May 9, 1999

© Larsen

This file contains an analysis of the tax rates paid by the average worker from age 20 till either age 62 or 65. The OASI benefit has been calculated using Social Security's OASI benefit formula. Using the Gradient Formula for Annuities the present balance of a fund required to fund that cash flow adjusted for inflation was determined. Working backwards, an iterative program determined the tax rate necessary in conjunction with the prevailing US Treasury Rates to provide the beginning balance to fund the OASI cash stream.

Two methods were used in calculating the effective rate of return. Method one used the average Inflation rate since 1937 up to the year or retirement while Method two used the inflation rate in the year prior to retirement.

In summary the OASI tax rate applied to current retirees was less than half of today's rate of 10.3%. How many workers would like to have half their OASI contributions each week? The last column also shows what type of benefit cut wold be required to bring current retirees OASI benefit in line with what they paid.
TABLE 1

RETIREMENT AGE = 62

METHOD 1
YEAR BORN OASI BENEFIT FUTURE VALUE NEEDED US TREASURY RATE INFLATION IE N CALCULATED BALANCE TAX RATE REQUIRED TAX RATE PAID RATIO OF TAX RATES PROPOSED BENEFIT CUT
1917 $3,504 $51,893 8.20% 3.90% 4.14% 17.6 $51,893 12.42% 3.09% 33.51% 66.49%
1918 $3,782 $53,163 9.11% 4.12% 4.80% 17.6 $53,163 11.57% 3.19% 25.64% 74.36%
1919 $4,109 $51,136 11.00% 4.31% 6.42% 17.7 $51,136 9.94% 3.29% 28.41% 71.59%
1920 $4,483 $48,087 13.33% 4.41% 8.55% 17.7 $48,088 8.18% 3.40% 34.15% 65.85%
1921 $4,934 $54,880 12.78% 4.40% 8.03% 17.7 $54,880 8.22% 3.49% 42.64% 57.36%
1922 $5,203 $65,208 11.03% 4.38% 6.37% 17.8 $65,209 8.74% 3.59% 43.62% 56.38%
1923 $5,453 $62,276 12.40% 4.38% 7.68% 17.8 $62,277 7.40% 3.71% 42.38% 57.62%
1924 $5,779 $73,822 10.78% 4.36% 6.15% 17.9 $73,822 7.91% 3.82% 51.59% 48.41%
1925 $6,029 $94,674 7.99% 4.30% 3.54% 17.9 $94,673 9.40% 3.92% 49.58% 50.42%
1926 $6,202 $94,516 8.40% 4.30% 3.93% 18.0 $94,516 8.66% 4.02% 42.79% 57.21%
1927 $6,595 $97,426 8.82% 4.30% 4.33% 18.0 $97,425 8.21% 4.11% 47.49% 52.51%
1928 $6,931 $103,941 8.66% 4.31% 4.17% 18.1 $103,941 8.10% 4.20% 51.15% 48.85%
1929 $7,200 $108,674 8.63% 4.34% 4.10% 18.1 $108,675 7.85% 4.28% 52.87% 47.13%
1930 $7,536 $119,907 7.96% 4.32% 3.49% 18.1 $119,907 8.08% 4.36% 55.55% 44.45%
1931 $7,814 $133,518 7.08% 4.29% 2.67% 18.2 $133,517 8.47% 4.43% 54.78% 45.22%
1932 $8,218 $153,045 6.06% 4.27% 1.72% 18.2 $153,044 9.23% 4.49% 53.05% 46.95%

METHOD 2

1917

$3,504 $75,738 8.20% 9.02% -0.75% 17.6 $75,738 18.13% 3.09% 33.51% 66.49%
1918 $3,782 $106,141 9.11% 13.29% -3.69% 17.6 $106,141 23.09% 3.19% 17.57% 82.43%
1919 $4,109 $91,654 11.00% 12.52% -1.35% 17.7 $91,654 17.82% 3.29% 14.23% 85.77%
1920 $4,483 $64,113 13.33% 8.92% 4.05% 17.7 $64,113 10.91% 3.40% 19.05% 80.95%
1921 $4,934 $53,015 12.78% 3.83% 8.62% 17.7 $53,015 7.94% 3.49% 31.98% 68.02%
1922 $5,203 $62,753 11.03% 3.79% 6.98% 17.8 $62,753 8.41% 3.59% 45.15% 54.85%
1923 $5,453 $60,649 12.40% 3.95% 8.13% 17.8 $60,649 7.21% 3.71% 44.04% 55.96%
1924 $5,779 $71,142 10.78% 3.80% 6.73% 17.9 $71,142 7.62% 3.82% 52.97% 47.03%
1925 $6,029 $75,798 7.99% 1.10% 6.82% 17.9 $75,798 7.52% 3.92% 51.45% 48.55%
1926 $6,202 $95,424 8.40% 4.43% 3.79% 18.0 $95,424 8.74% 4.02% 53.44% 46.56%
1927 $6,595 $98,230 8.82% 4.42% 4.22% 18.0 $98,229 8.28% 4.11% 47.04% 52.96%
1928 $6,931 $106,482 8.66% 4.65% 3.83% 18.1 $106,481 8.30% 4.20% 50.73% 49.27%
1929 $7,200 $123,617 8.63% 6.11% 2.37% 18.1 $123,617 8.93% 4.28% 51.61% 48.39%
1930 $7,536 $109,527 7.96% 3.06% 4.75% 18.1 $109,526 7.38% 4.36% 48.83% 51.17%
1931 $7,814 $120,396 7.08% 2.90% 4.06% 18.2 $120,396 7.63% 4.43% 59.97% 40.03%
1932 $8,218 $136,203 6.06% 2.75% 3.23% 18.2 $136,203 8.22% 4.49% 58.83% 41.17%


