OPTING OUT OF SOCIAL SECURITY

"THE COST OR GAIN"

An analysis of opting out of Social Security was done to see at what age it would become better not to opt out. The analysis entailed calculating the future benefit for both OASI, disability and survivors benefits. Five tables show the value of opting out as a percent of the current average wage. Prior to making any decision to opt out of Social Security, you should consult a professional consultant to evaluate your own personal situation. These tables are for reference only. Your own personal situation, wage history, health and numerous other factors could change these results dramatically.

Assumptions:

Number of years in retirement was 25 years.

Rate of return on contributions was equal to 6% after taxes.

The number of years one would require full benefits for disability and survivors to cover children was equal from ages 20 to 50. Under Social Security, benefits are payable to widows and children as long as their is a child under 18 being cared for.

Inflation was set to 2% each year

Wage growth was set to 2% each year

Term life insurance was calculated based on average health. Insurance costs were obtained from Manage Your Money Program by Andrew Tobias. Cost per year was based on amount and age.

Term life insurance was based on replacing OASI benefits in the event worker died.

The amount of term life insurance required was determined from OASI value at age analyzed. The current balance of the OASI and DI fund was then subtracted from the needs to determine the required amount. The cost of this term insurance was then calculated for each year prior death or disability for each year.

The Retirement age for full benefits was used for all calculations.

The last two columns of each table show the cost or gain of opting out based on the ability to pay future benefits. If Social Security can only pay 75% of 50% of benefits, opting out looks more favorable.
Term Life Insurance cost were based on Males. Term Life Insurance for Females is less.

NOTE: The calculation of higher income disability payments appear to be very high and may contain an error. However, the calculated Primary Insurance Amount (PIA) based on Social Security's OASI benefit formula is correct and was used as instructed by Social Security to determine survivors benefits. Social Security states disability and survivors insurance is 150 to 180% of your PIA. In the event the maximum benefit calculated exceeds the benefit payable, the analysis underestimates the true benefits of opting out of Social Security.

THE TABLES