Social Security Historical Calculator

Hosted by Granite Tower
  you got social security but that dont pay the bills
    - Jewel Kircher
 
  To rely on tax increases to fund the shortfall in Social Security is to commit future workers to paying more than 18 percent of their wages to cover the benefits of retirees in another 18 years, and 25 percent of wages to cover benefits at mid-century.
    - June O'Neill, former director, CBO
 

House Bill H.R.4895, introduced by Sam Johnson, Jeff Flake , and Pat Toomey , provides you and me with an option to invest our portion of the FICA/OASDI taxes to be invested in a private account. Use this calculator to determine what your account would have been worth if this bill had been in effect in previous years. The calculator goes back 30 years to 1974. HR4895 provides choice only to individuals born after 1950.

Several plans are on the floor in both the house and the senate.  HR4895 has two distinguishing features that makes it superior:  The level of contribution in the Flake-Johnson plan is higher than many of the others, and HR4895 is the only plan that includes recognition bonds.

 
Instructions: On the right, fill in your salary for past years. Do not use dollar signs or thousand separators. Use the Fill from Above button when you made the same salary in a range of years. For instance, if you made $27,000 in 1982-1986, fill in 27000 next to 1982, then use the Fill button next to 1986. In years you didn't work, leave the corresponding field empty. When you are done, click the Calculate button below. You can calculate for various hypothetical portfolios by choosing from the list below, and then click Calculate again. Have fun!
Hypothetical portfolio:
Calculated Return
 
This would have been your money. You would be able to draw from those funds only in retirement, but: If you move to a different country, the money would still be yours. If you die, you could bequeath the funds to a spouse or children. You would decide how to invest the funds and nobody could take it away.
Disclaimer: You will not receive this portfolio if HR4895 passes. You will get a recognition bond to compensate for your past OASDI contributions, but the size of the bond is not calculated by this method. This is a purely hypothetical calculation, used to illustrate the effects on your retirement portfolio if HR4895 had been in effect since 1974.
 
Notes on calculations: The calculations are made simple and do not reflect the full complexity of HR4895. The calculator assumes the same type of portfolio throughout the period chosen; HR4895 proposes three Types of portfolios, depending on the size and length of contributions. Contributions for a year is assumed to be made in a lump sum in October. In reality, contributions would have been made throughout a year. All numbers are rounded down. The 'bond' portfolio is assumed to be a flat 6%; typically bond rates go up and down. The mixed hypothetical portfolio is made up of 60% stock measured by the SP500 historical levels, and 40% bonds, measured with the 6% flat rate. The contributions are assumed to be 6.2% throughout the period, capped at $87,000, as per HR4895. In reality, in 1974, OASDI taxes were only 4%.  Finally, the Historical Calculator uses the historical S&P returns; these would most likely have been higher with the increased savings of Private Retirement Accounts.
 
Update, Nov 2005: Raised contribution cap to $90,000, as it is in 2005. Added 2005 as input year, along with the SP500 index for October, 2005.
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Some Comments

In the Social Security debate, Social Security Choice is a better term than Social Security Privatization, since the former term more accurately describes the idea. HR4895 wants to give workers the choice to invest their retirement funds in the private capital markets. This page refers to that reform idea as Social Security Choice.

Choice opponents have argued that Social Security has a flat tire, and all we need to do is fix it and move on. This analogy has been attributed to Robert MenÚndez, but more likely originates with Peter Orszag from Brookings. You wouldn't replace your car for a flat, but surely you would if it got totaled; Social Security is headed in that direction. Not only that, but it was a Yugo to begin with. While it's going into the ditch, a brand new Porsche is sitting on the shoulder, key in ignition and engine humming, waiting for you to get behind the wheel and take off.

If you compare the calculated portfolio with your current Social Security statement, it is important to keep a couple of things in mind. With the current Social Security system, once you've cleared the minimum threshold to receive benefits, your monthly allowance will not go up that much even as you continue working. Conversely, under Social Security Choice, as you keep earning a salary, your portfolio will continue to increase, both from return on your investments as well as your continued contributions.

Additionally, scheduled Social Security payments are not sustainable. The Supreme Court has ruled that you do not have an intrinsic right to Social Security. Alternate proposals to save Social Security calls for either raising taxes, raising the retirement age, or reducing benefits. The Brookings plan, for instance, proposes a combination of all three. The authors concede the worse deal this proposal yields: "For younger workers with average earnings, our proposal does lower benefits relative to those scheduled under current law, with the reductions smaller for older cohorts than for younger ones. " This is even before taking into account the rising retirement age under that proposal. Similar steps have been taken before; the original Social Security tax was just 2%, vs 12.4% today.
See also Saving Social Security is not Enough.

For financing the transition, see Facts and Fantasies about Transition Costs.

As a final note, under HR4895, all current retirees -- in fact, everyone born before 1950 -- will continue to receive promised benefits . This will be financed by the employers 6.2% OASDI contribution.

 

Books

The informative, educational, analytical, sensible, erudite version:
Social Security and Its Discontents: Perspectives on Choice
Social Security and Its Discontents: Perspectives on Choice
 
The misguided head-in-the-sand, pretend there is no problem, cross-your-fingers-and-pray-to-the-fairies version:
Social Security: The Phony Crisis
Social Security: The Phony Crisis

Links

Yahoo Finance -- The data for the calculations comes from this site.
SocialSecurity.org -- Cato's Social Security website
   SocialSecurity Calculator -- use this to calculate future projections of your return
Social Security Choice -- lots of good links to news and comments
For Our Grandchildren -- a good site for introductory information and news on Social Security in general, reform in particular. 
The 6.2 Percent Solution, by Michael Tanner. Many of the ideas in HR4895 comes from Tanner's proposal.
Brookings Project: Retirement Savings
   The Brookings Institute's project on Retirement Saving. Comment: Brookings is against Social Security choice, but in assessing the retirement issue, they advocate ways to make workers save more for their retirement. It is unclear why they don't want to increase savings through Social Security reform.
Econlib.org article
   Encyclopedia of Economics, a great site chock full of data.
House of Representatives  It is easy to look up your representative and write a short note to her or him.
Thomas -- Legislation Database Use this to look up bill hr4895 (I haven't found a way to link to it directly).
Opposing View by Leiter, citing a Nation article by Dean Baker. Also see my email to Leiter.
Roger Hanson op-ed (pdf).  "As a lifelong Democrat, I am concerned that the Establishment Democratic Party in Washington has allowed partisanship to eclipse its good sense of policy."
Centrists.org Conference Transcript -- Representations and Q&A with Lindsey Graham, Republican Senator, and Harold Ford, Democratic Representative. 
RetireSafe.org
Team NCPA -- see their Calculators page.
Social Security Chronology -- Detailed historical information on public retirement plans in the US.  For details on the Social Security Bill, see the 1930s decade.  For historical information on the Supreme Court rulings regarding Social Security, see this interesting narrative

Historical Tax Rates

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