Do Replacement Rates Suggest a Trade-Off?

Brief

Do Replacement Rates Suggest a Trade-Off?

Abstract

Replacement rates reveal an awkward trend: A retiree's financial standing relative to the working population is strong initially, but it diminishes throughout retirement. This is the opposite of what one might expect given that older age is usually accompanied by increased financial need and fewer sources of support. Regardless, replacement rates reveal that when a beneficiary first retires, Social Security payments are a substantial portion of pre- retirement wages. Relative to the income of the population as a whole, replacement rates begin to fall. Fortunately, this curious situation suggests its own solution.

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