Number Crunching PRA's

I went back over the numbers I crunched about a week ago when I began thinking about Personal Retirement Accounts. You know, the ones President Bush wants to give all Americans the option to have.

Yes, it's an option. A choice you can make. You do not have to opt in if you choose not to. I like the fact that you have a choice to opt in. I am uncertain of the amount that you can put into a PRA, I had heard it could be your entire "contribution" of 6.2%. Remember, both you and your employer each put 6.2% of your taxable income into Social Security (a total of 12.4%). Then I read 4%. It makes a difference, but when you get into six digits that 2% diference doesn't effect the end result much. It makes more of a difference in the beginning. I wish I could post my findings, but to show the entire twelve years I extrapolated out to would just take too much space. You have to do it for yourself. I'll give you the formula, though.

For the sake of simplicity, we'll use 2% as our interest rate, although in a PRA your interest could be much higher. Interest will be compounded monthly. For the sake of simplicty, we will assume you are paid weekly .

Look at your paystub to get the amount paid in FICA Regular. Multiply that number by 4 to get your monthly "contribution."

example: $100 x = $400 (principle)

Multiply $400 by 2% to get your first months interest. $400 x 2% + $8
Add the interest to your principle of $400 + $8 = $408.

In the second month, you will add $100 per week to your $408 to get $808. Multiply $808 x 2% to get your next month's interest - $808 x 2% = $16.16
Add the interest to your principle of $808.00 =$824.16

In the third month, you will add $100 per week to your $824.16 to get $1224.16 Multiply $1224.16 x 2% to get your next month's interest - $24.48
Add the interest to your principle of $1224.16 = $1248.64

In the fourth month, you will add $100 per week to your principle of $1248.64 to get $1648.64

Multiply $1648.64 x 2% to get your next month's interest - $32.97

Add the interest to your principle of $1648.64 = $1681.62

In the fifth month, you will add $100 per week to your $1681.62 to get $2081.62

Multiple $2081.62 x 2% to get your next month's interest - $41.63

Add the interest to your principle of $2081.62 to get $2123.25

If you add the interest you have received over five months, you will find that you have received $123.25. That is equivalent to more than one week's deposit of $100! That is the wonder of compound interest.

Now, take it out over a year's time. If my math is correct you have deposited $5200 ($100 per week for 52 weeks) and received interest totaling $789.58 for a grand total of $5989.58 in your Personal Retirement Account.

I did my figures in an Excel spreadsheet to eliminate the possibility of me making a math error. Any error would be in the formula. But I don't think I did.

The younger you are, the better the numbers will be. If you are over 55, your Social Security will not be effected. You will not have the option to opt into the PRA, and to be honest, it probably wouldn't be much benefit to you. In all my number crunching, I've found that you have to been in any retirement program for at least 10 years for it to make a real difference for you.

In my case, I will be retiring from my job in twelve years, so I can benefit from a PRA. when I extrapolated the figures out, the end figures were in the high six figures. I still think there must be a mistake, but I can't find it. Even if my numbers are way off, I think any account that gives me even a couple of hundred extra dollars a month can't be bad. And the fact that it will be mine, and I can leave it to my heirs is even better.

It's money that comes out of my paycheck now. It's money that I don't see and so won't miss. I will still get a "regular" Social Security check and a check from my PRA each and every month. This is in addition to my pension check. I should be able to live nicely in retirement.

I honestly don't know why anyone would not want to own at least a part of their own retirement. Yes, I know there are questions in funding. But you know what? Social Security already has lots of funding questions now.

Here are a couple of Social Security facts that the average person hasn't faced:

There is no Social Security lockbox. The government raids Social Security every chance it gets. All that Social Security is today is a a whole lot of IOU's from the government.

There are no individual Social Security accounts. The closest you as an individual come to having a SS account is a piece of paper (or a computer entry) stating that this much money has been paid to Social Security on your behalf.

Social Security will soon be paying out more than it is taking in. The only real question is when this will happen.

There is nothing in Social Security to leave to your heirs. You will receive $255 as a death benefit. If you have children under 21 they may receive a benefit until they are 21. Your spouse may be able to collect on your SS until he or she dies. But, other than those examples, your family will not receive any money from SS after your death. In fact, they may have to pay SS. It happened when my dad died. He died on September 26. We got a letter from SS requesting the return of the September payment for the 27th, 28th, 29th. and 30th. They wanted 4 days of his SS check back. If you die early in the month, say October 3 your heirs will be expected to return 28 days worth of the October payment. Yeah, this is the government that some of you look to to take care of you in your old age.

Black men should be even more in favor of PRA's than anyone else. Do you realize that the average black male does not live long enough to collect more than a few year's worth of Social Security benefits? Sorry, I don't have the average age of death or the average length of time a Black man collects SS, but I do know this fact is true. It will not help a Black man to live longer, but a PRA will help his family. A young Black man today, with a PRA, could leave hundreds of thousands, if not millions to his family.

You may say, I don't have children or heirs so why do I care about having my own account? My answer is, how well do you want to live in your retirement years? Do you want to live in your own home or in a homeless shelter? Do you want to fix your own meals or get meals from a soup kitchen? Do you want to rely on the government for your health care or do you want to make your own health care decisions? Do you want to have a little luxury in your life or do you want to live a bare to the bone existence? I know how I want to live, and I like comfort. It might not be a jetsetter's life, but I won't be worrying about where my next meal is coming from or whether I'll have to live in subsidized housing or even on the street.

The bottom line is that it is up to you as an individual to make sure that you have enough money to live on after you retire or you will be working until the day you die. You may choose to work. If so, that's your choice. I may work after I retire, but it will be by choice, not because I have to. And this is just one more way to make sure that I have that choice.

My question is: are you too lazy to think about the future and to make your own choices or are you going to be a mature adult and think for yourself about your future and how you will live? If you don't want to think about yourself, how about your spouse and kids?