A major concern with Social Security is the possibility that funds will not be available when today’s tax-payers retire to become beneficiaries. According to the Social Security Trustee’s report, an increase of 1.89% in the Social Security payroll tax would keep the account full for the next 75 years. To achieve similar results, benefits would have to be decreased from the current 42% of the ending salary to 29% of the salary. Cindy is relatively new to the workforce. She has 32 years until she can retire. Her current annual salary is $45,000. 1a) Calculate how much Cindy will have to pay in Social Security tax (6.2%) based on this salary. 1b) Calculate how much Cindy will have to pay in Social Security tax if the tax was increased by 1.89%. 2a) Calculate Cindy’s annual Social Security benefit (about 42%) if her salary remains unchanged until she retires (annual average is $45,000). 2b) Calculate Cindy’s annual Social Security benefit if her salary remains unchanged but benefits (based on her annual salary of $45,000) were cut from 42% to 29%. 3) If Cindy were given a choice between the increase in Social Security tax now or the decrease in Social Security benefits when she retires, which would you recommend she choose? Explain your answer thoroughly.
Answer
Answer:
1a) $2,790 per year. 1b) $3,640.50 per year, an increase of $850.50. 2a) $18,900 per year. 2b) $13,050 per year, a reduction of $5,850 per year. I would recommend the tax increase. Assuming Cindy’s salary remains $45,000, the additional tax would cost her $850.50 per working year, while the benefit cut would reduce her income by $5,850 every year in retirement. Over 32 working years, the additional tax would total $27,216 before considering inflation or investment returns; the annual benefit reduction would exceed that amount after about 4.65 years of retirement.

Question

A major concern with Social Security is the possibility that funds will not be available when today’s tax-payers retire to become beneficiaries. According to the Social Security Trustee’s report, an increase of 1.89% in the Social Security payroll tax would keep the account full for the next 75 years. To achieve similar results, benefits would have to be decreased from the current 42% of the ending salary to 29% of the salary. Cindy is relatively new to the workforce. She has 32 years until she can retire. Her current annual salary is $45,000. 1a) Calculate how much Cindy will have to pay in Social Security tax (6.2%) based on this salary. 1b) Calculate how much Cindy will have to pay in Social Security tax if the tax was increased by 1.89%. 2a) Calculate Cindy’s annual Social Security benefit (about 42%) if her salary remains unchanged until she retires (annual average is $45,000). 2b) Calculate Cindy’s annual Social Security benefit if her salary remains unchanged but benefits (based on her annual salary of $45,000) were cut from 42% to 29%. 3) If Cindy were given a choice between the increase in Social Security tax now or the decrease in Social Security benefits when she retires, which would you recommend she choose? Explain your answer thoroughly.

Answer

Answer:

1a) $2,790 per year. 1b) $3,640.50 per year, an increase of $850.50. 2a) $18,900 per year. 2b) $13,050 per year, a reduction of $5,850 per year. I would recommend the tax increase. Assuming Cindy’s salary remains $45,000, the additional tax would cost her $850.50 per working year, while the benefit cut would reduce her income by $5,850 every year in retirement. Over 32 working years, the additional tax would total $27,216 before considering inflation or investment returns; the annual benefit reduction would exceed that amount after about 4.65 years of retirement.

Revolt · Accepted Answer

1a) $2,790 per year. 1b) $3,640.50 per year, an increase of $850.50. 2a) $18,900 per year. 2b) $13,050 per year, a reduction of $5,850 per year. I would recommend the tax increase. Assuming Cindy’s salary remains $45,000, the additional tax would cost her $850.50 per working year, while the benefit cut would reduce her income by $5,850 every year in retirement. Over 32 working years, the additional tax would total $27,216 before considering inflation or investment returns; the annual benefit reduction would exceed that amount after about 4.65 years of retirement.

Social Security and Medicare

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