It’s March, so the argument over retirement income replacement rates rolls on. A new report from the Government Accountability Office (GAO) includes largely overlooked data from 2013 from the Bureau of Labor Statistics (BLS).
The original BLS study found mid-career households (those aged 45-49) spent an estimated average of around $58,500, while early-retiree households (those aged 65-69) spent about 20 percent less.
Additionally:
- Housing expenses comprised the largest share of spending regardless of age, while older households spent more out of pocket on health care than mid-career households.
- Spending was less variable across age for low-income households compared to other households. For example, there was not a significant difference in average spending between mid-career and young retiree households in the lowest income quartile, compared to an approximately $20,000 difference for the highest income quartile.
The GAO then expanded on the data to further determine (1) how spending patterns vary by age, (2) key factors used to develop target replacement rates, and (3) the usefulness of information on such rates provided by DOL.
Unsurprisingly for a government office, the GAO report doesn’t help much in settling the replacement rate debate. It simply recommends that the DOL provide additional examples and guidance on using a replacement rate for estimating retirement savings needs in its planning tools, and modify the planning tools so the rate can be adjusted.
“DOL generally agreed with our recommendations and plans to add information and provide options for adjusting replacement rates in its planning tools by June 2017,” the report concludes.