The Bush Center’s Ike Brannon blogs against the idea that, to fix entitlements, all we need is a little more economic growth. In reality, he says, growth is good but not nearly enough. Check it out here.
Friday, November 1, 2013
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SS-OASI benefit of 1977 is a mathematical divergent series. As economic growth increases we can expect higher wages which based on the 1977 OASI benefit formula will increase future benefits. If the rate of growth in wages exceeds that of the US Treasury rate, then you have future growth in benefits growing faster than revenue.
As wages increase so do future benefits. The equivalent rate of return is equal to (1+rate of return) divided by (1+replacement rate). In this case replacement rate for working years is wage growth and during beneficiary years it is COLA.
You can see this mathematical analysis by using this java script program. Change replacement rates and see what happens to the amount you need to save (equivalent to payroll tax).
http://www.justsayno.50megs.com/java_retire_1.html
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