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A retired woman works on her finances at her table. J.P. Morgan has developed precise income replacement targets for retirees based on their pre-retirement income.

How much of your income will you need to replace in retirement to maintain your current lifestyle? It’s a pivotal question and the answer will serve as a foundational piece of your plan for retirement. After all, you can’t set a retirement savings goal without knowing your spending needs. While experts typically recommend replacing between 70% to 90% of your pre-retirement income when you stop working, J.P. Morgan Asset Management has developed more precise targets that are based on your household income.

A financial advisor can help you plan for retirement and determine how much of your pre-retirement income you’ll need to replace once you stop working. Find a trusted fiduciary advisor today.

The more money a person or family makes prior to retirement, the lower their replacement rate will be. For example, a household with $300,000 in pre-retirement income will need to replace only 72% of this money through Social Security, employer-sponsored retirement accounts, IRAs and other sources. At the other end of the spectrum, a family with only $50,000 in pre-retirement income will need to replace a far higher percentage, about 94%, according to J.P. Morgan. Here’s a closer look at the financial services firm’s guidance.

Calculating Your Income Replacement

A retired couple meets with their financial advisor. J.P. Morgan has developed precise income replacement targets based on a retiree's pre-retirement income.

According to J.P. Morgan’s income replacement targets, $80,000 is a key threshold that determines how much of their pre-retirement income retirees need to replace. Those who make under $80,000 will need to plan to replace more than 90% of their earnings with Social Security benefits, withdrawals from 401(k)s or similar accounts and other private sources.

Households making between $80,000 and $150,000 should aim to replace between 89% and 80% of their pre-retirement income. The replacement rate drops into the 70th percentile for households that make between $150,000 and $300,000 per year

Here’s a look at the specific income replacement targets that J.P. Morgan Asset Management developed using Consumer Expenditure Survey data from 2016 to 2019 for income and longitudinal Chase data from 2013 to 2020 for spending:

  • $30,000 in pre-retirement income
    Income replacement rate: 98%
  • $40,000 in pre-retirement income
    Income replacement rate: 96%
  • $50,000 in pre-retirement income
    Income replacement rate: 94%
  • $60,000 in pre-retirement income
    Income replacement rate: 93%
  • $70,000 in pre-retirement income
    Income replacement rate: 92%
  • $80,000 in pre-retirement income
    Income replacement rate: 89%
  • $90,000 in pre-retirement income
    Income replacement rate: 88%
  • $100,000 in pre-retirement income
    Income replacement rate: 86%
  • $125,000 in pre-retirement income
    Income replacement rate: 83%
  • $150,000 in pre-retirement income
    Income replacement rate: 80%
  • $175,000 in pre-retirement income
    Income replacement rate: 78%
  • $200,000 in pre-retirement income
    Income replacement rate: 76%
  • $250,000 in pre-retirement income
    Income replacement rate: 73%
  • $300,000 in pre-retirement income
    Income replacement rate: 72%

Bottom Line

A retired couple works on their finances. J.P. Morgan has developed precise income replacement targets based on a retiree's pre-retirement income.

Figuring out how much money you’ll need on a yearly basis in retirement is a key first step in the planning process. Experts generally recommend replacing anywhere between 70% and 90% of your pre-retirement income through Social Security benefits, withdrawals from 401(k)s or similar accounts, IRAs, taxable accounts and other private sources. But J.P. Morgan has developed even more specific income replacement targets that correspond to household income.

The more a household earns, the lower the income replacement target. The lower the household’s pre-retirement income, the higher the replacement target will be. Households that earn less than $70,000 prior to retirement will need to replace at least 90% of that income once they stop working, according to J.P. Morgan. However, those that earn over $150,000 will need to replace less than 80% of that income.

Retirement Planning Tips

  • There’s a lot to consider when planning for retirement. A financial advisor can help you sort through the myriad of decisions you’ll need to make as you wind down your career, including when to claim Social Security and how to reduce your tax liability in retirement. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Are you on track to hit your savings goals for retirement? Use SmartAsset’s retirement calculator to find out. This free tool can help estimate how much your savings will be worth in the future and assess whether you’re on pace to meet your financial goals.
  • Our no-cost Social Security calculator will give you a quick estimate of what you can expect in monthly payments from the federal government.

Photo credit: ©iStock.com/SrdjanPav, ©iStock.com/RossHelen, ©iStock.com/PeopleImages

Patrick Villanova, CEPF® Patrick Villanova is a writer for SmartAsset, covering a variety of personal finance topics, including retirement and investing. Before joining SmartAsset, Patrick worked as an editor at The Jersey Journal. His work has also appeared on NJ.com and in The Star-Ledger. Patrick is a graduate of the University of New Hampshire, where he studied English and developed his love of writing. In his free time, he enjoys hiking, trying out new recipes in the kitchen and watching his beloved New York sports teams. A New Jersey native, he currently lives in Jersey City.
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