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5.4 Social Security & Payroll Taxes

5.4 Social Security & Payroll Taxes
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  • 7. Social Security Benefit Formula

    Social Security benefits are based upon lifetime earnings and retirement age. The formula shown is applied to a worker's average indexed monthly earnings (AIME) to arrive at the basic benefit, or primary insurance amount (PIA). This is how much the worker will receive each month after reaching full retirement age. Multiply this amount by 75% to find the estimated monthly retirement benefit at age 62.

    A worker's AIME is $3800. Estimate the worker's PIA at full retirement age. (See Example 3 and Example 4.)

    • Worked-Out Solution

      The completed formula is shown below. The person would receive $1657 per month.

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      ______   __   __   _____       ___     __   __  
     /_   _//  \ \\/ // |  __ \\    / _ \\   \ \\/ // 
       | ||     \ ` //  | |  \ ||  | / \ ||   \   //  
      _| ||      | ||   | |__/ ||  | \_/ ||   / . \\  
     /__//       |_||   |_____//    \___//   /_//\_\\ 
     `--`        `-`'    -----`     `---`    `-`  --` 
                                                      
    
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  • 8. Social Security Benefit Formula

    Social Security benefits are based upon lifetime earnings and retirement age. The formula shown is applied to a worker's average indexed monthly earnings (AIME) to arrive at the basic benefit, or primary insurance amount (PIA). This is how much the worker will receive each month after reaching full retirement age. Multiply this amount by 75% to find the estimated monthly retirement benefit at age 62.

    A worker's AIME is $6200. Estimate the worker's PIA at full retirement age. (See Example 3 and Example 4.)

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      _____     _____     ______   __   __    ______  
     |__  //   |  ___||  /_____//  \ \\/ //  /_____// 
       / //    | ||__    `____ `    \ ` //   `____ `  
      / //__   | ||__    /___//      | ||    /___//   
     /_____||  |_____||  `__ `       |_||    `__ `    
     `-----`   `-----`   /_//        `-`'    /_//     
                         `-`                 `-`      
    
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  • 9. Social Security Benefit Formula

    Social Security benefits are based upon lifetime earnings and retirement age. The formula shown is applied to a worker's average indexed monthly earnings (AIME) to arrive at the basic benefit, or primary insurance amount (PIA). This is how much the worker will receive each month after reaching full retirement age. Multiply this amount by 75% to find the estimated monthly retirement benefit at age 62.

    A worker's AIME is $4500. Estimate the worker's PIA at age 62. (See Example 3 and Example 4.)

    • Worked-Out Solution

      The completed formula is shown below

      At full retirement age, the person would receive $1881 per month.

      At age 62, the person receives only 75% of this amount.

      The person will receive about $1410 per month in Social Security.

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     __   __     ___                ______   __   __  
     \ \\/ //   / _ \\    ____     /_   _//  \ \\/ // 
      \   //   | / \ ||  |    \\    -| ||-    \   //  
      / . \\   | \_/ ||  | [] ||    _| ||_    / . \\  
     /_//\_\\   \___//   |  __//   /_____//  /_//\_\\ 
     `-`  --`   `---`    |_|`-`    `-----`   `-`  --` 
                         `-`                          
    
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  • 10. Social Security Benefit Formula

    Social Security benefits are based upon lifetime earnings and retirement age. The formula shown is applied to a worker's average indexed monthly earnings (AIME) to arrive at the basic benefit, or primary insurance amount (PIA). This is how much the worker will receive each month after they reach full retirement age. Multiply this amount by 75% to find the estimated monthly retirement benefit at age 62.

    What do you think your AIME will be when you retire? Estimate how much you will receive each month from Social Security at full retirement age. (Neglect inflation.) (See Example 3 and Example 4.)

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      _____      ___      ______   _    _    _    _   
     |__  //    / _ \\   /_   _// | || | || | \  / || 
       / //    | / \ ||  `-| |,-  | || | || |  \/  || 
      / //__   | \_/ ||    | ||   | \\_/ || | .  . || 
     /_____||   \___//     |_||    \____//  |_|\/|_|| 
     `-----`    `---`      `-`'     `---`   `-`  `-`  
                                                      
    
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  • 11. Retirement

    Use the information below taken from a worker's annual Social Security Statement. Assume a 3% cost-of-living increase each year. The worker has just reached 62 years of age. How long would the worker have to live to make waiting for full benefits more economical than retiring at age 62? (See Example 4.)

    data

    • Worked-Out Solution

      Use a spreadsheet to calculate the total amount of benefits received for each retirement age.

      data

      If the worker lives to be 82, then he or she will receive more total benefits by retiring at age 66. If the worker lives to be 86, then he or she will receive more total benefits by retiring at age 70.

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      _  __   _    _     ______     ___      _  _   
     | |/ // | || | ||  /_____//   / _ \\   | \| || 
     | ' //  | || | ||  `____ `   | / \ ||  |  ' || 
     | . \\  | \\_/ ||  /___//    | \_/ ||  | .  || 
     |_|\_\\  \____//   `__ `      \___//   |_|\_|| 
     `-` --`   `---`    /_//       `---`    `-` -`  
                        `-`                         
    
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  • 12. Retirement

    Use the information below taken from a worker's annual Social Security Statement. Assume a 3% cost-of-living increase each year. The worker has just reached 62 years of age. How long would the worker have to live to make waiting for the benefits at age 70 more economical than retiring at age 62? (See Example 4.)

    data folder

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      _  _      ___      _  __    ______   __   __  
     | \| ||   / _ \\   | |/ //  /_   _//  \ \\/ // 
     |  ' ||  | / \ ||  | ' //    -| ||-    \   //  
     | .  ||  | \_/ ||  | . \\    _| ||_    / . \\  
     |_|\_||   \___//   |_|\_\\  /_____//  /_//\_\\ 
     `-` -`    `---`    `-` --`  `-----`   `-`  --` 
                                                    
    
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