Social Security leaves big earners with income drop to address, study finds

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Posted: Saturday, October 5, 2013 12:00 am

The more money you make before retirement, the more you may have to cut back when you do retire, a new study has found.

Because of Social Security benefits, some low-wage earners receive more income when they retire than they did when they were working. By contrast, many high-wage earners see their incomes reduced significantly in retirement, according to a report by the Employee Benefit Research Institute.

“Social Security replaces a higher proportion of low-wage earners' income,” the Washington group said in a recent press release. “When spousal benefits are taken into account, the total income after age 65 might exceed the pre-65 labor earnings of single-earning households. That is not generally the case for higher-income workers.”

As a result, high-wage earners may have to curtail spending when they retire, when low-wage earners have more to spend. Of course, the high-income earners will still have more money to spend in retirement than low-wage earners.

The study surveyed the household incomes of workers in the 10 years before and 10 years after they turned 65. It was conducted between 2000 and 2010.

Those in the bottom quarter of pre-retirement income “actually experienced an increase in average household income in excess of 150 percent of their pre-65 income,” the study found.

“Since higher-income households experience a significant drop in household income after age 65, they should be prepared to make necessary adjustments when they turn age 65,” said Sudipto Banerjee, a researcher who wrote the report.

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