income.” Journal of Family 

and Economic Issues, vol. 33, no. 6 (2012).

Holzmann, Robert, Richard Hinz, Hermann von Gersdorff, Indermit Gill, 

Gregorio Impavido, Alberto R. Musalem, Michal Rutkowski, Robert 

Palacios, Yvonne Sin, Kalanidhi Subbarao, and Anita Schwarz. Old-Age 

Income Support in the Twenty-first Century: An International Perspective 

on Pension Systems and Reform. A report prepared at the request of the 

Office of the Chief Economist of the World Bank. February 18, 2005.

Hurd, Michael D. and Susann Rohwedder. “Economic Preparation for 

Retirement” in Investigations in the Economics of Aging, ed. David A 

Wise. Chicago: University of Chicago Press, 2012.

Hurd, Michael D. and Susann Rohwedder. “Measuring Economic 

Preparation for Retirement: Income Versus Consumption.” University of 

Michigan Retirement Research Center Working Paper, vol. 2015, no. 332 

(September 2015).

International Social Security Association. Retirement Benefit Provision: 

Measuring Multivariable Benefit Adequacy and the Implications for Social 

Security Institutions. Geneva, Switzerland: September 2015.

Love, David A., Paul A. Smith, and Lucy C. McNair. “Do Households 

Have Enough Wealth for Retirement?” Social Science Research Network 

Research Paper Series, 2007.

Love, David A., Paul A. Smith, and Lucy C. McNair. “A New Look at the 

Wealth Adequacy of Older U.S. Households.” Social Science Research 

Network Research Paper Series, 2008.

Lucas, Lori and Allen Steinberg. “The New Retirement Reality: 

Calculating the True Cost of Retirement Income Adequacy.” Benefits 

Quarterly, vol. 22, no. 4 (2006).
Bibliography

Page 66 GAO-16-242 Retirement Replacement Rates

MacDonald, Bonnie-Jeanne and Kevin D. Moore. Moving Beyond the 

Limitations of Traditional Replacement Rates. Sponsored by the Society 

of Actuaries’ Pension Section. Schaumburg, IL: Society of Actuaries, 

September 2011.

Martin, John P. and Edward Whitehouse. “Reforming Retirement-Income 

Systems: Lessons from the Recent Experiences of OECD Countries.”

OECD Social Employment and Migration Working Papers, No. 66. Paris, 

France: June 30, 2008.

Mayer, Robert N., Cathleen D. Zick, and Michelle Glaittli. “Public 

Awareness of Retirement Planning Rules of Thumb.” Journal of Personal 

Finance, vol. 10, no. 1 (2011).

Munnell, Alicia H., Katharine G. Abraham, David Autor, Jeffrey R. Brown, 

Peter Diamond, Claudia Goldin, Sam Gutterman, Michael S. Teitelbaum, 

Ronald R. Rindfuss, and Joseph J. Silvestri. 2015 Technical Panel on 

Assumptions and Methods. A report prepared at the request of the Social 

Security Advisory Board. September 2015.

Munnell, Alicia H., Jean-Pierre Aubry, Josh Hurwitz, and Laura Quinby. 

“How Prepared are State and Local Workers for Retirement?” Center for 

Retirement Research at Boston College Working Paper, vol. 2011, no. 15 

(October 2011).

Munnell, Alicia H., Matthew S. Rutledge, and Anthony Webb. “Are 

Retirees Falling Short? Reconciling the Conflicting Evidence.” Pension 

Research Council Working Paper, vol. 2014, no. 5, (September 2014).

Munnell, Alicia and Mauricio Soto. “What Replacement Rates Do 

Households Actually Experience in Retirement?” Center for Retirement 

Research at Boston Working Paper, vol. 2005, no. 10 (August 2005).

Munnell, Alicia H., Anthony Webb, and Francesca Golub-Sass. “The 

National Retirement Risk Index: An Update.” Center for Retirement 

Research at Boston College Issue in Brief, vol. 12, no. 20 (October 2012).

Munnell, Alicia H., Anthony Webb, and Rebecca Cannon Fraenkel. “The 

Impact of Interest Rates on the National Retirement Risk Index.” Center 

for Retirement Research at Boston College Issue in Brief, vol. 13, no. 9 

(June 2013).
Bibliography

Page 67 GAO-16-242 Retirement Replacement Rates

Munnell, Alicia H., Anthony Webb and Rebecca Cannon Fraenkel. “Will 

the Rebound in Equities and Housing Save Retirements?” Center for 

Retirement Research at Boston College Issue in Brief, vol. 13, no. 17 

(December 2013).

Munnell, Alicia H., Anthony Webb and Wenliang Hou. “How Much Should 

People Save?” Center for Retirement Research at Boston College Issue 

in Brief, vol. 14, no. 11 (July 2014).

OECD. Pensions at a Glance 2013: OECD and G20 Indicators. Paris, 

France: OECD Publishing, 2013.

OECD. OECD Pensions Outlook 2014. Paris, France: OECD Publishing, 

2014.

Pang, Gaobo and Sylvester J. Schieber. Understanding Social Security’s 

Income Replacement Measurements. Arlington, VA: April 30, 2014.

Pang, Gaobo and Mark Warshawsky. “Retirement Savings Adequacy of 

U.S. Workers.” Benefits Quarterly, vol. 30, no. 1 (2014).

Pang, Gaobo and Mark J. Warshawsky. “Calculating Savings Rates in 

Working Years Needed to Maintain Living Standards in Retirement.”

Benefits Quarterly, vol. 25, no. 3 (2009).

Pang, Gaobo and Mark J. Warshawsky. “Implications of Some Deficit 

Reduction Proposals for Retirement Savings.” Benefits Quarterly, vol. 28, 

no. 2 (2012).

