What term describes the pension benefit as a portion of an individual’s final salary?

• A. Pension funding ratio
• B. Retirement income-replacement ratio
• C. Defined benefit ratio
• D. Income sustainability ratio

Answer: (B)

The term that describes the pension benefit as a portion of an individual’s final salary is the retirement income-replacement ratio. This ratio is crucial for assessing whether an individual’s retirement income will be adequate to maintain their pre-retirement standard of living. It typically measures the income that individuals receive from various sources, such as pensions, Social Security, and personal savings, as a percentage of their final salary before retirement. A higher replacement ratio indicates greater financial security in retirement.

While other terms may relate to retirement and pension planning, they do not specifically define the relationship of the pension benefit to an individual's final salary in the way that the retirement income-replacement ratio does. For instance, the pension funding ratio pertains to the financial health of a pension plan rather than individual benefits. Similarly, the defined benefit ratio might refer to the structure of the pension plan itself but does not measure the benefit against final salary. The income sustainability ratio tends to focus on ensuring income levels can be maintained over time rather than directly comparing them to final salary figures.