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Are You Saving Enough For Retirement? What to Expect from Social Security


Are You Saving Enough For Retirement?


What to Expect from Social Security


Your Social Security Benefits will replace a portion of the income you earned while working. The proper name for the monthly benefit you receive is the “Primary Insurance Amount”. The Social Security program was designed to be a social insurance program. The percentage of salary you receive depends on the level of your income (and the number of years you worked). As your income increases, the program determines you need less “insurance”; you are expected to provide for a larger share of your income in retirement. So your monthly benefit may be as high as 78.7% of your income, or as low as 28.2% of your income.


The below replacement ratios are based upon the Social Security 2012 Average Wage Index (AWI). In 2012 the average wage in the U.S. was $44,321.00. The Social Security Administration categorizes your income as very low, low, medium, high, and maximum based upon how it compares to the AWI above. The maximum figure is the Social Security Wage Base, the amount above which you pay no additional social security taxes ($110,000 in 2012). It is important to note that in 2012, any income above $70,914 was considered a high income. Assuming you need about 85% of your prior income in retirement, there can be a significant shortfall.




Your Income                                                                      Your Social Security Benefit                         Shortfall


Very Low: 25% of AWI or $11,080                              78.7% of income or $8,720                               6.3%


Low: 45% of AWI or $19,944                                        57.2% of income or $11,408                          27.8%


Medium: 100% of AWI or $44,321                             42.4% of income or $18,792                           42.6%


High: 160% of AWI or $70,914                                     35.2% of income or $24,962                          49.8%


Maximum: $110,000                                                       28.2% of income or $31,020                         56.8%


As you can see from the above figures, if you were to increase your average salary by 55.1% from $70,914 to $110,000, your benefit would increase by 24.3%, not 55.1%. From an income of $70,000 or more, an amount considered “high” by Social Security, you are responsible for providing for half or more of the income you will need in retirement. You are responsible for replacing 100% of any income earned above the Social Security Wage Base.


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