CALCULATION OF OASI BENEFIT INVESTED PRIVATELY VERSUS OASI

©1998 Larsen

It has been stated a person starting work today will continue to get back what they paid into OASI in three to five years and this is paying the maximum. Let us take a look at a person making 50% of the average wage all their working lives. 50% is equivalent today (1999) to $6.71 per hour.

Using the assumptions below, one would at 5.5% interest rate accumulate $411,891 by the time they reach 65. $411,891 would produce, if one lived to 100, an annuity, adjusted for inflation, equal to $20,803. This compares to Old Age Survivor Insurance paying $20,805.

If one earned the 6% by investing in United States Savings bonds (indexed for inflation) one would accumulate $472,962 by the time they reached age 65. This would produce a yearly payout adjusted for inflation each year to age 100 of $25,572.

Is it true you will get back your contributions in three to five years? This person will have paid $117,151 in OASI taxes and will take 5.5 years to return just the principal. However, when the time value of money is analyzed, OASI will never match your contributions plus 6% if you live as long as 62 years.

Now what happens if the person ends up at age 64 earning 50% more than the average wage? The accumulated balance at age 65 is $746,391 which produces an annuity of $40,356 a year. However, OASI's benefit now increases to $30,314 per year, but is still 33% less than privately invested. It will take till age 109 to recoup your contributions plus time value of money.

However, the thing to keep in mind in all of this is what is the probability of living to age 100? For a person born in 1994 the probability of living to age 100 is 0.472% for a male and 2.236%

