Ss Card And Money Gettyimages
Image source: Getty Images.

Most people rely heavily on Social Security for their retirement income, including those who earn more than the median income for Americans overall. If you earn $60,000 a year, you're ahead of many of your U.S. peers. You might not necessarily have a huge amount left over to save, but you can add at least a modest supplement to your Social Security by diligently saving what you can and investing it wisely. To help guide your goal-setting, though, it's useful to have an idea of how much Social Security you'll have to start out with. Below, we'll take a look at how much someone earning $60,000 per year can expect from Social Security, understanding that the salary that might be solidly upper-middle class in some areas would still force some to struggle in certain areas of the country.

What middle-income earners pay into Social Security

Workers who earn $60,000 per year pay payroll taxes on all of their income because the wage base limit on Social Security taxes is almost twice that amount. Therefore, you'll pay 6.2% of your salary, or $3,720. Your employer will pay an equal amount directly on your behalf to Social Security.

Because all of your income was subject to payroll taxes, you'll get credit for all of your wages for purposes of determining benefits. The only situation in which this doesn't happen is if you work in a job with a local or state government employer that doesn't participate in Social Security, choosing instead to offer its own independent pension.

Working with averages

Figuring your Social Security benefits requires looking at your whole career, not just one year. The Social Security Administration's formula includes up to 35 years of earnings history. The SSA takes the average monthly earnings from the 35 highest-earning years in your work life, applying an inflation adjustment to early years to make them comparable.

Therefore, if you've gotten big raises to get to $60,000, then your benefits will be less than if you had made roughly $60,000 year in and year out for much of your career. Unlike old-style pension programs, a single year of strong earnings won't make a huge difference to your Social Security benefit amount.

What to expect from Social Security

To proceed, we'll make some assumptions. Specifically, we'll look at what the benefit amount would be for someone who made the inflation-adjusted equivalent of $60,000 for his or her 35 highest earning years. That will simplify the calculation and give a baseline from which you can compare your own experience.

Your average indexed monthly earnings under these assumptions will be $5,000 per month. Using the SSA's benefit formula for someone retiring in 2016, you take 90% of the first $856 in monthly earnings, and then 32% of earnings between $856 and $5,157. Earnings above that level produce a 15% bump in the resulting number, which the SSA refers to as the primary insurance amount. However, for an average of $5,000, we don't need to use that second threshold, which is known as a bend point. Instead, 90% of $856 is $770.40, and 32% of the remaining $4,144 is $1,326.08. That adds up to $2,096.48 as a monthly benefit if you retire at full retirement age. Put another way, Social Security will replace about 42% of your past $60,000 salary. That's a lot better than the roughly 26% figure for those making $120,000 per year.

Ss Bend Point
How bend points work. Image source: Author, using data from SSA.

Those who retire earlier or later will have a different answer. For example, if you claim benefits at 62, you'll take a 25% haircut on the $2,100 figure above. The bend points would be slightly different, so the difference isn't exactly $525, but the reduction is close. Similarly, by waiting until age 70, you'd get 32% more, which could take your benefit up above the $2,750 mark.

As we saw with high-income individuals, if you retire after a short career, you might still get a fairly substantial amount. The reason is that Social Security treats low-income individuals better, giving them a higher percentage of past income. For instance, if you worked just half of the 35-year history of the example above, your average earnings would be $2,500 rather than $5,000. Put that number in the formula, and it spits out $1,296.48. That's more than 60% of the full-career Social Security benefit, even though you paid just half the payroll taxes.

Be smart with Social Security

Those who are on the line between middle class and upper-middle class can expect to do fairly well with their Social Security benefits. However, the fact that your monthly payments will replace only about two-fifths of your salary means that it's important to come up with additional savings of your own.

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