"Rate of return" is the overall percentage increase, usually on an annual basis, in the value of an asset. Rate-of-return calculations frequently are expressed in real terms (that is, adjusted for inflation).

The Social Security rates of return on this attachment represent only the retirement portion (not the disability portion) of Social Security. These returns compare the Social Security retirement taxes paid over an individual's lifetime with the total amount of retirement benefits that he or she could expect to receive.

For example, a married couple that had an annualized rate of return of 1.25% would receive more than a $1.00 for every $1.00 they paid into the system. If they paid $474,263 in lifetime taxes, their benefits from Social Security would be $666,730 with a 1.25% annual return on their Social Security investment.   More

How do you interpret this percentage? Workers who regularly invest a portion of their income in 401k plans, for example, would expect to receive a "rate of return" on those retirement grade investments that are higher than 4%, perhaps even higher than 7%. (Our example couple could have retirement benefits of $771,354 by investing strictly in bonds, or $1,241,581 by investing in an equity-bond portfolio). The attached Social Security rates of return allow workers to compare how well their Social Security investment is doing compared to conservative, retirement investments they make with the rest of their after-tax income.

Workers who paid more in taxes than they will receive in benefits will have a negative return. Many workers, who have short life expectancies due to their occupation or their socio-economic situation, are especially likely to get negative rates of return from Social Security.

The Social Security Trustees have told us that the revenues will not be enough to pay promised benefits after 2042. And while current law requires the Social Security Administration to reduce benefits to eliminate the shortfall, we made a different assumption in the attached tables. To account for the shortfall in 2042, we assumed that payroll taxes would be raised to cover 100% of the shortfall and would pay 100% of promised benefits. So if payroll rates were not increased to cover the shortfall then benefits would be lower.

Note: Rates of Return exclude both Disability Insurance and taxes, but include all Old-Age and Survivors Insurance (OASI) benefits and taxes (including pre-retirement Survivors Insurance). All values include both the portion of the OASI tax paid directly by workers and the portion paid by the employer on a worker\'s behalf. All rates of return are net of inflation. Calculations are based on life expectancies and average earnings for each district. Data was taken from the 2000 Census, released by the U. S. Bureau of the Census.

*N/A indicates an insufficient number of observations in the 2000 Census for this analyis. There are 187 Congressional Districts that exceed the criteria for sufficient sample size.