NCPA - National Center for Policy Analysis

Your Taxes And Benefits -- Compared To Privately Invested Accounts

June 29, 2000

The National Center for Policy Analysis has developed an online Social Security calculator that allows individuals to compare the return on their Social Security payroll taxes with the return if the entire amount were invested in a personal retirement account. On the NCPA's new Social Security website -- -- the calculator shows estimated lifetime payroll tax payments and estimated benefit payments.

It also shows the amount that could be accumulated -- and the monthly benefits that could be paid -- if workers were allowed to put their tax dollars in a private account invested in stocks and bonds.

The calculator is based on an economic model developed for the National Center for Policy Analysis by economists at the Private Enterprise Research Center (PERC) at Texas A&M University. Using the earnings profiles of 750,000 workers from the most recent 15 years of the Census Bureau's Current Population Survey, the model projects earnings until retirement for men and women at various ages in 500 occupational categories. The result is more realistic estimates of wages and benefits.

  • Historical data are used to estimate past taxes and wages paid.
  • Future real wage growth for each occupation, birth year and sex is projected to retirement.
  • Benefit and earnings projections can be displayed with or without adjustment for inflation.

Patterns of real lifetime earnings differ by occupation. The failure to account for these patterns can lead to serious prediction errors. For example, benefit projections made by the Social Security Administration assume workers will continue to earn their current wages without any real income gains over their working lives. Some private sector calculators allow for an increase in real income, but assume that everyone's income grows at the same rate regardless of occupation.

Source: Devon Herrick (NCPA research manager), "," Brief Analysis No. 329, National Center for Policy Analysis, June 28, 2000.

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