There has been much debate over the question of privately invested OASI taxes and the OASI benefit. The debate never has really presented any real calculations. Most groups supporting privatizing use stock market rates or return. Groups who are opposed to privatizing Social Security point to the "guarenteed" benefit provided by Social Security and also to the non working spousel benefit. Who is correct?
This calculation was done to determine if a person born in 1970 would be better off with Social Security or privately invested. The assumption was to use the same investement vehical as Social Security, the United States Treasury Note.
A data base was created using the reported monthly Treasury rates from 1937 through 1999. After 1999, the Treasury rate was assumed to be 6.8%.
A data base was created for each of the following:
Variables in the calculation are listed in the table labled "ASSUMPTIONS." These all factor into the calculation of the OASI benefit and what a privately invested OASI tax could produce. Table 1 shows the cash flow for each year. The amount of funds on deposit for a person retireing early at age 62 is $241,840. Table 3 shows what type of benefit each year VS number of years in retirement. For example if one lived 20 years, the COLA adjusted private benefit would start out at $18,263 pear year. If one waited till age 67 to retire, the benefit would increase to $31,887.
Table 2 shows the calculation used by Social Security to adjust previous years wages by the change in the US average wage. The best 35 years are used in the determination of the Primary Insurance Amount (PIA). In this case the PAI at age 62 is $1,849 per month. Using bend points, the OASI benefit is determined. The first bend point is $1,403 while the second bend point is $8,614. The amount of the PIA which covers the first bend point is replaced at 90%. The amount of the PIA covered between the first and second bend points is replaced at 34%. Any PAI amount greater than the second bend is replaced at 15%.
The calculated OASI payment in this case is $16,972 per year. If one retires early at age 62, there is a reduction of 5/9 ths of 1% per month. In this case, there is a reduction of 1/3. Early OASI benefit is reduced to $11,315. If one were to wait till age 67 to retire, the OASI benefit would be $19,694.
Now one might ask why the early retirement benefit is greater than the amount earned by the person's $9,464 per year wage? The reason is, the replacment rate which is used to adjust previous years wages has increased the wages earned in 1990 by almost 4. For each year after 1990, the replacement rate is declining. In this particular case when one's wages are growing slower than the US Average Wage, the earliest years work history genrally are best. When Wages grow faster than the US Average Wage, the later years work history are generally best.
What does all of this mean? In the case of this person making $4.55 per hour, they would have to live to age 100 to recoup OASI's taxes paid. If the OASI formula is skewed to lower wage earners, then anyone making more than the $4.55 per hour wage is worse off. Since the minimum wage in the United States is $4.55, it is safe to state, very few if any Americans born after 1970 will find Social Security worth while for retirement.
What about a non-working spousal benefit? First off, few families have one spouse at home while the other spouse has a wage of under $15 per hour. At what point does OASI become benificial due to a non-working spouse? At $4.55 per hour, collecting a 50% non-working spousal benefit recoups the OASI tax and interest at the US Treasury Rate at age 84. If the person reives a 1% wage increase each year, the age of recoupment moves to 85.
Most likely there are very few families making $4.55 per hour who never make more there entire lives. History has shown the minimum wage to follow the inflation rate. If we assume these minimum wage workers see their wages increase at 90% of the inflation rate,the couple recoups at age 88.
A $15 per hour position with a non working spouse recoups at age 106 with no wage increases. With wage incrases equal to inflation, they recoup at age 117.
Again, who benefits from Old Age Survivors Insurance?
