The Tim Lee Social Security Calculator

Ygelesias, among others, is skeptical of the various pro-reform social security calculators. My colleague Tim Lee responds. Here’s a bit:

More to the point, even if you grant all of Matt’s objections, personal accounts still end up doing better. I whipped up a little calculator of my own, which does the math in a transparent fashion. Cato’s calculator says that if I start out at 25,000 at age 25, that I’ll end up with a stock portfolio of $406,000 and an annuity of $38,685. My calculator more or less duplicates that result. If we grant all of Matt’s objections and use a 4.2% rate of return (60% stocks at 5%, 40% bonds at 3%, with let’s say a higher .5% transaction cost), then my personal account still ends up being worth $310,000. And if we assume the annuity pays out a conservative 7%, instead of Cato’s assumption of 9%, I would still end up with an annual benefit of about $22,000. According to Cato’s calculator, Social Security would pay $15,748 for the same wage profile.

Check out the whole thing.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center