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Estimating, and Interpreting, Retirement Income Replacement Rates

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  • Sanna Nivakoski

    (Economic and Social Research Institute and University College Dublin)

  • Alan Barrett

    (Economic and Social Research Institute)

Abstract

Longitudinal data are used to estimate retirement income replacement rates (RRs) of employees in Ireland who transitioned into retirement between 2010 and 2016. The median RR is estimated at 47 per cent, meaning that the majority of the retirees replaced less than half of their pre-retirement earnings with pension income. The distribution of RRs is highly skewed, with a mean of 73 per cent. The mean value seems high relative to stated policy goals, but the estimate is driven partly by very high RRs at the lower end of the earnings distribution. When a more comprehensive measure of income – incorporating pre-retirement pension income, post-retirement labour earnings and social welfare payments – is used, the mean RR falls to 52 per cent. The findings highlight the need for understanding the distribution of replacement rates and leads to a question as to whether policy goals in the areas of pension adequacy should be set with respect to income or consumption levels as opposed to RRs.

Suggested Citation

  • Sanna Nivakoski & Alan Barrett, 2019. "Estimating, and Interpreting, Retirement Income Replacement Rates," The Economic and Social Review, Economic and Social Studies, vol. 50(3), pages 587-609.
    • Handle: RePEc:eso:journl:v:50:y:2019:i:3:p:587-609
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    References listed on IDEAS

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    6. MacDonald, Bonnie-Jeanne & Osberg, Lars & Moore, Kevin D., 2016. "How Accurately Does 70% Final Employment Earnings Replacement Measure Retirement Income (In)Adequacy? Introducing The Living Standards Replacement Rate (Lsrr)," ASTIN Bulletin, Cambridge University Press, vol. 46(3), pages 627-676, September.
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    Cited by:

    1. O'Toole, Conor & Slaymaker, Rachel, 2020. "Review of the Rebuilding Ireland Home Loan scheme," Research Series, Economic and Social Research Institute (ESRI), number RS104.
    2. Nolan, Anne & Doorley, Karina, 2019. "Financial Literacy and Preparation for Retirement," IZA Discussion Papers 12187, Institute of Labor Economics (IZA).
    3. Nolan, Anne & Whelan, Adele & McGuinness, Seamus & Maître, Bertrand, 2019. "Gender, pensions and income in retirement," Research Series, Economic and Social Research Institute (ESRI), number RS87.
    4. Slaymaker, Rachel & Roantree, Barra & Nolan, Anne & O'Toole, Conor, 2022. "Future trends in housing tenure and the adequacy of retirement income," Research Series, Economic and Social Research Institute (ESRI), number RS143.
    5. Russell, Helen & Maître, Bertrand & Privalko, Ivan, 2019. "The ageing workforce in Ireland: Working conditions, health and extending working lives," Research Series, Economic and Social Research Institute (ESRI), number RS92.
    6. Beirne, Keelan & Nolan, Anne & Roantree, Barra, 2020. "Income adequacy in retirement: Evidence from the Irish longitudinal study on ageing (TILDA)," Research Series, Economic and Social Research Institute (ESRI), number RS107.

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