|
ASSUMPTIONS | ||
| INDIVIDUALS WAGE GROWTH | 0.00% | |
| INFLATION | 2.70% | |
| US WAGE GROWTH | 3.50% | |
| US TRESURY RATE | 6.80% | |
| STARTING WAGE | $4.55 | HOURLY |
| YEARLY | $9,464.00 | |
| STARTED WORK AT AGE | 20 | |
| RETIREMENT AGE (FULL) | 67.00 | |
| EARLY RETIREMENT PENALTY | 33.33% | |
| BIRTH YEAR | 1970 | |
| YEAR EARLY RETIREMENT | 2032 | |
| FULL RETIREMENT | 2037 | |
| LIFE SPAN | 90 | |
| US AVERAGE WAGE AT 60 | $83,465.05 | |
| EFFECTIVE RATE OR RETURN | 3.99% | |
| FUND | EARLY | FULL | COLA |
| OASI | $11,315 | $16,972 | $19,694 |
| PRIVATE BALANCE | $241,840 | $345,401 | |
| SPOUSAL BENEFIT INCLUDED | NO |
| TABLE 1
PRIVATELY INVESTED OLD AGE INSRUANCE TAX | ||||||||
| AGE | YEAR | OASI TAX | OASI BASE | YOUR WAGE | OASI TAX PAID | US TREASURY RATE | INCOME | PRIVATE BALANCE |
| 20 | 1990 | 5.600% | $51,300 | $9,464 | $1,060 | 8.625% | $42.92 | $1,103 |
| 21 | 1991 | 5.600% | $53,400 | $9,464 | $1,060 | 7.958% | $130.57 | $2,293 |
| 22 | 1992 | 5.600% | $55,500 | $9,464 | $1,060 | 7.083% | $202.92 | $3,556 |
| 23 | 1993 | 5.600% | $57,600 | $9,464 | $1,060 | 6.063% | $251.67 | $4,868 |
| 24 | 1994 | 5.260% | $60,600 | $9,464 | $996 | 7.052% | $387.42 | $6,251 |
| 25 | 1995 | 5.260% | $61,200 | $9,464 | $996 | 6.875% | $475.54 | $7,722 |
| 26 | 1996 | 5.260% | $62,700 | $9,464 | $996 | 6.594% | $555.52 | $9,273 |
| 27 | 1997 | 5.350% | $65,400 | $9,464 | $1,013 | 6.594% | $661.48 | $10,947 |
| 28 | 1998 | 5.350% | $68,400 | $9,464 | $1,013 | 5.625% | $658.44 | $12,618 |
| 29 | 1999 | 5.350% | $72,600 | $9,464 | $1,013 | 6.800% | $917.48 | $14,549 |
| 30 | 2000 | 5.300% | $76,200 | $9,464 | $1,003 | 6.800% | $1,052.59 | $16,604 |
| 31 | 2001 | 5.300% | $78,800 | $9,464 | $1,003 | 6.800% | $1,196.83 | $18,804 |
| 32 | 2002 | 5.300% | $81,500 | $9,464 | $1,003 | 6.800% | $1,351.18 | $21,159 |
| 33 | 2003 | 5.300% | $84,300 | $9,464 | $1,003 | 6.800% | $1,516.36 | $23,678 |
| 34 | 2004 | 5.300% | $87,200 | $9,464 | $1,003 | 6.800% | $1,693.13 | $26,375 |
| 35 | 2005 | 5.300% | $90,200 | $9,464 | $1,003 | 6.800% | $1,882.30 | $29,260 |
| 36 | 2006 | 5.300% | $93,300 | $9,464 | $1,003 | 6.800% | $2,084.75 | $32,348 |
| 37 | 2007 | 5.300% | $96,500 | $9,464 | $1,003 | 6.800% | $2,301.40 | $35,653 |
| 38 | 2008 | 5.300% | $99,800 | $9,464 | $1,003 | 6.800% | $2,533.25 | $39,189 |
| 39 | 2009 | 5.300% | $103,200 | $9,464 | $1,003 | 6.800% | $2,781.36 | $42,974 |
| 40 | 2010 | 5.300% | $106,800 | $9,464 | $1,003 | 6.800% | $3,046.89 | $47,024 |
