February 2005
Life Expectancy Variations Simulation:
The following simulation will be used to study the effects of an account holder who lives more or less than the average life expectancy. It is the account of a 40-year maximum contributor.
| Year: 1 | Contributions: $1,000.00 | Accrued Interest: $17.00 | Balance: $1,017.00 |
| Year: 2 | Contributions: $2,000.00 | Accrued Interest: $80.55 | Balance: $2,080.55 |
| Year: 3 | Contributions: $3,000.00 | Accrued Interest: $192.77 | Balance: $3,192.77 |
| Year: 4 | Contributions: $4,000.00 | Accrued Interest: $355.88 | Balance: $4,355.88 |
| Year: 5 | Contributions: $5,000.00 | Accrued Interest: $572.23 | Balance: $5,572.23 |
| Year: 6 | Contributions: $6,000.00 | Accrued Interest: $844.25 | Balance: $6,844.25 |
| Year: 7 | Contributions: $7,000.00 | Accrued Interest: $1,174.48 | Balance: $8,174.48 |
| Year: 8 | Contributions: $8,000.00 | Accrued Interest: $1,565.59 | Balance: $9,565.59 |
| Year: 9 | Contributions: $9,000.00 | Accrued Interest: $2,020.36 | Balance: $11,020.36 |
| Year: 10 | Contributions: $10,000.00 | Accrued Interest: $2,541.71 | Balance: $12,541.71 |
| Year: 11 | Contributions: $11,000.00 | Accrued Interest: $3,132.68 | Balance: $14,132.68 |
| Year: 12 | Contributions: $12,000.00 | Accrued Interest: $3,796.47 | Balance: $15,796.47 |
| Year: 13 | Contributions: $13,000.00 | Accrued Interest: $4,536.40 | Balance: $17,536.40 |
| Year: 14 | Contributions: $14,000.00 | Accrued Interest: $5,355.95 | Balance: $19,355.95 |
| Year: 15 | Contributions: $15,000.00 | Accrued Interest: $6,258.78 | Balance: $21,258.78 |
| Year: 16 | Contributions: $16,000.00 | Accrued Interest: $7,248.69 | Balance: $23,248.69 |
| Year: 17 | Contributions: $17,000.00 | Accrued Interest: $8,329.67 | Balance: $25,329.67 |
| Year: 18 | Contributions: $18,000.00 | Accrued Interest: $9,505.89 | Balance: $27,505.89 |
| Year: 19 | Contributions: $19,000.00 | Accrued Interest: $10,781.70 | Balance: $29,781.70 |
| Year: 20 | Contributions: $20,000.00 | Accrued Interest: $12,161.67 | Balance: $32,161.67 |
| Year: 21 | Contributions: $21,000.00 | Accrued Interest: $13,650.55 | Balance: $34,650.55 |
| Year: 22 | Contributions: $22,000.00 | Accrued Interest: $15,253.34 | Balance: $37,253.34 |
| Year: 23 | Contributions: $23,000.00 | Accrued Interest: $16,975.24 | Balance: $39,975.24 |
| Year: 24 | Contributions: $24,000.00 | Accrued Interest: $18,821.71 | Balance: $42,821.71 |
| Year: 25 | Contributions: $25,000.00 | Accrued Interest: $20,798.45 | Balance: $45,798.45 |
| Year: 26 | Contributions: $26,000.00 | Accrued Interest: $22,911.43 | Balance: $48,911.43 |
| Year: 27 | Contributions: $27,000.00 | Accrued Interest: $25,166.86 | Balance: $52,166.86 |
| Year: 28 | Contributions: $28,000.00 | Accrued Interest: $27,571.29 | Balance: $55,571.29 |
| Year: 29 | Contributions: $29,000.00 | Accrued Interest: $30,131.51 | Balance: $59,131.51 |
| Year: 30 | Contributions: $30,000.00 | Accrued Interest: $32,854.67 | Balance: $62,854.67 |
| Year: 31 | Contributions: $31,000.00 | Accrued Interest: $35,748.23 | Balance: $66,748.23 |
| Year: 32 | Contributions: $32,000.00 | Accrued Interest: $38,819.97 | Balance: $70,819.97 |
| Year: 33 | Contributions: $33,000.00 | Accrued Interest: $42,078.05 | Balance: $75,078.05 |
| Year: 34 | Contributions: $34,000.00 | Accrued Interest: $45,531.01 | Balance: $79,531.01 |
| Year: 35 | Contributions: $35,000.00 | Accrued Interest: $49,187.75 | Balance: $84,187.75 |
| Year: 36 | Contributions: $36,000.00 | Accrued Interest: $53,057.61 | Balance: $89,057.61 |
| Year: 37 | Contributions: $37,000.00 | Accrued Interest: $57,150.34 | Balance: $94,150.34 |
| Year: 38 | Contributions: $38,000.00 | Accrued Interest: $61,476.14 | Balance: $99,476.14 |
| Year: 39 | Contributions: $39,000.00 | Accrued Interest: $66,045.68 | Balance: $105,045.68 |
| Year: 40 | Contributions: $40,000.00 | Accrued Interest: $70,870.11 | Balance: $110,870.11 |
An account balance of $110,870.11 will yield annual interest payments totaling $4,989.15. This equates to $415.76 in monthly payments, which is more than enough to supplement traditional Social Security income. The average life expectancy at age 65 is 18.2 years, so this represents an age of 83.2 at death. Such a person would require $90,802.53 in payments, or a deficit of $19,932.42. This would leave inheritable assets of $20,067.58.
The average life expectancy at birth is 77.3 years. If a person lives to age 77.3, he or she will require 12.3 years of interest payments. This represents a total interest expense of $61,366.55. The accrued interest surplus would be $9,503.56. Therefore, this account holder would have donated $9,503.56 towards the national debt. Not to mention that there would still be $40,000 worth of inheritable assets left in the account.
Assume another person who dies at age 67. This person would have received $9,978.30 in interest payments, leaving an accrued interest surplus of $60,891.81 that would flow into a spouse’s account or the accounts of dependent children. The surplus will be credited to the spouse’s accrued interest, which means that it will only provide additional leverage and thus increased monthly income for the spouse. When the spouse dies, any unused accrued interest will be then applied towards the national debt.
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