[kd5606]

NRR = MONTHLY SOCIAL SECURITY PENSION BENEFITS
MONTHLY LABOR EARNINGS AFTER PAYMENT OF TAXES
IN THE YEAR PRIOR TO RETIREMENT

NRRs ARE HIGHER THAN GROSS REPLACEMENT RATES (GRRs). TO SEE THIS, CONSIDER THE CASE OF THE AVERAGE EARNER. THIS WORKER IS LIKELY TO HAVE PAID A TOTAL OF 20 PERCENT OF LABOR EARNINGS IN FEDERAL AND STATE TAXES ( AND POSSIBLY LOCAL) INCOME TAXES AND SOCIAL SECURITY PAYROLL TAXES IN 2010. ASSUME THIS WORKER’S PRERETIREMENT EARNINGS IN 2009 WERE $41,300. TAXES ON THESE EARNINGS AT A 20 PERCENT RATE WOULD BE $ 8,260 PER YEAR.
ASSUME THAT THIS IS THE AVERAGE EARNER AND HE Receives A SOCIAL SECURITY PENSION OF $ 17,600NOT SUBJECT TO TAXATION, WHICH GIVES A GROSS REPLACEMENT RATE OF 42.6 PERCENT. THE NRR WOULD THEREFORE BE
NRR = $ 17,600 4 17,600
$ 41,300 - $ 8,260 $ 33,040 = 53.27%


(PROBLEM)
1. A middle income worker, with a dependent spouse older than the normal retirement age, retired in January 2004. In the year prior to retirement, her gross monthly earnings were $1,500. Her Social Security pension benefit is $1,000 per month. Prior to retirement, she was subject to total taxes on her labor earnings amounting to 20%. Calculate her gross and net replacement rates. Suppose the cash value of Medicare subsidies that she expects to receive during retirement amounts to $2,000 per year. Recalculate the replacement rates including the Medicare benefits.

[JudyKayTee]

PROBLEM? AMHD doesn't do homework.

Homework? Please post your answer and someone will come along and let you know if you are correct.