| 41 | 2011 | 5.300% | $110,500 | $9,464 | $1,003 | 6.800% | $3,331.04 | $51,358 |
| 42 | 2012 | 5.300% | $114,300 | $9,464 | $1,003 | 6.800% | $3,635.13 | $55,996 |
| 43 | 2013 | 5.300% | $118,300 | $9,464 | $1,003 | 6.800% | $3,960.55 | $60,960 |
| 44 | 2014 | 5.300% | $122,400 | $9,464 | $1,003 | 6.800% | $4,308.81 | $66,272 |
| 45 | 2015 | 5.300% | $126,600 | $9,464 | $1,003 | 6.800% | $4,681.49 | $71,957 |
| 46 | 2016 | 5.300% | $131,000 | $9,464 | $1,003 | 6.800% | $5,080.33 | $78,040 |
| 47 | 2017 | 5.300% | $135,500 | $9,464 | $1,003 | 6.800% | $5,507.15 | $84,550 |
| 48 | 2018 | 5.300% | $140,200 | $9,464 | $1,003 | 6.800% | $5,963.91 | $91,518 |
| 49 | 2019 | 5.300% | $145,100 | $9,464 | $1,003 | 6.800% | $6,452.72 | $98,973 |
| 50 | 2020 | 5.300% | $150,100 | $9,464 | $1,003 | 6.800% | $6,975.83 | $106,952 |
| 51 | 2021 | 5.300% | $155,300 | $9,464 | $1,003 | 6.800% | $7,535.64 | $115,491 |
| 52 | 2022 | 5.300% | $160,700 | $9,464 | $1,003 | 6.800% | $8,134.72 | $124,629 |
| 53 | 2023 | 5.300% | $166,300 | $9,464 | $1,003 | 6.800% | $8,775.83 | $134,408 |
| 54 | 2024 | 5.300% | $172,100 | $9,464 | $1,003 | 6.800% | $9,461.93 | $144,873 |
| 55 | 2025 | 5.300% | $178,100 | $9,464 | $1,003 | 6.800% | $10,196.16 | $156,073 |
| 56 | 2026 | 5.300% | $184,300 | $9,464 | $1,003 | 6.800% | $10,981.90 | $168,058 |
| 57 | 2027 | 5.300% | $190,700 | $9,464 | $1,003 | 6.800% | $11,822.78 | $180,884 |
| 58 | 2028 | 5.300% | $197,300 | $9,464 | $1,003 | 6.800% | $12,722.64 | $194,610 |
| 59 | 2029 | 5.300% | $204,200 | $9,464 | $1,003 | 6.800% | $13,685.65 | $209,298 |
| 60 | 2030 | 5.300% | $211,300 | $9,464 | $1,003 | 6.800% | $14,716.21 | $225,018 |
| 61 | 2031 | 5.300% | $218,600 | $9,464 | $1,003 | 6.800% | $15,819.08 | $241,840 |
| 62 | 2032 | 5.300% | $226,200 | $9,464 | $1,003 | 6.800% | $16,999.33 | $259,843 |
| 63 | 2033 | 5.300% | $234,100 | $9,464 | $1,003 | 6.800% | $18,262.39 | $279,108 |
| 64 | 2034 | 5.300% | $242,200 | $9,464 | $1,003 | 6.800% | $19,614.06 | $299,725 |
| 65 | 2035 | 5.300% | $250,600 | $9,464 | $1,003 | 6.800% | $21,060.56 | $321,789 |
| 66 | 2036 | 5.300% | $259,300 | $9,464 | $1,003 | 6.800% | $22,608.55 | $345,401 |
| 67 | 2037 | 5.300% | $268,300 | $9,464 | $1,003 | 6.800% | $24,265.14 | $370,669 |
| TABLE 2
REPLACEMENT FACTOR AND INDEXED WAGE | ||||
| AGE | YEAR | US AVG WAGE | REPLACEMENT FACTOR | INDEXED |
| 20 | 1990 | $21,027.98 | 3.969 | $37,565 |
| 21 | 1991 | $21,811.60 | 3.827 | $36,215 |
| 22 | 1992 | $22,935.42 | 3.639 | $34,441 |
| 23 | 1993 | $23,132.67 | 3.608 | $34,147 |
