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A middle income worker older than the normal retirement age retired in January 2004. In the year prior to retirement, her gross monthly earnings were
A middle income worker older than the normal retirement age retired in January 2004. In the year prior to retirement, her gross monthly earnings were $1,500, and she was subject to payroll taxes on her labor earnings totaling 7.65%. Her social security pension benefit is $1,000 per month.
a. Calculate her gross and net replacement rates.
b. Suppose the cash value of Medicare subsidies that she expects to receive during retirement amount to $150 per month. Recalculate the replacement rates when Medicare benefits are included.
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