Unexpectedly Intriguing!
February 11, 2005

Update (29 April 2005): The President has changed his plan! To get a good ballpark estimate of what your retirement benefits with Social Security would look like under the President's refined proposal, the only tool that accurately models the proposed reform on the web is at the Heritage Foundation. Use their calculator today!

Welcome Carnival of the Capitalists, which for those arriving here from elsewhere is being hosted this week at Weekend Pundit. And before you ask, yes, the calculator is different from the last go-around....

Update: Patrick Ruffini is also hosting this tool at his blog!

P.S.: Will Franklin notes this tool and a couple of others, which I will be reviewing in the very near future! In addition, Tex the Pontificator and Various and Sundry Politics have also taken notice!

P.P.S.: Answers to frequently asked questions about the calculator are now available!

Previously, Political CalculationsTM looked at whether or not the President's proposed Personal Retirement Accounts would be a good option for providing retirement benefits for America's working population, and built a tool to find out. Of course, that was before we learned more about just what the White House has in mind (available online as a 45K PDF document.) Armed with the President's plan, I've built the next generation Social Security (SS) versus Personal Retirement Account (PRA) performance calculator, Political Calculations' latest contribution to helping you answer the immortal question: "Which is better for you?"

The calculator below determines what the future value that your combined Social Security and PRA investments would be at the point at which you become eligible to receive full Social Security pension benefits, as if your Social Security taxes were really being set aside in a special account just for you. The tool takes into account the PRA's cap on initial contributions and when you become eligible to participate. The tool does not however take the annual income cap ($90,000 in 2005) for Social Security taxes into account - not because it might be raised as part of a massive tax increase, as some have 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).

From the previous edition, users have reported that the most difficult information to find is the amount of Social Security taxes that you have already paid into the program. 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 directly from the agency, or backtrack over your old paystubs and/or your previous years' tax returns to find the amount of Social Security taxes that you've already paid. Be sure to add the amount of taxes that you paid and the amount of taxes that your employer paid on your behalf together for the correct amount of Social Security taxes to enter in the field.

With all that said, the only guidance I'll provide to help you decide what a realistic inflation-adjusted rate of return you might expect to receive from the proposed typical investment options (listed here in a 31K PDF document) is to also point to my earlier tool for determining historical best and worst case investment returns from the stock market. And now, here's where your part begins - just enter the indicated information in the Individual Data and PRA Contribution portions of the tool below to see how the President's plan may affect you.

Individual Data
Input Data Values
Birth Year
Current Annual Pay ($USD)
Years Already Worked
Your Average Annual Raise (%)
Taxes Already Paid Into Social Security ($USD)
PRA Contribution Data
Input Data Values
Maximum Percentage of Annual Salary (%)
Average Investment Rate of Return (%)

Defined Years of Eligibility
Year Eligible to Retire with Full Benefits from Social Security
Year Eligible to Start Investing in a PRA
Projected Investment Contributions
Estimated Results Values
Total Lifetime Social Security Taxes ($USD)
Portion of SS Taxes Dedicated to Pension Benefits ($USD)
PRA Contributions ($USD)
Investment Value at Year of Scheduled Retirement
Projected Results Investment Values Difference from SS Only
Social Security Only ($USD)
Your PRA and Social Security ($USD)

The results above should indicate whether or not the President's Personal 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", the best and worst case investment returns to expect from your PRA account (also linked above) and answers to Frequently Asked Questions. The default value for your average annual raise is taken as being 1.0% ahead of the historic rate of inflation in the U.S. and the default value for your PRA rate of return is taken as being between 6.0% and 7.0%, which coincides with the average inflation-adjusted long-term rate of return from the stock market.

The projected returns are calculated using a variant of the formula for determining the future value of an annuity, and speaking of which, the fine folks at Catallarchy have described the future value calculator I created for this math as being "a very cool interactive tool!"



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Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

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