There are many Americans taking the retirement crisis into their own hands by not only claiming their Social Security benefits, but by using other spendable income, according to a report released this week by Investment Company Institute (ICI) and Statistics of Income Division of the Internal Revenue Services economists.
The median U.S. worker replaced 103 percent of spendable income after claiming Social Security, according to Using Panel Tax Data to Examine the Transition to Retirement, an analysis of tax data from 1999 to 2010.
The economists found that for the majority of Americans, both Social Security benefits and retirement income—from employer-sponsored retirement plans, annuities or IRAs—provided substantial income.
In breaking it down, the economists found that, for lower-income individuals, Social Security is relatively more important; retirement income matters more to higher-income individuals; and those in the middle receive a similar amount of income from both sources.
The analysis primarily focused on spendable income from the combination of labor income, Social Security benefits and retirement income (distributions from employer plans, annuities and IRAs).
Spendable income offers a consistent measure of an individual’s ability to fund consumption, according to ICI. Spendable income excludes income not available for consumption, such as tax payments and retirement contributions, but it includes income that isn’t taxed, like non-taxable Social Security benefits and distributions from Roth IRAs or Roth 401(k)s.
“These results suggest that a much higher share of retirees get income from [employer plans, annuities and IRAs] than reported in government surveys, and adds to the mounting evidence that household survey data understate retiree income,” ICI economist and report co-author Peter Brady said. “By looking at what tax filers, employers and financial institutions actually report to the IRS, we are able to paint a more accurate picture.”
The economists concluded that although most individuals maintained net work‐related income after claiming Social Security, and although most people relied on both Social Security benefits and retirement income, there was considerable variation among Americans.
For example, although the median replacement rate three years after claiming was 103 percent, one in four individuals had a replacement rate of 79 percent or lower, and one in four had a replacement rate of 134 percent or higher.
“Similarly, among those who no longer worked three years after claiming, the median Social Security income share was 44 percent, but one‐in‐four had a share of 65 percent or higher, and it was the only source of income for one‐in‐10,” the economists wrote.