Indeed, some say typical income-replacement tools may underestimate people’s needs. The models do not fully account for such crucial factors as investment risk, longevity risk, and catastrophic health-care cost risk, VanDerhei says. “In a lot of cases, that 75% to 80% [replacement ratio] is way, way too low if you want even a 75% chance of having enough money,” he says. He developed the Ballpark E$timate Monte Carlo model for EBRI that aims to give people a sense of what income-replacement rate they need to have a 50%, 75%, and 90% chance of being able to cover their basic expenses in retirement. A single rule-of-thumb does not work, he and others say, given the variability in individuals’ situations. “A lot of models just use an average: average expected returns, average life expectancy,” he says. “If you think about it, they are saying, ‘This is how much you need to have a 50% chance of not running out of money.””
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