Work & family · General financial education

Replacement rate as a concept

A replacement rate is a ratio: retirement income compared with a defined income before retirement. It is a statistic, not a target Finmon sets for you.

In more detail

Gross and net figures differ because taxes and contributions can work differently before and after retirement. International tables (for example the OECD) compare model careers, not your household.

Background

Which income sources belong in the numerator and which “before” sits in the denominator is a matter of definition. Country rules, part-time work, gaps and private wealth shift the ratio. Finmon does not turn that into a gap and does not prescribe a target rate.

An example

If a model shows €1,600 of retirement income beside €3,200 of earlier net pay, the replacement rate is 50%. That describes a ratio; it is not an instruction to aim for 50%.

A common misconception

The app tells me which replacement rate I must reach.

It is a ratio under a definition, not a target rate from Finmon.

Source: OECD · Pensions at a Glance. Version 0.2.0. Finmon explains. It does not advise. Not investment, tax or legal advice.