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PURDUE UNIVERSITY
OFFICE OF THE BUSINESS MANAGER AND ASSISTANT TREASURER
WEST LAFAYETTE, INDIANA 47907

April 29, 1955

To: Deans, Directors, and Heads of Schools, Divisions, Departments, and Offices

Re: BUSINESS OFFICE MEMORANDUM NO. 38

Benefits Under Social Security Compared with Benefits Under Purdue's (TIAA) Retirement

 

This is intended to supplement information given in the booklet entitled "Your Social Security".

Social security, of course, does not provide a complete plan of retirement and insurance for participants. It is merely a base upon which a more complete plan can be constructed either privately or through employer sponsored plans. Primarily, it is intended to insure that widows, orphans and old people will not be left destitute.

This concept should be kept in mind when comparing benefits under SS with those under TIAA, since the present TIAA plan is intended to be somewhat more than a mere starting point in retirement and insurance planning. For this reason the supplementary elements provided by TIAA have been eliminated from consideration in the following comparisons by showing only those benefits which could be purchased from TIAA by the amount of premiums which will necessarily be diverted to SS, if SS is accepted by the Purdue staff. Benefits shown for the TIAA plan, therefore, reflect only the "basic" benefits -- those which could be purchased by premiums equal to the SS tax on $4200 annual salary. These are the benefits which will be given up in exchange for SS benefits, if SS is accepted by the Purdue staff.

Table 1 -Comparison of Retirement Benefits*
(When Participation Begins I January 1955)

Beginning
Age of
Participation		 Annual Retirement Benefit at Age 65
Employee Only     Employee and Wife
  TIAA        SS         TIAA        SS		 Annual Survivor's Benefit to
Widow of Retired Employee
       TIAA                 SS

25

$123

$1302

$1025

$1954

$617

$977

30

 991

 1302

 823

 1954

 496

 977

35**

 773

 1302

 642

 1954

 387

 977

40

 578

 1302

 480

 1954

 289

 977

45

 403

 1302

 334

1954

 202

 977

50

 262

 1302

 217

1954

 131

977

55

 149

 1302

 124

 1954

   75

 977

60

   63

 1302

   52

 1954

   32

 977

*This table is based on the following assumptions:

  1. Beginning age and length of participation are the same under both plans.
  2. Age of employee and age of wife are the same.
  3. Contributions to each plan equal SS tax on $4200 annual salary.

**Over the past six years, the average beginning age of participation in TIAA has been 35 years.

For those whose salary is $4200 or more, table 1 can be used to determine the effect on total retirement benefits available under combined TIAA and SS, as follows:

If you are now age 40, and under the present TIAA plan, your annual retirement annuity at

   Age 65 will be    $3000
   Subtract the TIAA benefit in table       -578
   Add the SS benefit in table       1302
   Combined TIAA and 33     $3724

Table 2 has been prepared similarly to table 1. It shows, however, the effect when a new employee comes into the retirement plan in 1975, after the SS tax has reached the maximum.

Table 2 -Comparison of Retirement Benefits

Beginning
Age of
Participation		 Annual Retirement Benefit at Age 65
Employee Only     Employee and Wife
  TIAA        SS         TIAA        SS		 Annual Survivor's Benefit to
Widow of Retired Employee
       TIAA                 SS

25

$1546

$1302

$1283

$1954

$773

$977

30

 1268

 1236

 1052

 1854

 634

 927

35

 1022

 1125

 848

 1688

 511

 844

40

 801

 1015

 665

 1523

 401

 761

45

 602

 904

 500

1356

 301

 678

50

 426

 833

 354

1250

 213

625

55

 266

 752

 221

 1128

 133

 564

60

 126

 481

 105

 722

   63

 361

Tables 1 and 2 are based on the assumption that full retirement occurs at age 65. If a retired individual works between the ages of 65 and 72, he may lose some or all of the SS benefit payments, depending upon the amount of his earnings in this period. This feature of the law is well explained in the booklet "Your Social Security" - see page 20. TIAA benefits on the other hand, are never lost because of employment after age 65.

The comparisons are based on provisions of the present law which require payment of SS tax as follows:

 EmployeeEmployer
1955-1960
2%
2%
1960-1965
2-1/2%
2-1/2%
1965-1970
3%
3%
1970-1975
3-1/2%
3-1/2%
1975 and later
4%
4%

In view of the history of SS legislation, it seems reasonable to assume that there may be future revision of the law. Previous revisions have usually been in the direction of a liberalization of benefits accompanied by increased contributions or an extension of the time schedule of tax increases.

Death Benefits

Because of the many variables involved it is not feasible to construct tables which will directly compare death benefits under SS and the "basic" TIAA plan. However, by use of the following tables it is possible to make comparisons of maximum benefits as they will apply in most cases. Several examples have been appended to illustrate how comparisons can be made.

It should be remembered that the accumulation of contributions and interest in the "basic" TIAA plan remains the property of the participant, subject to the contract provisions. Upon death before retirement, the accumulation will be paid to any designated beneficiary or to the participant's estate. On the other hand SS death benefits are payable only to a surviving spouse and/or children, or to a surviving dependent parent or parents, except for a small sum to cover burial expenses. In the following tables, therefore, insurance values under OAK are valid only when there are beneficiaries as indicated.

Special assumptions made in the preparation of tables 3 and 4 and in the examples following table 6 are as follows:

  1. Death of participant occurs after he becomes "fully insured" in SS. (Employees beginning participation as of 1 January 1955 would be fully insured at 1 July 1956.) (See pages 4, 5,, 6, and 7 of "Your Social Security" for explanation of the term "fully insured".)
  2. Participant at the date of his death is insured for the maximum old age insurance benefit under SS. (In tables 1 and 2, note that where the annual retirement benefit for an employee only is $1302, he is insured for the maximum $108.50 per month.)

