Unexpectedly Intriguing!
January 21, 2005

Final Update!: There's a new version that takes the President's proposed reforms into account.

February 7, 2005 Update: Thanks to Patrick Ruffini, the returns from your PRA are now even better than what you may have previously calculated using this tool (and the tool now works for Firefox browsers too!) To spare you the programming details (%#@&!! decimal points), all is fixed and the full percentage of your income that you would set aside in a PRA is now figured in the math.

Update: Welcome Carnival of the Capitalists readers!

The current debate over the ability of the Social Security program to provide retirement benefits into the future and President Bush's proposal to allow individuals take a portion of their Social Security taxes and invest in Private Retirement Accounts they themselves control leads to a natural question: Which is better for you?

That's the question Political Calculations' Social Security (SS) vs. Private Retirement Accounts (PRA) comparison calculator seeks to help you answer!

The calculator below determines what the inflation-adjusted value of your investment options would be at the point at which you become eligible to receive full Social Security retirement benefits, as if your Social Security payments were really being set aside in a special account for you. The point at which you would be eligible to receive full benefits varies by your age when you retire - age 65 for those retiring before 2009, age 66 for those retiring between 2009 and 2027, and at age 67 for those retiring in 2027 or after. That said, let's begin with what you'll be expected to enter in the fields below, and where or how you can get the information:

Taxes Already Paid In

If you're age 25 or older, this information may be obtained from Page 3 of the Social Security statement mailed to you each year (if you're under 25, you may request your statement from the agency, or backtrack over your old paystubs or your previous years' tax returns to see your Social Security taxable income.) Add the amount of taxes that you paid and the amount of taxes that your employer paid on your behalf together for the total amount of Social Security taxes to enter in the field.

You should note that roughly 85% of this amount (actually 10.6% of your annual income) is actually set aside in the Old Age and Survivor Insurance (OASI) portion of Social Security, which is the part of the program that pays retirement benefits. This is the portion taken into account by the calculator for determining your "investment" returns. The remaining portion of your Social Security taxes goes into covering the costs of program administration and Social Security's Disability Insurance (DI) program.

Current Annual Income

Enter your annual income from wages and salaries in this field. This value will be used as the basis for determining the amount of Social Security taxes paid for your benefit in the future. I should also note that the calculator ignores the annual income cap ($90,000 in 2005) for Social Security taxes - not because it might be raised as part of a massive tax increase, as Mark Weisbrot has proposed, but because it's a non-factor for over 80% of those paying Social Security taxes (see Page 2 of this 791K PDF document for recent salary data from the U.S. Census).

Years Already Worked

Been in the rat-race for a while? Give yourself credit!

Years Until Retirement

Select the number of years between you and when you'll be eligible to receive full Social Security retirement benefits (to play the "what-if?" game, I've set 75 to be the maximum, you workhorse!)

Average Annual Raise

Okay, this is where your delusions of either grandeur or adequacy come into play, but the default value of 4.3% is taken as being 1.0% ahead of the annualized historical rate of inflation in the U.S.

Proposed PRA Percentage

Select the portion of your wage and salary income that goes into the OASI Trust Fund that you would like to set aside for your Private Retirement Account. Since the stock market is considered to be the riskiest investing option that will be available to PRA investors, only the best and worst case returns based on historical data from this option will be determined by the calculator. Over time however, long-term stock market investors may expect an inflation-adjusted 6.0%-7.0% average annual rate of return from their diversified investments. An annual rate of return of 6.5% has been used in the Average PRA Return calculated below.

And that's all the Social Security vs. Private Retirement Account (SSvsPRA for short) comparison calculator needs to get started to estimate your potential investment returns:


Social Security and PRA Data
Input Data Values
Taxes Already Paid In ($USD)
Current Annual Income ($USD)
Years Already Worked
Years Until Retirement
Average Annual Raise (%)
Proposed PRA Percentage (%)

Lifetime Tax Payments to Social Security
Calculated Results Values
Total Social Security Taxes ($USD)
Total OASI Trust Fund Contribution ($USD)
Projected Investment Values at Year of Retirement
Calculated Results Values Difference from SS Only
Social Security Only Investment Value ($USD)
Worst Case PRA and Social Security Option ($USD)
Average PRA and Social Security Option ($USD)
Best Case PRA and Social Security Option ($USD)

The results above should indicate whether or not Private Retirement Accounts are a better option for you over the straight Social Security option. Also keep in mind that your participation in the PRA option is *voluntary*, and the program will be set up to continue devoting 100% of your Social Security taxes to the regular Social Security program unless you specifically enroll in the PRA option.

Want More Information?

Explanations are available for how the calculator determines the inflation-adjusted, annualized rates of return for your Social Security "investment" as well as the best and worst case investment returns to expect from your PRA account. The projected returns are calculated using a variant of the formula for determining the future value of an annuity.



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