Social Security is designed to help retirees replace a portion their work income, and the lower your average salary has been during your career, the greater the percentage of your salary Social Security will replace. $40,000 a year is above the median per-person income in the U.S. and is a good salary in many parts of the country, but it's less than what the typical household brings in every year. Below, you'll learn more about what someone making $40,000 can expect from Social Security and why it still makes sense to take action to supplement your Social Security with retirement savings of your own.

What Social Security will take from you during your lifetime

Those who make $40,000 pay taxes on all of their income into the Social Security system. It takes more than three times that amount to max out your Social Security payroll taxes. The current tax rate is 6.2%, so you can expect to see $2,480 go directly from your paycheck toward Social Security. Your employer will pay another $2,480 on your behalf.

All of your $40,000 salary goes into the calculations for determining how much your monthly Social Security checks will be after you retire. $40,000 is also enough to give you the maximum of four Social Security work credits for the year, getting you closer to the 40 credits you need throughout your career to qualify for retirement benefits. You might also need those credits if you have to claim Social Security disability benefits.

The top of a Social Security card peeks out from a pile of currency.

Image source: Getty Images.

How will Social Security come up with my check amount?

The Social Security Administration takes the 35 top-earning years of your career in calculating an average monthly earnings amount. The calculation method takes inflation into account, boosting the inflation-indexed value of the pay you received early in your career.

If you've consistently made $40,000 throughout your career, then your benefits will be higher than if you've had to claw your way up from lower levels. That's different from how some private pensions work, where even a single year of strong earnings can dramatically boost what you receive in retirement.

How much you'll get in retirement from Social Security

To simplify the calculations, let's look at workers who have seen their pay rise at exactly the rate of inflation over the course of a 35-year career, ending with $40,000 in 2017. Average indexed monthly earnings under this assumption would therefore be $3,333, and if you use the benefit calcluation formula from the SSA for those first eligible to take Social Security in 2017, you'll get the following numbers:

  • You get 90% of the first $885 in average indexed monthly earnings. That works out to $796.50.
  • Then, you get 32% of the amount up to $5,336 per month. In this example, that takes care of the remaining $2,448, and 32% of that amount is $783.36.
  • Add those two figures together, and you'll get $1,579.86 per month.

Early retirees won't get that amount, because the calculation produces what you'd get if you wait until full retirement age to claim. For those turning 62 in 2017, full retirement age is 66 and two months. If you instead claim at 62, then you'll face reduction of more than 25%. The exact calculation produces a figure of about $1,172 per month.

If you wait beyond full retirement age, you can get delayed retirement credits of 8% per year until age 70. That can give you more than 30% extra in monthly benefits beyond the $1,579.86 figure above. The numbers won't all be the same, because the benefit formula is different depending on your current age, and future benefits are indexed for inflation.

How much of my salary will Social Security replace?

Social Security was never meant to replace all of your work income, but it replaced a decent chunk for those who earned $40,000 consistently during their careers. The $1,580 figure is almost half the $3,333 in career monthly pay, and that doesn't include the income taxes that you had to pay on your work income.

Those who earn $40,000 a year will get a lot of help from Social Security. You still have to figure out how to replace the other half of your pre-retirement pay, but with smart investing strategies, you'll be able to cover your needs and have a financially secure retirement.