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This post calculates gross and net replacement rates.

A middle income worker, with a dependent spouse older than the normal retirement age, retired in January 2004. In the year prior to retirement, her gross monthly earnings were $1,500. Her Social Security pension benefit is $1,000 per month. Prior to retirement, she was subject to total taxes on her labor earnings amounting to 20%. Calculate her gross and net replacement rates. Suppose the cash value of Medicare subsidies that she expects to receive during retirement amounts to $2,000 per year. Recalculate the replacement rates including the Medicare benefits.

Solution Preview

The worker's gross monthly earnings were $1,500 with total taxes of 20% on earnings. The after-tax benefit is calculated from the $1,500 + $1,000 per month in social security benefits. All income, including social security benefits and subsidies, are considered earnings to the ...

Solution Summary

The solution provides a detailed explanation with ALL REQUIRED CALCULATIONS determining the gross and net replacement rates for the scenario.