This study addresses the problem of assessing the value of Social Security as an investment for an individual with given characteristics. The characteristics considered are age, sex, race, marital status, and salary earning history.

The problem formulation takes into account the uncertainties of human life, i.e., the probabilistic characteristics of the events that an individual may experience and may affect his tax payments and the benefits he will receive. These events are the birth of a child, death, marriage, divorce, retirement, and disability onset. The measurements used are the individual expected rate of return and the overall population rate of return. The former is expected to be more important to an individual, while the latter is more significant to the Social Security Administration. The difficulties inherent in an analytic solution procedure to obtain numerical values for these rates are shown.

Using actual demographic and social security data, the use of the model is illustrated through case studies. The four cases examined, although hypothetical, represent large segments of the United States population. Additional analyses are performed to assess the value of separate components of the total benefits, including secondary, retirement, and disability-survivor benefits. The effect on the rates of return of the two factors, salary level and age of the individual’s examined. A sensitivity analysis for five types of input data, birth, death, marriage, divorce, and disability, is included.