| Table 1 |
| INCOME INSURANCE |
| Parameters |
| Insurance Reserve Fund | 35.0% | Invested in Stock Fund (% of OASI) | 25.0% |
| Invested in Bond Fund (% of OASI) | 25.0% | |
| Income Insurance Premium (10%/5%) | 15.0% | Minimum Retirement Income | $18,000 |
| Bond Fund Rate of Return | 5.0% | Stock Fund RoR, Investment Period | 10.0% |
| |
| Earning and Investment Period | Insurance fund |
| | Gp 1 | Gp 2 | Gp 3 | Gp 4 | Gp 5 | |
| 1a | First Year Earnings | $12,500 | $12,500 | $15,000 | $20,000 | $25,000 | |
| b | Annual Increase | $0 | $400 | $1,200 | $2,000 | $2,500 | |
| c | Fortieth Year Earnings | $12,500 | $28,100 | $61,800 | $98,000 | $122,500 | |
| 2a | First Year FICA (OASDI) | $1,550 | $1,550 | $1,860 | $2,480 | $3,100 | |
| b | Disability Insurance (DI) | $225 | $225 | $270 | $360 | $450 | |
| c | Retirement/Survivor Ins (OASI) | $1,325 | $1,325 | $1,590 | $2,120 | $2,650 | |
| d | Insurance Reserve Fund | $464 | $464 | $557 | $742 | $928 | |
| e | Invested in Stock Fund | $331 | $331 | $398 | $530 | $663 | |
| f | Income Insurance Premium | $199 | $199 | $239 | $318 | $398 | $1,352 |
| g | Invested in Bond Fund | $331 | $331 | $398 | $530 | $663 | |
| |
| 3a | Fortieth Year FICA (OASDI) | $1,550 | $3,484 | $7,663 | $10,528 | $10,528 | |
| b | Disability Insurance | $225 | $506 | $1,112 | $1,528 | $1,528 | |
| c | Retirement/Survivor Ins (OASI) | $1,325 | $2,979 | $6,551 | $8,999 | $8,999 | |
| d | Insurance Reserve Fund | $464 | $1,043 | $2,293 | $3,150 | $3,150 | |
| e | Invested in Stock Fund | $331 | $745 | $1,638 | $2,250 | $2,250 | |
| f | Income Insurance Premium | $199 | $447 | $983 | $1,350 | $1,350 | $4,328 |
| g | Invested in Bond Fund | $331 | $745 | $1,638 | $2,250 | $2,250 | |
| |
| 4 | Value of Investments after 40 years | $186,624 | $276,256 | $403,362 | $594,577 | $723,504 | |
| a | Bond Fund | $40,015 | $57,144 | $99,407 | $148,224 | $176,881 | $318,598 |
| b | Stock Fund | $146,609 | $219,112 | $303,955 | $446,353 | $546,623 | |
| c | Income Maintenance Insurance Fund | | | | | | $106,199 |
| |
| Calculation of Retirement Benefits |
| 5a | Bond Fund Annuity Value @ 2% | $2,447 | $3,495 | $6,079 | $9,065 | $10,817 | $12,990 |
| b | Stock Fund Annuity Value @ 5% | $11,764 | $17,582 | $24,390 | $35,817 | $43,862 | |
| c | Total | $14,211 | $21,077 | $30,470 | $44,881 | $54,680 | |
| 6a | Income Insurance Paid | $3,789 | $0 | $0 | $0 | $0 | $3,789 |
| b | Dividend | $706 | $758 | $1,436 | $2,535 | $2,739 | $9,201 |
| c | Initial Retirement Benefit | $18,706 | $21,834 | $31,906 | $47,416 | $57,419 | |
| 7 | Percent Preretirement Income | 149.6% | 77.7% | 51.6% | 48.4% | 46.9% | |
| 8 | Rate of Return on Inv+Inc Ins | 7.4% | 7.0% | 6.8% | 6.8% | 6.8% | |
| |
| Retirement Income |
| Year | Insured Minimum | Yearly Stock Fund Returns | Gp 1 | Gp 2 | Gp 3 | Gp 4 | Gp 5 | Insurance fund |
| 1 | $18,000 | | $18,706 | $21,834 | $31,906 | $47,416 | $57,419 | $106,199 |
| 2 | $18,540 | 21.4% | $20,750 | $24,710 | $35,942 | $53,360 | $64,679 | $111,509 |
| 3 | $19,096 | 10.8% | $21,711 | $25,961 | $37,726 | $55,997 | $67,889 | $117,085 |
| 4 | $19,669 | 12.2% | $22,910 | $27,561 | $39,997 | $59,349 | $71,973 | $122,939 |
| 5 | $20,259 | 9.1% | $23,730 | $28,591 | $41,477 | $61,541 | $74,637 | $129,086 |
| 6 | $20,867 | -2.6% | $22,809 | $27,012 | $39,340 | $58,421 | $70,795 | $135,540 |
| 7 | $21,493 | 13.0% | $24,177 | $28,849 | $41,943 | $62,264 | $75,479 | $142,317 |
| 8 | $22,138 | -7.5% | $22,527 | $26,169 | $38,282 | $56,906 | $68,895 | $149,433 |
| 9 | $22,802 | 10.2% | $23,475 | $27,364 | $39,999 | $59,448 | $71,984 | $156,905 |
| 10 | $23,486 | 21.3% | $26,019 | $30,940 | $45,019 | $66,841 | $81,014 | $164,750 |
| 11 | $24,190 | -8.1% | $24,190 | $27,930 | $40,905 | $60,821 | $73,616 | $172,988 |
| 12 | $24,916 | -13.7% | $24,916 | $24,916 | $35,708 | $53,212 | $64,273 | $181,608 |
| 13 | $25,664 | -13.3% | $25,664 | $25,664 | $31,581 | $47,174 | $56,852 | $186,779 |
| 14 | $26,434 | 25.0% | $26,434 | $26,434 | $35,873 | $53,500 | $64,572 | $185,835 |
| 15 | $27,227 | -1.7% | $27,227 | $27,227 | $34,603 | $51,660 | $62,291 | $188,558 |
| 16 | $28,043 | -2.4% | $28,043 | $28,043 | $33,297 | $49,766 | $59,943 | $188,395 |
| 17 | $28,885 | 21.9% | $28,885 | $28,885 | $37,122 | $55,410 | $66,825 | $185,114 |
| 18 | $29,751 | 4.0% | $29,751 | $29,751 | $37,225 | $55,587 | $67,011 | $184,687 |
| 19 | $30,644 | 41.3% | $30,644 | $31,335 | $46,192 | $68,782 | $83,139 | $182,729 |
| 20 | $31,563 | -10.9% | $31,563 | $31,563 | $41,480 | $61,890 | $74,667 | $189,090 |
| | | | | | | | | $189,059 |
| 1. Entries shown in red indicate that income insurance is paid. |
| 2. Bond Fund annuities are graded annuities designed to increase over time to help counter inflation. They begin as if they were a 2% annuity and increase annually at the rate of about 3% with a 5% bond fund return. See Appendix C. |
| 3. Stock fund annuities are variable annuities which begin as if they were a 5% annuity and are adjusted each year to reflect actual stock fund performance. |
| 4. Yearly returns during retirement are taken from CREF historical returns for a 20-year period during which the 20-year annual return was 7.7%. See Returns B in Figure 6a. |