1. What is Wage Replacement Ratio?

Definition: The Wage Replacement Ratio (WRR) is a financial metric that compares retirement income to pre-retirement earnings.

Purpose: It helps individuals assess how much of their working income will be replaced by retirement income sources.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( WRR \) — Wage Replacement Ratio (dimensionless)
• \( R \) — Retirement income (currency, e.g., USD)
• \( W \) — Pre-retirement wage (currency, e.g., USD)

Explanation: The ratio shows what percentage of pre-retirement income will be maintained during retirement.

3. Importance of Wage Replacement Ratio

Details: Financial planners often recommend a WRR of 70-80% for maintaining a similar standard of living in retirement.

4. Using the Calculator

Tips: Enter your expected annual retirement income and your final pre-retirement annual salary. Pre-retirement wage must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What is a good wage replacement ratio?
A: Typically 70-80%, but this varies based on individual circumstances, expenses, and retirement goals.

Q2: Should I include Social Security in retirement income?
A: Yes, include all expected income sources (pensions, Social Security, investments, etc.).

Q3: Why is WRR less than 100% typically sufficient?
A: Retirees often have lower expenses (no work costs, paid-off mortgage, no retirement savings needed).

Q4: How does WRR differ from savings rate?
A: WRR measures income replacement, while savings rate measures how much you're setting aside pre-retirement.

Q5: Should WRR be adjusted for inflation?
A: Yes, both values should be in consistent (real or nominal) terms for accurate comparison.