An Independent Voice That Advocates For The Classroom Educator Without The Corrupting Politics Tied To Our Union And DOE Leadership.
Saturday, January 27, 2018
How Much Income Do You Need In Retirement?
Most people believe that they must save enough money to replace 100% of their pre-retirement salary to achieve a secure retireent income. The truth is that the recent retiree only needs a percentage and is based upon their last year's salary. This is called the retirement replacement ratio.
Empirically, your replacement ratio is inversely related to your
pre-retirement income. The higher your income before retirement, the
lower your replacement ratio. Social Security
serves as the counterbalance, covering a larger proportion of
post-retirement income for those who made less pre-retirement. This
makes sense, as people with higher paying jobs had proportionally more
of their income going to retirement, job-related expenses and taxes
before retirement, rather than necessities.
Marlena Lee at Dimensional Fund Advisors found median replacement ratios by income level: The table below shows the replacement ration, based upon the pre retirement income.
Salary............Replacement Ratio...........Retirement Income
*The $119,472 was used since it represents the maximum teacher salary as of June 2018.
Obviously, if a teacher reaches his or her full retirement age, they will have a pension, social security, and TDA savings that , combined, will exceed the retirement replacement income. The reason the retirement replacement income is less than the final salary is that the retiree no longer pays Social Security and Medicare, communing costs, and , everyday job expenses like clothing, food, and materials.
Sounds like teachers should have little problem having a secure retirement income, However, remember,NYC teachers who reach full retirement age is the vast minority, even just reaching vesting time to qualify for a pension is difficult with only 33% of Tier IV NYC teachers reaching that mark. I suspect for Tier VI teachers it will be significantly lower.