April 18, 2010

Social Security Retirement Benefits Compared to Earning Levels

The other day I talked about how to do the full calculations to estimate your Social Security retirement benefits.  The retirement benefit amounts from SS are not a direct % of your income levels.  The benefit amount as a percent of your pre retirement earnings is higher for low income and lower for higher incomes.  In other words lower income people get a higher % of their income in benefits than do higher income earners.   The SS benefit is not a direct 1-to-1 slope of your wages, but you get 90% of your first bit of wages, 32% of the medium chunk and 15% of the top.   That creates a graph of varying slope.

Someone who made $24,000 before retirement may get a $867 monthly benefit which equates to 43% of pre-retirement earnings but someone who makes $72,000 a year before retiring may get about $1,752 in SS benefits which is 29% of their pre-retirement income.

I ran a bunch of trial numbers and made some charts below to demonstrate the rough relationship between wage levels and expected Social Security retirement benefits.  Note:  These figures are pretty rough and only based on estimates.   Your exact SS earnings will differ depending on your work history. 

Below is a chart of the estimated Social Security retirement benefit that you might earn given an average inflation adjusted lifetime monthly income level.

Note that this is not exactly the same things as estimating your SS benefit based on your current monthly income.   If you use the social security quick calculator to estimate the benefits then it will give you a bit different benefit estimate.   Generally the quick calculator seems to result in benefits around 20% less than I'm showing.

Below I show the results from plugging various income levels into the quick calculator.

The amount you get in benefits as a percentage of your pre-retirement wages goes down as your wages increase.  As I pointed out before someone making $24,000 gets about 43% and someone making $72,000 gets about 29%. 

The percentage of your pre-retirement monthly wages that you get in SS benefits looks like this:

If you make a relatively low income level of less than $12000 a year then your SS benefits will replace close to 60% of your income.   If you have a much higher income level of over $100,000 then SS will give you around 24% of your pre-retirement income.

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