## OASI Retirement Income Formula

Retirement income is calculated by the OASI program as follows:

1.

2.

3.

a. 90% of first $744

b. 32% of next $3,739

c. 15% of the remaining

4.

The report below is an example of a pension calculation using the OASI formula. The example is of a worker who obtained the average wage for all workers for a 35 year period. The worker would have averaged $40,405 in annual salary per year, indexed for inflation. The pension would total $1,509.70 per month if the worker retired at the full retirement age of 66. If the worker were to retire at age 62, than the pension is reduced by 25% for the early retirement and would total $1,132 per month. If the retiree had a non-working spouse also of full retirement age than the pension would be raised by 50% and would total $1886.00 per month.

The above example would yield an annual investment return to the retiree of about 4% over the worker’s life[i]. This investment return is comparable to what would be available in the private sector for an annuity investment with low risk. Investment returns in the stock market could easily eclipse this return but would also subject the investment to greater risk. If the pension amount with the non-working spouse is used the return is raised to about 6%. This is probably higher than available in the private sector for an investment with low risk.

[i]This is based on using the historic payroll tax rates as annual contributions and pension payment until age 78, the current life expectancy and a 3% inflation factor. Calculations are available upon request.

Home Social Security

A detailed retirement income calculation is included in the schedule below:

1.

__Indexed earnings__- The highest 35 years of earnings subject to payroll taxes, over a workers entire career are identified. They are then applied to an index to adjust them for inflation.2.

__AIME__(average monthly indexed earnings) - The indexed earnings are added up and the sum is divided by 420 (the number of months in 35 years).3.

__PIA__(Primary insurance amount) - AIME is applied to the following formula to determine the PIA. Each of the following tiers are referred to as bend points within the OASI program. The bend points shown below are those applicable to a worker attaining age 62 in the year 2009.a. 90% of first $744

b. 32% of next $3,739

c. 15% of the remaining

4.

__Retirement benefit__- The PIA is paid out monthly for the remainder of the individual’s life. It is increased annually to keep pace with inflation. If the individual dies shortly after retirement they ended up getting a bad economic deal. If they live for many years after retirement they will end up getting a good economic deal. This aspect of the plan functions like insurance – no matter how long you live you get a retirement benefit.**Example calculation**The report below is an example of a pension calculation using the OASI formula. The example is of a worker who obtained the average wage for all workers for a 35 year period. The worker would have averaged $40,405 in annual salary per year, indexed for inflation. The pension would total $1,509.70 per month if the worker retired at the full retirement age of 66. If the worker were to retire at age 62, than the pension is reduced by 25% for the early retirement and would total $1,132 per month. If the retiree had a non-working spouse also of full retirement age than the pension would be raised by 50% and would total $1886.00 per month.

**Annual Investment Return**The above example would yield an annual investment return to the retiree of about 4% over the worker’s life[i]. This investment return is comparable to what would be available in the private sector for an annuity investment with low risk. Investment returns in the stock market could easily eclipse this return but would also subject the investment to greater risk. If the pension amount with the non-working spouse is used the return is raised to about 6%. This is probably higher than available in the private sector for an investment with low risk.

[i]This is based on using the historic payroll tax rates as annual contributions and pension payment until age 78, the current life expectancy and a 3% inflation factor. Calculations are available upon request.

Home Social Security

A detailed retirement income calculation is included in the schedule below: