income replacement rate

The income replacement rate measures the percentage of your pre-retirement earnings that a pension or social benefit will pay out when you retire. For example, if you earned $50,000 annually before retiring and your retirement benefits provide $25,000 per year, your replacement rate is 50%. It helps evaluate how well your retirement income system will preserve your standard of living. A higher replacement rate indicates more income replacement during retirement, while a lower rate suggests a greater reliance on other savings or income sources.