Fifty-five-year-olds are prepared to replace a greater share of their income in retirement compared to 60- and 64-year olds, according to research from BlackRock.
Using data on median income and retirement savings, expected Social Security benefits, and accounting for future estimations of retirement costs, BlackRock projects that today’s 55-year old will be able to generate 69 percent of their current income after they retire.
Those closest to retirement face a more daunting challenge. Today’s 64-year-old is projected to generate just 59 percent of current income. The 60-year-old is prepared to replace 64 percent of current income, according to BlackRock’s data.
The analysis comes from the firm’s inaugural CoRI Retirement Indexes Analysis, which combines BlackRock’s proprietary indexes for gauging retirement costs with earnings and savings data from the Employee Benefit Research Institute.
The analysis shows that the estimated cost of future retirement income has increased for investors across the age spectrum.
Chip Castille, head of BlackRock’s U.S. Retirement Group, said that fatter retirement accounts nowadays resulting from strong market returns may not tell the complete story when assessing retirement preparedness.
“Investors still have to be saving — pure investment returns alone may not tell the complete picture when it comes to retirement preparedness. Understanding how the cost of retirement income changes and how that may impact your income stream in retirement completely transforms the entire retirement conversation,” Castille said.
BlackRock uses an 80-percent income replacement rate — a common industry benchmark — to assess where pre-retirees currently are positioned.
Thus, a 55-year old with median savings of $263,755 and a median income of $57,961 is likely to have an income replacement gap of 14 percent.
While not perfect, it puts the younger person in a better position than their older cohort. A 64-year old with median savings of $251,142 and median income of $48,972 would have an income replacement gap of 26 percent.
That reality increases the likelihood of more workers putting off retirement, according to the research.