| 24 | 1994 | $23,753.53 | 3.514 | $33,255 |
| 25 | 1995 | $24,705.66 | 3.378 | $31,973 |
| 26 | 1996 | $25,913.90 | 3.221 | $30,482 |
| 27 | 1997 | $26,820.89 | 3.112 | $29,451 |
| 28 | 1998 | $27,759.62 | 3.007 | $28,455 |
| 29 | 1999 | $28,731.20 | 2.905 | $27,493 |
| 30 | 2000 | $29,736.80 | 2.807 | $26,563 |
| 31 | 2001 | $30,777.58 | 2.712 | $25,665 |
| 32 | 2002 | $31,854.80 | 2.620 | $24,797 |
| 33 | 2003 | $32,969.72 | 2.532 | $23,959 |
| 34 | 2004 | $34,123.66 | 2.446 | $23,149 |
| 35 | 2005 | $35,317.99 | 2.363 | $22,366 |
| 36 | 2006 | $36,554.12 | 2.283 | $21,609 |
| 37 | 2007 | $37,833.51 | 2.206 | $20,879 |
| 38 | 2008 | $39,157.68 | 2.132 | $20,173 |
| 39 | 2009 | $40,528.20 | 2.059 | $19,490 |
| 40 | 2010 | $41,946.69 | 1.990 | $18,831 |
| 41 | 2011 | $43,414.82 | 1.923 | $18,195 |
| 42 | 2012 | $44,934.34 | 1.857 | $17,579 |
| 43 | 2013 | $46,507.04 | 1.795 | $16,985 |
| 44 | 2014 | $48,134.79 | 1.734 | $16,410 |
| 45 | 2015 | $49,819.51 | 1.675 | $15,856 |
| 46 | 2016 | $51,563.19 | 1.619 | $15,319 |
| 47 | 2017 | $53,367.90 | 1.564 | $14,801 |
| 48 | 2018 | $55,235.78 | 1.511 | $14,301 |
| 49 | 2019 | $57,169.03 | 1.460 | $13,817 |
| 50 | 2020 | $59,169.95 | 1.411 | $13,350 |
| 51 | 2021 | $61,240.89 | 1.363 | $12,898 |
| 52 | 2022 | $63,384.33 | 1.317 | $12,462 |
| 53 | 2023 | $65,602.78 | 1.272 | $12,041 |
| 54 | 2024 | $67,898.87 | 1.229 | $11,634 |
| 55 | 2025 | $70,275.33 | 1.188 | $11,240 |
| 56 | 2026 | $72,734.97 | 1.148 | $10,860 |
| 57 | 2027 | $75,280.70 | 1.109 | $10,493 |
| 58 | 2028 | $77,915.52 | 1.071 | $10,138 |
| 59 | 2029 | $80,642.56 | 1.035 | $9,795 |
| 60 | 2030 | $83,465.05 | 1.000 | $9,464 |
| 61 | 2031 | |||
| 62 | 2032 | |||
| 63 | 2033 | |||
| 64 | 2034 | |||
| 65 | 2035 | |||
| 66 | 2036 | |||
| 67 | 2037 | |||
|
TABLE 3 COMPARISON OF INDIVIDUAL BENEFIT VS. OAIS BENEFIT | ||||||
| PRIVATE | OASI PAID THIS MUCH LESS/YEAR | |||||
| YEARS IN RETIREMENT | EARLY | FULL | EARLY | FULL | EARLY AGE | FULL AGE |
| 1 | $258,285 | $368,888 | $246,970 | $349,194 | 63 | 68 |
| 2 | $131,670 | $188,054 | $120,355 | $168,359 | 64 | 69 |
| 3 | $89,486 | $127,806 | $78,172 | $108,112 | 65 | 70 |
| 4 | $68,411 | $97,706 | $57,096 | $78,011 | 66 | 71 |
| 5 | $55,778 | $79,664 | $44,463 | $59,969 | 67 | 72 |
| 6 | $47,367 | $67,651 | $36,053 | $47,957 | 68 | 73 |
| 7 | $41,369 | $59,084 | $30,054 | $39,389 | 69 | 74 |
| 8 | $36,878 | $52,670 | $25,563 | $32,975 | 70 | 75 |
| 9 | $33,392 | $47,691 | $22,077 | $27,997 | 71 | 76 |
| 10 | $30,610 | $43,718 | $19,295 | $24,023 | 72 | 77 |
