Higher-income wage earners may have to live on less after they retire, according to a report by the Employee Benefit Research Institute released Thursday.
At the same time, those who make less may actually have more to live on once they retire, the report shows.
The study analyzes retirement incomes and compares it to what people made before they retired. It found that those in the bottom half of the income distribution experienced no drop in income after they reached 65. In fact, the bottom one quarter of earners actually experienced an increase in average household income in excess of 150 percent of their pre-retirement income.
On the other hand, higher income groups had significantly less retirement income as a percentage of their pre-retirement income than did the lower-income groups. The top income quartile reported receiving only about 60 percent of their pre-retirement income after they retired.
The primary reason for the disparity, according to EBRI, is that Social Security replaces a higher proportion of low wage earners’ income. When spousal benefits are taken into consideration, the total income after retirement may exceed the pre-retirement income of a single wage earner.
Sudipto Banerjee, EBRI research associate and author of the report, warned, “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.”
Unfortunately, some financial advisors may be flying blind when it comes to assessing whether clients are on track to achieve sustainable retirement income, according to the Financial Professional Outlook, a quarterly survey of U.S. financial advisors from global asset manager Russell Investments.
Seventy-three percent of advisors consider retirement income planning to be a significant or core part of their business, but there is little consensus on how to measure whether retired clients are on track with their plans.
For instance, 34 percent of the advisors in the Russell study say they measure clients’ retirement plans based on preservation of principal after distributions, followed by the portfolio’s maintenance of a projected rate of return (20 percent). Only 15 percent say they evaluate the net present value of clients’ projected assets against projected liabilities.
Fifty-three percent of advisors say they wish they had planning and implementation tools to increase or maintain their expertise in retirement income planning. Forty-five percent say they would like seminars and workshops; 35 percent would like tailored self-study materials, and 32 percent want more access to retirement income specialists.