I’ve had more frequent conversations recently regarding a number of financial topics. The pretax vs post tax IRA certainly tops the list along with the required income needed at retirement, both in absolute terms as well as replacement ratio. I thought this would be a good time to discuss how much of that retirement income is expected to come from Social Security. The primary insurance amount (the benefit (before rounding down to next lower whole dollar) a person would receive if he/she elects to begin receiving retirement benefits at his/her normal retirement age) is shown below for those with annual incomes ranging from $20K per year to $90K per year.
| Earnings | Benefit | Replaced |
| 20000 | 11349 | 0.57 |
| 25000 | 12949 | 0.52 |
| 30000 | 14549 | 0.48 |
| 35000 | 16149 | 0.46 |
| 40000 | 17749 | 0.44 |
| 45000 | 19349 | 0.43 |
| 50000 | 20949 | 0.42 |
| 55000 | 21946 | 0.40 |
| 60000 | 22696 | 0.38 |
| 65000 | 23446 | 0.36 |
| 70000 | 24196 | 0.35 |
| 75000 | 24946 | 0.33 |
| 80000 | 25696 | 0.32 |
| 85000 | 26446 | 0.31 |
| 90000 | 27196 | 0.30 |
A few observations here: This reflects the benefit an individual would receive, and my comments for tax purposes also reflect one filing single. The way this is calculated, a lower wage earner receives a higher percent of his income at retirement than a higher earner. If we use 80% (not saying I agree or disagree, but 80% keeps popping up) as a target replacement income, the $55K earner will have half of this target covered by Social Security. In my next post, I’ll discuss the Social Security Tax trap, and tie the analysis back to the pretax vs post tax investing decision.
Joe
Suggestion for cuts in SS: Like teachers, if you do not put in to Social Security, you should not be able to collect from Social Security, including your spouse’s benefits, unless they are able to show some strong bottom level financial need. It infuriates me that my husband’s benefits, if he were to die before me, would go to someone who chose not to go to work and may have more financial resources (much more from many I have seen) than myself. It should be fair across the board: No money in, no money out! OR, we should ALL receive our spouse’s benefits that could have been put in a family savings account instead. It seems we would save a lot for those who really need it if we were to change this policy.