February 2005
Inheritable Assets Simulation:
The following simulation assumes that a worker makes annual contributions of $1,000 over a period of 50 years from age 16 to 65.
| 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 |
| Year: 41 | Contributions: $41,000.00 | Accrued Interest: $75,961.09 | Balance: $116,961.09 |
| Year: 42 | Contributions: $42,000.00 | Accrued Interest: $81,330.83 | Balance: $123,330.83 |
| Year: 43 | Contributions: $43,000.00 | Accrued Interest: $86,992.07 | Balance: $129,992.07 |
| Year: 44 | Contributions: $44,000.00 | Accrued Interest: $92,958.17 | Balance: $136,958.17 |
| Year: 45 | Contributions: $45,000.00 | Accrued Interest: $99,243.08 | Balance: $144,243.08 |
| Year: 46 | Contributions: $46,000.00 | Accrued Interest: $105,861.38 | Balance: $151,861.38 |
| Year: 47 | Contributions: $47,000.00 | Accrued Interest: $112,828.33 | Balance: $159,828.33 |
| Year: 48 | Contributions: $48,000.00 | Accrued Interest: $120,159.89 | Balance: $168,159.89 |
| Year: 49 | Contributions: $49,000.00 | Accrued Interest: $127,872.74 | Balance: $176,872.74 |
| Year: 50 | Contributions: $50,000.00 | Accrued Interest: $135,984.34 | Balance: $185,984.34 |
An account balance of $185,984.34 will yield $8,369.28 in annual interest payments at 4.5%. This equates to a monthly check of $697.44. As of 2002, the average life expectancy at age 65 is 18.2 years. This means there will be a total interest outlay of $152,320.90 over that timeframe. Since the value of the accrued interest was only $135,984.34, the program paid out $16,336.56 more than it took in. Therefore, $16,336.56 will be deducted from the contributions to leave inheritable assets of $33,663.44. If an account holder does not live long enough to collect interest payments totaling the entire amount of accrued interest, that surplus will be applied towards the national debt. All individual contributions would then be eligible for inheritable transfers or other distributions. While inheritable transfers will not be subject to estate taxes, any money taken out of the system will be taxed at applicable rates.
Assume that the account holder with a remaining balance of $33,663.44 transfers this amount to a grandchild’s account. At death the account holder would have been 83 years old. Therefore, assume the grandchild is 30 years old and has been an account participant for 7 years. The grandchild would have contributions totaling $7,000 and accrued interest of $1,174.48. With the $33,663.44 transfer, the grandchild would now have $40,663.44 in contributions. For example purposes only, this $40,663.44 figure will be rounded down to $40,000. This means it would take an additional ten years to reach a max contribution level of $50,000 and the grandchild would be 40 years old at this point.
| Age: 30 | Contributions: $40,000.00 | Accrued Interest: $1,174.48 | Balance: $41,174.48 |
| Age: 31 | Contributions: $41,000.00 | Accrued Interest: $3,075.33 | Balance: $44,075.33 |
| Age: 32 | Contributions: $42,000.00 | Accrued Interest: $5,109.45 | Balance: $47,109.45 |
| Age: 33 | Contributions: $43,000.00 | Accrued Interest: $7,282.42 | Balance: $50,282.42 |
| Age: 34 | Contributions: $44,000.00 | Accrued Interest: $9,600.60 | Balance: $53,600.60 |
| Age: 35 | Contributions: $45,000.00 | Accrued Interest: $12,070.64 | Balance: $57,070.64 |
| Age: 36 | Contributions: $46,000.00 | Accrued Interest: $14,699.48 | Balance: $60,699.48 |
| Age: 37 | Contributions: $47,000.00 | Accrued Interest: $17,494.40 | Balance: $64,494.40 |
| Age: 38 | Contributions: $48,000.00 | Accrued Interest: $20,462.99 | Balance: $68,462.99 |
| Age: 39 | Contributions: $49,000.00 | Accrued Interest: $23,613.21 | Balance: $72,613.21 |
| Age: 40 | Contributions: $50,000.00 | Accrued Interest: $26,953.36 | Balance: $76,953.36 |
At this point the account holder would be 40 years old and no additional contributions would be needed. However, the account would continue to accrue interest for an additional 25 years until retirement.