Table 3 -- Insurance Value of Maximum Survivor's Benefits Under SS
(When Participant is a Married Man)
No. of Years Before
Children (under 18
at determination
date) Reach 18
Insurance Value1

Widow and 1           Widow and 2
child (under 18)       or more children
                                 (under 18)
Widow Alone2

Age (after all       Insurance Value3
Children are
at least 18)
18
$29020
$35651
  65  
$5358
17
 27687
 34014
  66  
 14936
16
 26343
 32362
  67  
 14484
15
 24969
 30675
  68   
 14059
14
 23526
 28902
  69  
 13635
13
 22090
 27137
  70  
 13113
12
 20608
 25316
  
11
 19086
 23447
 
 
10
 17543
 21552
 
 
 9
 15961
 19608
 
 
 8
 14331
 17606
 
 
 7
 12679
 15576
 
 
 6
 10985
 13495
 
 
 5
  9255
 11370
 
 
 4
  7485
  9195
 
 
 3
  5676
  6974
 
 
 2
  3825
  4699
 
 
 1
  1934
  2376
 
 

  1. Insurance value is the cost of purchasing monthly installments of $162.80 (widow and 1 child) or $200 (widow and 2 or more children) for the number of years shown. (TIAA tables used in calculation.)

  2. A widow without children under 18 years of age is entitled to survivor benefits only at age 65 or over.

  3. Insurance value is the cost of purchasing an immediate life annuity of $81.40 per month at the ages shown. (TIAA tables used in calculation.) The amounts shown here must be adjusted for the effect of compound interest during the period between the date participant dies and the date widow attains the age shown. (see examples.)

Table 4 - Insurance Value of Maximum Survivors' Benefit under SS
(When Participant is Single)

 
Insurance Value1
Age of Parents at
Death of Participant		Dependent
Father		Dependent
Mother

65

$12779 $15358

66

  12352  14936

67

  11935  14484

68

  11513  14059

69

  11105  13635

70

  10696  13193

71

  10304  12779

72

    9915  12352

73

    9532  11935

74

    9146  11513

75

    8781  11105

76

    8418  10696

77

    8059  10304

78

    7716    9915

79

    7373    9532

80

    7042    9146

1Insurance Value is the cost of purchasing an immediate life annuity of $81.40 per month at the ages shown. (TIAA tables used in calculation.) The amounts shown here must be adjusted for the effect of compound interest when the parents are under age 65 at date of participant's death.

Table 5 - Value of TIAA Accumulation

(When Contributions Equal SS Tax on $4200 Annual Salary)

 
Accumulation at the end of Period*
No. of Years Contributed
to TIAA		Contributions Begin
1 January 1955		Contributions Begin
1 January 1975

 5

$   860$ 1720

10

   2029   3629

15

   3545   5752

20

   5460   8145

25

   7809 10806

30

 10423 13763

35

 13356 17096

40

 16642 20832

*Payable in installments to whoever is designated as beneficiary, regardless of age, to the participants estate.

Table 6 - Compound Interest at 2-1/4%

Period Years$1 Plus Interest
Compounded Annually
 5$1.118

10

 1.249

15

 1.396

20

 1.561

25

 1.744

30

 1.949

35

 2.179

40

 2.435

EXAMPLES OF CALCULATIONS OF DEATH BENEFITS

 Insurance Value of
SS Benefits		Value of TIAA
Accumulation
(Table 5)
  1. A participant dies after 5 years in SS, leaving widow aged 35 and a child aged 3.
  
  1. Insurance valueof benefit for widow and 1 child for 15 years (from age 3 to 18 - see table 3)
 $24969 
  1. Insurance value of benefit for widow beginning at age 65 ($15358 from table 3 divided by 1.949 from table 6 - to give effect to compound interest from date participant dies to date widow reaches age 65)
7880 
  1. Lump sum paid in cash
255 
          Total$33104$860
  1. A participant dies after 10 years in SS, leaving widow aged 40 and children aged 2, 4, and 6.
  
  1. Insurance value of benefit for widow and 2 or more children for 14 years (until second child is 18)
$28902 
  1. Insurance value of benefit for widow and 1 child for 2 additional years
3825 
  1. Insurance value of benefits for widow beginning at age 65 ($15358 divided by 1.744)
8806 
  1. Lump sum paid in cash
 255 
          Total$41788$2029
  1. A participant dies after 30 years in SS leaving widow aged 55 and child aged 15.
  
  1. Insurance value of benefit for widow and 1 child for 3 years.
$5676 
  1. Insurance value of benefit for widow beginning at age 65 ($15358 divided by 1.249)
12296 
  1. Lump sum paid in cash
 255 
          Total$18227$10423
  1. A participant dies after 35 years in SS leaving widow aged 65
 
  1. Insurance value of benefit for widow beginning immediately
$15358 
  1. Lump sum paid in cash
255
          Total$15613$13356
  1. A participant dies at age 60 after 30 years in SS, leaving a dependent father aged 80
 
  1. Insurance value of benefits for father - from table 4
$7042 
  1. Lump sum paid in cash
 255$13356
          Total$7297$10423
  1. A participant dies at age 60 after 35 years in SS leaving dependent child aged 12
 
  1. Insurance value of benefit for child for 6 years - see table 3 (Take 1/2 benefit shown for widow and 1 child)
$5493 
  1. Lump sum paid in cash
255 
          Total $5748$13356
  1. A participant dies after 40 years in SS, leaving no dependents
 
  1. Lump sum paid in cash
255 
          Total $255$16642

 


Last Updated on March 05, 2008