February 2005
Historical Simulation 1:
The following simulation assumes that an account holder had made annual contributions of $1,000 over a period of 40 years starting in 1965. This simulation uses the average CPI-U percentage change as the inflation rate to calculate the historical returns for this program.
The following simulation assumes that the account holder achieved an ending account balance of $248,660.92 by contributing $1,000 per year over the 40 year time period from 1965 to 2004. At retirement, the account holder will begin to receive monthly distribution checks based on the high water mark. These monthly distribution checks will be calculated by applying the base rate of 4.5% to the high water mark. However, the high water mark will continue to increase based on the inflation credit rate. In this simulation, the inflation rate is assumed to be a constant 2%.
This account will support distribution checks for over 29 years, or until the account holder is 94 years old. The account holder would have received over $450,000 during this time period, and the monthly distributions would have increased at a rate equal to inflation. Each year, 4.5% of the high water mark would be deducted from the accrued interest. However, both the high water mark and accrued interest would continue receive an inflation credit of 2% as well.
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