Pang, Gaobo and Mark J. Warshawsky. “The Employer’s Decision to 

Provide Health Insurance Under the Health Reform Law.” Benefits 

Quarterly, vol. 29, no. 2 (2013).

Poterba, James M. “Retirement Security in an Aging Population.”

American Economic Review, vol. 104, no. 5 (2014).

Purcell, Patrick J. “Federal Employees’ Retirement System: The Role of 

the Thrift Savings Plan.” Journal of Deferred Compensation, vol. 13, no. 1 

(2007).

Rhee, Nari and Ilana Boivie. The Continuing Retirement Savings Crisis. 

Washington, D.C.: National Institute on Retirement Security, 2015.
Bibliography

Page 68 GAO-16-242 Retirement Replacement Rates

Schieber, Sylvester. Independent Consultant. What Workers Need to 

Know about Social Security as They Plan for Retirement. Statement 

before the United States House of Representatives, Committee on Ways 

and Means, Subcommittee on Social Security, 113th Cong., 2nd sess., 

July 29, 2014.

Scholz, John Karl and Ananth Seshadri. “What Replacement Rates 

Should Households Use?” University of Michigan Retirement Research 

Center Working Paper, vol. 2009, no. 214 (2009).

Seshadri, Ananth. “Measuring Optimal Savings Using a Life-Cycle Model

of Consumption,” presented at 2014 ICI Retirement Summit. Washington, 

D.C., April 4, 2014.

Social Security Administration, Office of the Chief Actuary. Replacement 

Rates for Retirees: What Makes Sense for Planning and Evaluation? 

Actuarial Note 155. Baltimore, MD: July 2014.

Social Security Administration, Office of the Chief Actuary. Replacement 

Rates for Hypothetical Retired Workers, Actuarial Note 2014.9. Baltimore, 

MD: July 2014.

Turner, John A. and Hazel A. Witte. Retirement Planning Software and 

Post-Retirement Risks. Sponsored by the Society of Actuaries and the 

Actuarial Foundation. Schaumburg, IL: Society of Actuaries, December 

2009.

VanDerhei, Jack. “Measuring Retirement Income Adequacy: Calculating 

Realistic Income Replacement Rates.” Employee Benefit Research 

Institute Issue Brief, no. 297 (September 2006).

Wu, April Yanyuan, Nadia S. Karamcheva, Alicia H. Munnell, and Patrick 

Purcell. “How Do the Changing Labor Supply Behavior and Marriage 

Patterns of Women Affect Social Security Replacement Rates?” Center 

for Retirement Research at Boston College Working Paper, vol. 2013, 

no. 16 (July 2013).

Yuh, Yoonkyung. “Assessing Adequacy of Retirement Income for U.S. 

Households: A Replacement Ratio Approach.” The Geneva Papers, 

vol. 36 (2011).
Related GAO Products

Page 69 GAO-16-242 Retirement Replacement Rates

Federal Low-Income Programs: Multiple Programs Target Diverse 

Populations and Needs. GAO-15-516. Washington, D.C.: July 30, 2015.

Retirement Security: Most Households Approaching Retirement Have 

Low Savings. GAO-15-419. Washington, D.C.: May 12, 2015.

401(k) Plans: Other Countries’ Experiences Offer Lessons in Policies and 

Oversight of Spend-down Options. GAO-14-9. Washington, D.C.: 

November 20, 2013.

Medicare Supplemental Coverage: Medigap and Other Factors Are 

Associated with Higher Estimated Health Care Expenditures. 

GAO-13-811. Washington, D.C.: September 19, 2013.

401(k) Plans: Labor and IRS Could Improve the Rollover Process for 

Participants. GAO-13-30. Washington, D.C.: March 7, 2013.

Retirement Security: Women Still Face Challenges. GAO-12-699. 

Washington, D.C.: July 19, 2012.

Financial Literacy: Enhancing the Effectiveness of the Federal 

Government’s Role. GAO-12-636T. Washington, D.C.: April 26, 2012.

Defined Contribution Plans: Approaches In Other Countries Offer 

Beneficial Strategies In Several Areas. GAO-12-328. Washington, D.C.: 

March 22, 2012.

Retirement Income: Ensuring Income throughout Retirement Requires 

Difficult Choices. GAO-11-400. Washington, D.C.: June 7, 2011.

401(k) Plans: Improved Regulation Could Better Protect Participants from 

Conflicts of Interest. GAO-11-119. Washington, D.C.: January 28, 2011.

Retirement Savings: Better Information and Sponsor Guidance Could 

Improve Oversight and Reduce Fees for Participants. GAO-09-641. 

Washington, D.C.: September 4, 2009.

Related GAO Products

(131342)
The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and 

policies; and provides analyses, recommendations, and other assistance 

to help Congress make informed oversight, policy, and funding decisions. 

GAO’s commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no 

cost is through GAO’s website (http://www.gao.gov). Each weekday 

afternoon, GAO posts on its website newly released reports, testimony, 

and correspondence. To have GAO e-mail you a list of newly posted 

products, go to http://www.gao.gov and select “E-mail Updates.”

The price of each GAO publication reflects GAO’s actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO’s website, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537.

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information.

Connect with GAO on Facebook, Flickr, Twitter, and YouTube.

Subscribe to our RSS Feeds or E-mail Updates. 

Listen to our Podcasts and read The Watchblog.

Visit GAO on the web at www.gao.gov.

Contact:

Website: http://www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-

4400, U.S. Government Accountability Office, 441 G Street NW, Room 

7125, Washington, DC 20548

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548

GAO’s Mission

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Phone

Connect with GAO

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Congressional 

Relations

Public Affairs

Please Print on Recycled Paper.