Do you think OASI is a fair to workers today?
WAGE GROWTH 2.5% AVG WAGE AT RETIREMENT $74,929
ROR 5.5% AVERAGE INDEXED WAGE $3,033
INFLATION 2.0% BEND 1 $1,316
OASI RATE 10.3% BEND 2 $7,914
RETIREMENT AGE 65 OASI BENEFIT (MONTHLY) $1,734
BALANCE AT RETIREMENT $411,891 OASI BENEFIT (YEARLY) $20,805
IE 1.76% PRIVATELY INVESTED ANNUITY (35 YEARS OF RETIREMENT) $20,803
STARTING WAGE (% OF AVG) 50%
TABLE OF CASH FLOW FOR THIS ANALYSIS
AGE YEAR AVERAGE WAGE % OF AVG OASI PAID INCOME BALANCE
20 1999 $27,907 50.0% $1,437 $36.79 $1,474.00
21 2000 $28,605 50.0% $1,473 $120.86 $3,068.02
22 2001 $29,320 50.0% $1,510 $211.71 $4,789.71
23 2002 $30,053 50.0% $1,548 $309.80 $6,647.23
24 2003 $30,804 50.0% $1,586 $415.57 $8,649.21
25 2004 $31,574 50.0% $1,626 $529.50 $10,804.77
26 2005 $32,363 50.0% $1,667 $652.13 $13,123.60
27 2006 $33,172 50.0% $1,708 $784.00 $15,615.96
28 2007 $34,001 50.0% $1,751 $925.68 $18,292.69
29 2008 $34,851 50.0% $1,795 $1,077.79 $21,165.31
30 2009 $35,722 50.0% $1,840 $1,240.98 $24,245.97
31 2010 $36,615 50.0% $1,886 $1,415.93 $27,547.58
32 2011 $37,530 50.0% $1,933 $1,603.37 $31,083.75
33 2012 $38,468 50.0% $1,981 $1,804.08 $34,868.93
34 2013 $39,430 50.0% $2,031 $2,018.86 $38,918.44
35 2014 $40,416 50.0% $2,081 $2,248.59 $43,248.44
36 2015 $41,426 50.0% $2,133 $2,494.16 $47,876.05
37 2016 $42,462 50.0% $2,187 $2,756.57 $52,819.40
38 2017 $43,524 50.0% $2,241 $3,036.81 $58,097.70
39 2018 $44,612 50.0% $2,298 $3,335.98 $63,731.20
40 2019 $45,727 50.0% $2,355 $3,655.22 $69,741.36
41 2020 $46,870 50.0% $2,414 $3,995.75 $76,150.92
42 2021 $48,042 50.0% $2,474 $4,358.84 $82,983.92
43 2022 $49,243 50.0% $2,536 $4,745.87 $90,265.79
44 2023 $50,474 50.0% $2,599 $5,158.24 $98,023.44
45 2024 $51,736 50.0% $2,664 $5,597.49 $106,285.34
46 2025 $53,029 50.0% $2,731 $6,065.24 $115,081.57
47 2026 $54,355 50.0% $2,799 $6,563.15 $124,444.00
48 2027 $55,714 50.0% $2,869 $7,093.07 $134,406.34
49 2028 $57,107 50.0% $2,941 $7,656.85 $145,004.20
50 2029 $58,535 50.0% $3,015 $8,256.54 $156,275.29
51 2030 $59,998 50.0% $3,090 $8,894.24 $168,259.44
52 2031 $61,498 50.0% $3,167 $9,572.22 $180,998.81
53 2032 $63,035 50.0% $3,246 $10,292.86 $194,537.97
54 2033 $64,611 50.0% $3,327 $11,058.64 $208,924.08
55 2034 $66,226 50.0% $3,411 $11,872.26 $224,206.98
56 2035 $67,882 50.0% $3,496 $12,736.53 $240,439.42
57 2036 $69,579 50.0% $3,583 $13,654.39 $257,677.14
58 2037 $71,318 50.0% $3,673 $14,629.04 $275,979.05
59 2038 $73,101 50.0% $3,765 $15,663.76 $295,407.51
60 2039 $74,929 50.0% $3,859 $16,762.09 $316,028.43
61 2040 $76,802 50.0% $3,955 $17,927.74 $337,911.47
62 2041 $78,722 50.0% $4,054 $19,164.64 $361,130.30
63 2042 $80,690 50.0% $4,156 $20,476.96 $385,762.79
64 2043 $82,707 50.0% $4,259 $21,869.08 $411,891.29
65 2044 $84,775 50.0% $23,233.91 $435,125.19
66 2045 $86,894 50.0% $24,544.48 $459,669.67
67 2046 $89,066 50.0% $25,928.98 $485,598.66
68 2047 $91,293 50.0% $27,391.58 $512,990.24
69 2048 $93,575 50.0% $28,936.68 $541,926.92
70 2049 $95,914 50.0% $30,568.94 $572,495.86
71 2050 $98,312 50.0% $32,293.27 $604,789.12
72 2051 $100,770 50.0% $34,114.86 $638,903.98
73 2052 $103,289 50.0% $36,039.21 $674,943.19
74 2053 $105,871 50.0% $38,072.10 $713,015.29
75 2054 $108,518 50.0% $40,219.67 $753,234.96
76 2055 $111,231 50.0% $42,488.37 $795,723.33
77 2056 $114,012 50.0% $44,885.05 $840,608.38
78 2057 $116,862 50.0% $47,416.92 $888,025.30
79 2058 $119,784 50.0% $50,091.61 $938,116.91
80 2059 $122,779 50.0% $52,917.17 $991,034.08
81 2060 $125,848 50.0% $55,902.11 $1,046,936.19
82 2061 $128,994 50.0% $59,055.43 $1,105,991.62
83 2062 $132,219 50.0% $62,386.62 $1,168,378.24
84 2063 $135,524 50.0% $65,905.72 $1,234,283.96
85 2064 $138,912 50.0% $69,623.32 $1,303,907.28
86 2065 $142,385 50.0% $73,550.62 $1,377,457.90
87 2066 $145,945 50.0% $77,699.45 $1,455,157.35
88 2067 $149,594 50.0% $82,082.31 $1,537,239.66
89 2068 $153,334 50.0% $86,712.40 $1,623,952.06
90 2069 $157,167 50.0% $91,603.66 $1,715,555.72
91 2070 $161,096 50.0% $96,770.83 $1,812,326.55
92 2071 $165,123 50.0% $102,229.46 $1,914,556.01
93 2072 $169,251 50.0% $107,996.01 $2,022,552.02
94 2073 $173,482 50.0% $114,087.83 $2,136,639.85
95 2074 $177,819 50.0% $120,523.28 $2,257,163.13
96 2075 $182,264 50.0% $127,321.74 $2,384,484.88
97 2076 $186,821 50.0% $134,503.69 $2,518,988.57
98 2077 $191,492 50.0% $142,090.76 $2,661,079.32
99 2078 $196,279 50.0% $150,105.79 $2,811,185.11
100 2079 $201,186 50.0% $158,572.94 $2,969,758.05