| Age: 41 | Contributions: $50,000.00 | Accrued Interest: $30,474.76 | Balance: $80,474.76 |
| Age: 42 | Contributions: $50,000.00 | Accrued Interest: $34,157.70 | Balance: $84,157.70 |
| Age: 43 | Contributions: $50,000.00 | Accrued Interest: $38,009.18 | Balance: $88,009.18 |
| Age: 44 | Contributions: $50,000.00 | Accrued Interest: $42,036.93 | Balance: $92,036.93 |
| Age: 45 | Contributions: $50,000.00 | Accrued Interest: $46,249.00 | Balance: $96,249.00 |
| Age: 46 | Contributions: $50,000.00 | Accrued Interest: $50,653.85 | Balance: $100,653.85 |
| Age: 47 | Contributions: $50,000.00 | Accrued Interest: $55,260.28 | Balance: $105,260.28 |
| Age: 48 | Contributions: $50,000.00 | Accrued Interest: $60,077.53 | Balance: $110,077.53 |
| Age: 49 | Contributions: $50,000.00 | Accrued Interest: $65,115.23 | Balance: $115,115.23 |
| Age: 50 | Contributions: $50,000.00 | Accrued Interest: $70,383.49 | Balance: $120,383.49 |
| Age: 51 | Contributions: $50,000.00 | Accrued Interest: $75,892.85 | Balance: $125,892.85 |
| Age: 52 | Contributions: $50,000.00 | Accrued Interest: $81,654.35 | Balance: $131,654.35 |
| Age: 53 | Contributions: $50,000.00 | Accrued Interest: $87,679.52 | Balance: $137,679.52 |
| Age: 54 | Contributions: $50,000.00 | Accrued Interest: $93,980.44 | Balance: $143,980.44 |
| Age: 55 | Contributions: $50,000.00 | Accrued Interest: $100,569.72 | Balance: $150,569.72 |
| Age: 56 | Contributions: $50,000.00 | Accrued Interest: $107,460.55 | Balance: $157,460.55 |
| Age: 57 | Contributions: $50,000.00 | Accrued Interest: $114,666.75 | Balance: $164,666.75 |
| Age: 58 | Contributions: $50,000.00 | Accrued Interest: $122,202.74 | Balance: $172,202.74 |
| Age: 59 | Contributions: $50,000.00 | Accrued Interest: $130,083.61 | Balance: $180,083.61 |
| Age: 60 | Contributions: $50,000.00 | Accrued Interest: $138,325.15 | Balance: $188,325.15 |
| Age: 61 | Contributions: $50,000.00 | Accrued Interest: $146,943.87 | Balance: $196,943.87 |
| Age: 62 | Contributions: $50,000.00 | Accrued Interest: $155,957.02 | Balance: $205,957.02 |
| Age: 63 | Contributions: $50,000.00 | Accrued Interest: $165,382.66 | Balance: $215,382.66 |
| Age: 64 | Contributions: $50,000.00 | Accrued Interest: $175,239.67 | Balance: $225,239.67 |
| Age: 65 | Contributions: $50,000.00 | Accrued Interest: $185,547.78 | Balance: $235,547.78 |
An account balance of $235,547.78 will yield $10,599.65 in annual interest payments at 4.5%. This equates to a monthly check of $883.30. Therefore, the grandchild will earn $185.86 more per month than the grandparent did. Assuming the grandchild lives for 18.2 years after retirement, this will require $192,913.63 in total monthly interest payments. Since the value of the accrued interest is $185,547.78, the program paid out $7,365.85 more than it took in. Therefore, $7,365.85 will be deducted from the contributions to leave inheritable assets of $42,634.15. This represents an increase of $8,970.71 in inheritable assets from the grandparent’s account.
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