TABLE 2

RETIREMENT AGE = 65

METHOD 1
YEAR BORN OASI BENEFIT FUTURE VALUE NEEDED US TREASURY RATE INFLATION IE N CALCULATED BALANCE TAX RATE REQUIRED TAX RATE PAID RATIO OF TAX RATES PROPOSED BENEFIT CUT
1917 $5,568 $43,497 13.33% 4.41% 8.55% 14.6 $43,497 7.04% 3.34% 52.03% 47.97%
1918 $5,544 $44,730 12.78% 4.40% 8.03% 14.6 $44,730 6.38% 3.44% 48.83% 51.17%
1919 $5,748 $51,473 11.03% 4.38% 6.37% 14.7 $51,472 6.59% 3.53% 55.39% 44.61%
1920 $6,276 $51,885 12.40% 4.38% 7.68% 14.7 $51,884 5.88% 3.65% 55.48% 44.52%
1921 $6,732 $61,370 10.78% 4.36% 6.15% 14.7 $61,370 6.26% 3.76% 63.98% 36.02%
1922 $7,128 $77,624 7.99% 4.30% 3.54% 14.8 $77,625 7.32% 3.87% 61.72% 38.28%
1923 $7,512 $79,807 8.40% 4.30% 3.93% 14.8 $79,806 6.94% 3.96% 54.13% 45.87%
1924 $8,244 $85,341 8.82% 4.30% 4.33% 14.9 $85,341 6.82% 4.05% 58.44% 41.56%
1925 $8,736 $91,671 8.66% 4.31% 4.17% 14.9 $91,671 6.76% 4.14% 60.67% 39.33%
1926 $8,868 $93,638 8.63% 4.34% 4.10% 15.0 $93,638 6.37% 4.22% 62.44% 37.56%
1927 $9,276 $102,538 7.96% 4.32% 3.49% 15.0 $102,538 6.48% 4.29% 67.40% 32.60%
1928 $9,444 $111,008 7.08% 4.29% 2.67% 15.1 $111,008 6.59% 4.36% 67.36% 32.64%
1929 $9,768 $123,614 6.06% 4.27% 1.72% 15.1 $123,614 6.98% 4.43% 67.24% 32.76%
1930 $10,188 $120,191 7.05% 4.24% 2.70% 15.1 $120,191 6.39% 4.49% 64.41% 35.59%
1931 $10,620 $126,950 6.88% 4.21% 2.56% 15.2 $126,951 6.37% 4.55% 71.14% 28.86%
1932 $11,064 $135,156 6.59% 4.20% 2.30% 15.2 $135,155 6.42% 4.60% 72.19% 27.81%
METHOD 2

1917

$5,568 $55,422 13.33% 8.92% 4.05% 14.6 $55,421 8.97% 3.34% 52.03% 47.97%
1918 $5,544 $43,428 12.78% 3.83% 8.62% 14.6 $43,427 6.20% 3.44% 38.32% 61.68%
1919 $5,748 $49,830 11.03% 3.79% 6.98% 14.7 $49,829 6.38% 3.53% 57.05% 42.95%
1920 $6,276 $50,726 12.40% 3.95% 8.13% 14.7 $50,727 5.75% 3.65% 57.30% 42.70%
1921 $6,732 $59,481 10.78% 3.80% 6.73% 14.7 $59,480 6.07% 3.76% 65.44% 34.56%
1922 $7,128 $64,410 7.99% 1.10% 6.82% 14.8 $64,409 6.07% 3.87% 63.68% 36.32%
1923 $7,512 $80,445 8.40% 4.43% 3.79% 14.8 $80,445 6.99% 3.96% 65.24% 34.76%
1924 $8,244 $85,930 8.82% 4.42% 4.22% 14.9 $85,931 6.87% 4.05% 57.97% 42.03%
1925 $8,736 $93,538 8.66% 4.65% 3.83% 14.9 $93,539 6.89% 4.14% 60.25% 39.75%
1926 $8,868 $104,226 8.63% 6.11% 2.37% 15.0 $104,226 7.09% 4.22% 61.19% 38.81%
1927 $9,276 $95,060 7.96% 3.06% 4.75% 15.0 $95,059 6.01% 4.29% 60.55% 39.45%
1928 $9,444 $101,842 7.08% 2.90% 4.06% 15.1 $101,842 6.05% 4.36% 72.66% 27.34%
1929 $9,768 $112,224 6.06% 2.75% 3.23% 15.1 $112,224 6.33% 4.43% 73.29% 26.71%
1930 $10,188 $109,061 7.05% 2.67% 4.26% 15.1 $109,062 5.80% 4.49% 70.95% 29.05%
1931 $10,620 $114,353 6.88% 2.54% 4.23% 15.2 $114,354 5.74% 4.55% 78.40% 21.60%
1932 $11,064 $127,851 6.59% 3.32% 3.17% 15.2 $127,851 6.08% 4.60% 80.14% 19.86%