| 11 | $28,339 | $40,475 | $17,024 | $20,780 | 73 | 78 |
| 12 | $26,452 | $37,780 | $15,137 | $18,085 | 74 | 79 |
| 13 | $24,861 | $35,506 | $13,546 | $15,812 | 75 | 80 |
| 14 | $23,501 | $33,564 | $12,186 | $13,870 | 76 | 81 |
| 15 | $22,326 | $31,887 | $11,012 | $12,193 | 77 | 82 |
| 16 | $21,303 | $30,425 | $9,988 | $10,731 | 78 | 83 |
| 17 | $20,403 | $29,140 | $9,088 | $9,446 | 79 | 84 |
| 18 | $19,607 | $28,003 | $8,292 | $8,309 | 80 | 85 |
| 19 | $18,898 | $26,991 | $7,583 | $7,296 | 81 | 86 |
| 20 | $18,263 | $26,083 | $6,948 | $6,389 | 82 | 87 |
| 21 | $17,691 | $25,267 | $6,376 | $5,572 | 83 | 88 |
| 22 | $17,174 | $24,528 | $5,859 | $4,834 | 84 | 89 |
| 23 | $16,705 | $23,858 | $5,390 | $4,163 | 85 | 90 |
| 24 | $16,277 | $23,247 | $4,962 | $3,552 | 86 | 91 |
| 25 | $15,886 | $22,688 | $4,571 | $2,994 | 87 | 92 |
| 26 | $15,527 | $22,175 | $4,212 | $2,481 | 88 | 93 |
| 27 | $15,197 | $21,704 | $3,882 | $2,010 | 89 | 94 |
| 28 | $14,892 | $21,269 | $3,577 | $1,575 | 90 | 95 |
| 29 | $14,611 | $20,867 | $3,296 | $1,173 | 91 | 96 |
| 30 | $14,350 | $20,494 | $3,035 | $800 | 92 | 97 |
| 31 | $14,107 | $20,149 | $2,793 | $454 | 93 | 98 |
| 32 | $13,882 | $19,827 | $2,567 | $132 | 94 | 99 |
| 33 | $13,672 | $19,527 | $2,357 | ($168) | 95 | 100 |
| 34 | $13,476 | $19,247 | $2,161 | ($447) | 96 | 101 |
| 35 | $13,293 | $18,985 | $1,978 | ($709) | 97 | 102 |
| 36 | $13,121 | $18,740 | $1,806 | ($954) | 98 | 103 |
| 37 | $12,960 | $18,510 | $1,646 | ($1,184) | 99 | 104 |
| 38 | $12,809 | $18,295 | $1,495 | ($1,400) | 100 | 105 |
| 39 | $12,668 | $18,092 | $1,353 | ($1,602) | 101 | 106 |
| 40 | $12,534 | $17,901 | $1,219 | ($1,793) | 102 | 107 |
| 41 | $12,408 | $17,722 | $1,093 | ($1,973) | 103 | 108 |
| 42 | $12,290 | $17,552 | $975 | ($2,142) | 104 | 109 |
| 43 | $12,178 | $17,392 | $863 | ($2,302) | 105 | 110 |
| 44 | $12,072 | $17,241 | $757 | ($2,453) | 106 | 111 |
| 45 | $11,972 | $17,099 | $657 | ($2,596) | 107 | 112 |
| 46 | $11,877 | $16,963 | $562 | ($2,731) | 108 | 113 |
| 47 | $11,788 | $16,836 | $473 | ($2,859) | 109 | 114 |
| 48 | $11,703 | $16,714 | $388 | ($2,980) | 110 | 115 |
| 49 | $11,623 | $16,600 | $308 | ($3,095) | 111 | 116 |
| 50 | $11,546 | $16,491 | $231 | ($3,204) | 112 | 117 |
| 51 | $11,474 | $16,387 | $159 | ($3,307) | 113 | 118 |
| 52 | $11,405 | $16,289 | $90 | ($3,406) | 114 | 119 |
| 53 | $11,340 | $16,195 | $25 | ($3,499) | 115 | 120 |
| 54 | $11,277 | $16,107 | ($37) | ($3,588) | 116 | 121 |
| 55 | $11,218 | $16,022 | ($97) | ($3,672) | 117 | 122 |
