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A Different Take on Replacement Rates

A new analysis claims that nationwide, most retirees are living on about 60% of their pre-retirement income. But there’s a bit of creativity in the math that derived those results.

Normally, of course, one would expect to divide your pre-retirement income by your post-retirement income to determine the so-called “replacement rate.” But in its analysis, Bankrate took data from the U.S. Census Bureau’s most recent American Community Survey, and divided the median annual household income for those who are 65 and older by the median annual household income for those in their later working years, between ages 45 and 64.

Yes, that means that to determine the replacement rate, they took the median income from one group of people… and divided it by the median income of a completely different group of people. Not that you’re likely to see that disclaimer in the news coverage of the report, though Bankrate was upfront about their methodology.

That said, the resulting ratios of pre-retirement income range from a high of 72.59% in Hawaii to a low of 48.22% in Massachusetts. The national average is 60.27%. The three states that topped the 70% threshold: Hawaii, Alaska (71.12%) and South Carolina (70.18%).

The lowest? Massachusetts, where, by the Bankrate assumptions, seniors are living on 48.22% of their pre-retirement income.

Or, more precisely, of someone else’s pre-retirement income.

You can find the state-by-state results here.