These savings and spendingassumptions may not fit your situation,so the 75% starting point may notbe right for you. For example, you may be saving closer to the 15% we suggest for retirement. Fortunately, T.RowePrice analysis found this to be an easy adjustment to make: Every extra percentage point of savings beyond 8%, or spending reduction beyond 5%, reduces your income replacement rateby about one percentage point.
Think of these adjustments as a nearly one-to-one ratio. If you’re saving 12% of your income instead of the assumed 8%, take your replacement rate of 75% and subtract four percentage points, resulting in a personally adjusted estimate of around 71%.
The way you’ve saved for retirement also affects the replacement rate. The 75% starting point assumes all savings are pretax—like a Traditional 401(k) or individual retirement account (IRA). That’s a conservative assumption, since, generally, you’re fully taxed on those assets when you withdraw them. Saving with a Roth account, on the other hand, is after tax and can generate tax-free income when distributions are qualified.* This means that if you have a large proportion of your retirement savings in Roth accounts, your income replacement rate should be lower.
Finally, your marital status and household income are two factors that affect Social Security benefits and your tax situation. Those two factors, in turn, affect your income replacement rate. The 75% starting point reflects a household earning around $100,000 to $200,000 before retirement.
See “Income Replacement Rate by Source” as a starting point, then make any necessary adjustments for yourpersonal circ*mstances based on the parameters outlined in this section.
Understanding the income you’ll need from sources other than Social Security can help you estimate a savings level to aim for before you retire. At higher income levels, Social Security benefits make up a much smaller percentage of the total income replacement rate—meaning you’ll need more savings or other income sources to fund retirement.
