Some key sources of retirement income are Social Security benefits, 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 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. 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. 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 recommendations. Financial literacy research has also pointed to the need to educate individuals to improve their investment decision-making and savings outcomes. 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. 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. 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. 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. 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 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. 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. 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 pre- retirement 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 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.” Based on our analysis of 2013 CE data, mid-career households had one of the highest spending levels, while older households generally spent less. 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 less overall (see fig. 1). 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 pre- retirement households. 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. 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. 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. 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. 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. More specifically, young retiree households spent about 83 percent of the amount that mid- career 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. Housing expenditures include expenses such as maintenance, operations, and utility costs that can be incurred regardless of ownership status. In contrast to other spending categories, health care was a larger expense for older households. For example, young retiree households spent an average of around $4,900 on health care, compared to about $3,500 for mid-career households. 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. 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. 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). 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. 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.