Calculating reform plan incomes

Anyone wanting to know how he would do under President Bush’s personal retirement accounts plan should take a look at the Heritage Foundation’s online calculator.

There are many calculators on the Web that purport to tell how you would fare under a theoretical Social Security investment plan. But the conservative think tank’s program — which went online last week — comes closest to the basic features and methodology of the Bush plan.

Contrary to the plan’s fiercest critics in the Democratic Party, the AARP and other liberal groups, Heritage’s calculator shows workers would receive a higher rate of return from their hard-earned payroll taxes under Mr. Bush’s proposal than under the existing Social Security system.

Just about everyone who participates in the voluntary program would come out ahead. The calculator shows younger workers in their 20s and 30s would do best, because they have much more time to invest a 4 percent share of their payroll taxes in PRA accounts over their working lives.

A worker in his early 20s, for example, could build a nest egg worth more than $315,000, yielding $1,000 more in monthly retirement income than today’s Social Security program.

Heritage for years has operated an online calculator showing the return from a Social Security investment plan. The respected Political Calculation Web site has called it the “gold standard” of online calculators. But this latest version — months in development — is the first directly tied to the specifics of President Bush’s plan.

Punch in your age, sex, marital status and salary, and it provides a breakdown of what you can expect in monthly retirement benefits from Social Security, compared to a low-risk PRA mutual fund invested half in Treasury bonds and half in corporate stocks. The calculator’s numbers flow from very conservative economic assumptions, including a rate of return based on a historically set average annual yield of 4.9 percent from a balanced bond-stock fund portfolio.

Here are some examples of how workers of varying ages and incomes would fare under Mr. Bush’s plan if they put most of their PRA money into an income annuity at retirement age (which under existing law will rise to 67 by 2027):

? A married man, 20 to 24 years old, earning $20,000-$24,999, with a spouse making up to $10,000, can expect a PRA account valued at $315,413. A maximum annuity option under the Bush plan would yield a combined PRA and Social Security monthly benefit of $4,300, compared with $3,237 a month under Social Security alone.

? A married man, 30 to 34, earning $40,000 to $44,999, with a spouse earning $25,000 to $29,999, would accrue a PRA account of $207,868, giving the couple a combined monthly benefit of $3,886, compared to $2,861 under Social Security.

? An unmarried man, age 40 to 44, earning $40,000 to $44,999, would have a PRA worth $50,734, yielding $1,704 a month, compared with $1,346 per month under Social Security.

? An unmarried woman, 30 to 34, earning $25,000 to $29,999, would have a PRA of $83,050 at retirement, which would give her $1,592 per month in total benefits, compared with $1,139 under Social Security.

These examples of course are based on maximizing one’s income by shifting most of a PRA account into an annuity, and receiving the rest of one’s Social Security benefits. But workers can also convert a smaller portion into an annuity and leave the rest in a nest egg to draw from in retirement or leave to heirs.

Supporters of personal investment plans complain these benefit comparisons have been sadly missing from the public debate, which has been bogged down in transition costs, unfunded liabilities and fear-mongering about investing — the wellspring of the American economy.

Others, like the Cato Institute’s Ed Crane, think the White House has not given enough attention to the ownership and control issue at the heart of the Bush plan.

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