Table 1, below, incorporates Tables 1, 2, and 3 from the main body of the text of this paper. It shows how the proposed system would operate for a hypothetical group of workers all of whom enter the work force in the same year, work for a period of forty years, retire at the same time and live for twenty years. The workers are subdivided into five groups according to income earned during their forty years in the workforce. Each group includes the same number of workers (20% of those entering the work force that year) and all workers within each group earn the same pay throughout the forty years. The numbers in the table apply to a single individual in each group. (These income patterns were selected to demonstrate how retirement benefits would accrue and income insurance would work for different lifetime incomes. They do not represent the actual distribution of income in the workforce. Monetary amounts are in current dollars, unadjusted for inflation.)

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
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 Benefits1
5a	Bond Fund Annuity Value @ 2%2		$2,447	$3,495	$6,079	$9,065	$10,817	$12,990
b	Stock Fund Annuity Value @ 5%3		$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 Income1
Year	Insured Minimum	Yearly Stock Fund Returns4	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.

The parameters of the system and the assumed rates of return are shown at the top of the table.

Lines 1a through c summarize lifetime earnings for workers in each group.

Lines 2a through h show how the OASDI contributions of individual workers are allocated during the first year.
Line 2a shows the total individual OASDI (12.4%) contribution for each worker.
Line 2b shows the 1.8% contributed to the Disability Insurance fund.
Line 2c shows the amount available for retirement and survivors insurance (OASI).
Line 2d shows the amount contributed to the Insurance Reserve Fund.
Line 2e shows the amount in individual accounts in the Social Security Stock Fund.
Line 2f shows the premium paid for Income Insurance. The last column shows the sum of the premiums for all five groups invested in the insurance fund.
(The 5% income maintenance insurance premium is shown here as being invested in the bond fund rather than in the Insurance Reserve Fund to facilitate Table 2 and Table 3.)
Line 2g shows the amount invested in individual accounts in the Social Security bond fund.

Lines 3a through h give the same information for the fortieth year.

Line 4a shows the accumulated value of the forty years of investments in individual accounts in the bond fund at the rate of return shown at the top of the table. The last column of line 4a shows the cumulative value of the Income/Insurance fund at same rate of return.
Line 4b shows the same for investments in the stock fund.
Line 4c shows the cumulative value of the Income Insurance fund reserved for income maintenance during the retirement years for this cohort group.

At the time of retirement for these workers, retirement benefits are determined by calculating the values of the annuities the individual accounts in the stock and bond funds would purchase for a twenty-year life expectancy. Where the sum of the two annuities does not meet the specified minimum, $18,000 in this case, funds from the income insurance fund are used to increase the bond fund so as to make up the difference.

Line 5a shows the value of the annuity the funds in line 4a will purchase for a twenty-year life expectancy at 2%. The last column shows total amount of 2% annuities that could be awarded as insurance payments from income level insurance.
Line 5b shows the value of the annuity the stock fund will purchase at 5%. This will be the income from the variable annuity for the first year of retirement.
Line 5c shows the sum of the two, which serves as a basis for determining any required insurance payments.

Line 6a shows the insurance payments (in the form of additional bond annuity) from the income insurance fund to the groups of workers whose annuity benefits did not meet the specified minimum of $18,000. Only the workers in group 1 required insurance payments. The last column shows the total amount paid for all groups.
Line 6b shows the dividends paid to each group from the Insurance Fund. The last column shows the total amount paid in dividends. Dividend distributions are prorated on the basis of total income insurance premiums paid by each worker.
Line 6c shows the total first-year retirement benefit.

Line 7 shows the retirement benefit as a percentage of the income level just prior to retirement as an indication of the adequacy of the retirement benefit.

Line 8 shows the rate of return on the sum of investments in the bond and stock funds and the income insurance premiums for each group. It is the rate of return which would have to have been earned on this sum to pay the twenty years of retirement income shown just below.

The Retirement Income section shows the twenty years of actual retirement income for all groups. The first column shows the insured minimum income as it increases with assumed 3% yearly inflation rate. The second column shows the assumed actual yearly returns from the stock fund. (In this case, the Actual Returns B from Figure 5A, which are considerable lower than expected, are used to illustrate how income insurance works during the retirement years.) The last column shows the year-end balance in the Insurance Fund after any insurance payments are deducted and earned interest added. Those cases where insurance payments are made to bring actual retirement income up to the insured minimum are shown in red. The funds remaining in the insurance fund at the end of the twenty years are used to build insurance reserves. Yearly income payments from the individual stock and bond funds and insurance payments are shown in Table 16.

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