Question

Social Security Administration (SSA) provides social security benefits to a person average of 35

       years of her/his earnings. If the person has less than 35 years of earnings, the administration

       uses $0 income for those years for which she/he has no earnings. Every $0 is replaced by every

       year of earnings. Currently, the person is getting $30,000 yearly benefits for her/his 20 years

       earnings. She/he plans to report $84,000 earnings to SSA next year, her/his increase in monthly

       benefits will be:

       a. $195

b. $190

c. $200

d, $192         

Answer 1

Let us assume here that the sum of his earnings for the 20 year period is S.

Then, the average here is computed as:

S / 35 = 30,000
S = 35*30,000 = 1050000

Now the new sum of earnings is computed here as:
= S + 84000

= 1050000 + 84000

= 1134000

Therefore the new yearly benefit here is computed as:
= 1134000 / 35 = 32400

Therefore increase in yearly benefit = 32400 - 30000 = 2400

Therefore increase in monthly benefit = 2400/12 = 200

Therefore c) $200 is the required increase in monthly benefit here.