Get rid of that notion that retirement must be a time to cut costs and pinch pennies. Rather, plenty of people seem to be in a position to splurge a bit after claiming Social Security benefits.
Most people are able to maintain or increase their spending slightly once they start receiving retirement benefits, according to a new report by economists at the Investment Company Institute and the Internal Revenue Service. The study, which analyzed tax data from 1999 to 2010, found that the typical worker had about 3% more after-tax spendable income after claiming Social Security benefits than before — and the lowest-income people had 29% more on average.
Social Security combined with other retirement sources such as workplace 401(k) plans and Individual Retirement Accounts thus provide “substantial income” for many people and more than is commonly assumed, the report said.
The researchers compared spendable income reported by people on their tax returns during the year before they first claimed Social Security benefits, while still working, and three years after they claimed. Spendable income was defined as that from jobs, Social Security benefits and other retirement sources. It increased for more than half of taxpayers over the comparison period.
In fact, more retirees received income from multiple sources than is commonly reported in government surveys, said Peter Brady, an economist at the institute who was part of the research team. He said this indicates government data understates income for retirees.
“By looking at what tax filers, employers and financial institutions actually report to the IRS, we are able to paint a more accurate picture,” Brady said in a prepared statement.
The vast majority of households examined, 89%, reported non-Social Security sources of retirement income. Of these, four of five received income from workplace 401(k)-style plans, annuities, IRAs or a combination of the three.
Most people remain in the workforce both before and shortly after claiming Social Security benefits, Brady said in an email note. Some 85% of recipients are employed in the year before they claim benefits, with the figure dropping to 76% during the year they claim. An even higher proportion of married couples, 91%, have at least one employed spouse during the year before claiming. That figure drops a bit to 85% during the claiming year. Hence, salaries and Social Security benefits often combine to boost income for people in their early to mid-60s.
You can read the other half of this article on USA Today here: https://usat.ly/2pe2jFc