February 2005
Historical Simulation 2:
The following simulation assumes $600 annual contributions over a historical 50 year period.
The following simulation assumes that the account holder achieved an ending account balance of $311,790.66 by contributing $600 per year over the 50 year time period from 1955 to 2004. During his or her retirement, the inflation rate remains constant at 1.5% annually.
If the account holder were to live to the age of 93, the account assets would be completely exhausted. Nevertheless, the account holder would continue to receive monthly distributions checks for life, because the account would have generated interest payments indefinitely had they not been deducted from the account value. The account holder could live until age 89 and still have all $30,000 in lifetime contributions available for inheritable transfer. At the 10.8% blended tax rate, the government would have lost $3,240 in tax revenue over a period of 50 years. However, the average life expectancy at age 65 is approximately 18 years, and there would still be an accrued interest surplus of $88,915.02 at that time. Therefore, the government stands to receive very substantial at death payments with these inflation-indexed returns.
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