By JLP | April 19, 2012
Social Security retirement benefits are based on average indexed monthly earnings for the thirty-five highest earnings years prior to retirement. The benefit formula is set up to favor lower-income workers. For example, in 2004, someone with average monthly earnings of $624 received a benefit that replaced 90 percent of earnings. Someone whose average monthly earnings were $3,760 received a benefit that replaced 42 percent of earnings, while someone with monthly earnings at the then-taxable maximum of $7,325 received a benefit that replaced only 28 percent of earnings.
This kind of proves the point I have been trying to make over the years that Social Security is progressive and not regressive like some people try to make it out to be. It would become ridiculously progressive were the income cap removed thereby subjecting all earnings to FICA.
As a side note, I think it’s kind of funny that the author of the article I link to has the last name “Saving.”