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