1. What Is The Wage Replacement Ratio?

The Wage Replacement Ratio (WRR) is a financial metric that measures what percentage of a person's pre-retirement income will be replaced by their pension income during retirement. It helps individuals assess their retirement readiness and income sustainability.

2. How Does The Calculator Work?

The calculator uses the Wage Replacement Ratio formula:

Where:

• \( Pension \) — Expected or actual pension income in dollars
• \( Pre\text{-}Retirement\ Income \) — Annual income before retirement in dollars

Explanation: The ratio expresses pension income as a percentage of pre-retirement earnings, providing insight into income maintenance during retirement.

3. Importance Of Wage Replacement Ratio

Details: A higher WRR indicates better income replacement in retirement. Financial planners often recommend a WRR of 70-80% for maintaining pre-retirement living standards, though individual needs may vary based on lifestyle, debts, and healthcare costs.

4. Using The Calculator

Tips: Enter both pension and pre-retirement income in dollars. Pre-retirement income must be greater than zero for accurate calculation. The result shows the percentage of income replaced by pension.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good wage replacement ratio?
A: Most financial advisors recommend aiming for 70-80% wage replacement ratio to maintain a similar standard of living in retirement.

Q2: Does WRR include other retirement income sources?
A: This calculator focuses specifically on pension income. For a comprehensive view, other income sources like Social Security, investments, and part-time work should be considered separately.

Q3: How does inflation affect WRR calculations?
A: For long-term planning, both pension and pre-retirement income figures should be adjusted for expected inflation to maintain accuracy.

Q4: Should pre-retirement income include bonuses and overtime?
A: For most accurate results, use average annual income including all regular compensation, but exclude one-time windfalls or unusual earnings.

Q5: How often should I recalculate my WRR?
A: Recalculate annually or whenever there are significant changes to your pension benefits or pre-retirement income.