Replacement rate: what % of your salary you get in retirement

What the replacement rate is

The pension replacement rate is the percentage of your working income that the pension replaces¹. It is the simplest way to answer the question "what percentage of my salary will I get when I retire?". The calculation is straightforward:

Replacement rate = pension ÷ final salary × 100

If you earn €1,500 a month and your estimated pension is €1,000, the replacement rate is 66.7%. In other words, the pension replaces two thirds of your salary, and the remaining third (about €500 a month) is the income drop you will feel.

Our replacement rate calculator does this for you and also shows the drop in euros and how much is missing to reach a target you choose.

What percentage of my salary will I get

In Portugal, the old-age pension depends on two factors: your career-average salary (the reference earnings) and the global accrual rate, which grows with your years of contributions². The longer your contributory career and the higher your average salary, the larger the pension and so the higher the replacement rate.

There is therefore no single number: everyone has their own replacement rate. To find yours, first estimate the pension with the pension estimator and then see, on the replacement rate calculator, what percentage of your salary that figure represents.

What is a good replacement rate

A common benchmark is to aim for around 70% of your final income. The idea is to keep your standard of living without the salary: in retirement you no longer pay the 11% Social Security contribution and usually have fewer work-related costs (commuting, eating out), so 70% of gross can give you a net income close to what you had.

It is not a fixed rule. If your home is paid off and your expenses are low you may live well on less; if you want to keep exactly the same lifestyle, or your health costs are rising, you may want to aim higher. Adjust the target rate to your situation.

Gross, net and the 14 months

The replacement rate can be calculated on gross or net figures. The gross one is the easiest to obtain (gross salary and gross pension) and is what our calculator uses. The net one is usually higher, because the pension pays less income tax than the salary and does not contribute to Social Security.

Because both the salary and the pension are paid 14 times a year in Portugal, the percentage is the same whether you do the maths monthly or yearly. What matters is always to compare gross with gross or net with net.

How to reduce the income drop

If your replacement rate is lower than you would like, there are three ways to improve it:

• More years of contributory career. Each year of contributions increases the global accrual rate and, with it, the pension.
• Delaying retirement. Retiring later than your personal age avoids the early-retirement penalty and may earn you bonuses.
• Topping up with your own savings. A PPR or other savings help fill the gap between the pension and the income you want. The replacement rate calculator shows how much is missing per month to reach your target.

The takeaway

The replacement rate is the number that translates your retirement into practical terms: how much of your salary you will keep receiving. Work out yours on the replacement rate calculator: enter your salary, the estimated pension and the target rate, and see the income drop and how much you need to save to close it.