Glossary
Plain-English definitions of the terms used across this model and research.
AIME (Average Indexed Monthly Earnings). The average of a worker's highest 35 years of earnings, adjusted ("indexed") for historical wage growth so that early-career dollars are comparable to late-career dollars. It is the input to the Social Security benefit formula.
Bend points. The income thresholds in the Social Security formula where the replacement rate steps down — 90% of the first slice of AIME, then 32%, then 15%. They are what make Social Security progressive: lower earners get a higher share of their earnings replaced.
COLA (Cost-of-Living Adjustment). The annual inflation increase applied to Social Security benefits. In the model, both the SS benefit and the inflation assumption use the same COLA rate.
Defined contribution (DC). A retirement approach where money is contributed to an investment account, grows with the market, and is drawn down in retirement — with any remaining balance inheritable. Contrast with Social Security's defined benefit.
Deterministic PV ratio. The headline measure: the present value of the entire DC package (income plus any legacy balance) divided by the present value of lifetime Social Security benefits, compounding one actual chronological market history. Above 1.0 means DC came out ahead on that path. Because it is a single path, it should be read alongside the Monte Carlo measure.
Full Retirement Age (FRA). The age at which a worker receives 100% of their Social Security benefit (claiming earlier reduces it, later increases it). The model uses the SSA's FRA schedule.
Geometric mean return. The compounding-correct average of a return series — always at or below the arithmetic average. The model uses geometric means because they reflect actual long-run growth; arithmetic averages overstate it.
Glidepath (target-date). An investment strategy that shifts from aggressive to conservative with age. The model's realistic base case: Equities-Aggressive to 35, Equities-Moderate to 50, Equities-Conservative to 67, then Bonds through retirement.
Monte Carlo simulation. Running a scenario across many resampled market histories (1,000 trials here) to see the range of outcomes rather than one number. Reported as "n out of 1,000" trials in which DC beat SS. It is the more reliable guide where it disagrees with the single-path deterministic figure.
NAWI (National Average Wage Index) / wage growth. The economy-wide wage-growth rate used both to index earnings and to project the benefit formula forward. The model uses 3.6% (about 1.1% real), matching the SSA's intermediate assumption.
OASI / OASDI. OASI is the Old-Age and Survivors Insurance portion of the payroll tax (10.6%); OASDI adds the 1.8% Disability Insurance portion (12.4% total). The model credits the DC side with only the OASI portion, since a DC account provides no disability benefit.
PIA (Primary Insurance Amount). The monthly Social Security benefit a worker receives at Full Retirement Age, computed from AIME via the bend-point formula.
Present value (PV). Future dollars restated in today's dollars, so income streams paid over decades can be compared on equal footing.
Replacement rate. The share of a worker's pre-retirement earnings that Social Security replaces — higher for low earners (~58% in the model), lower at the taxable maximum (~29%), reflecting progressivity.
Sequence-of-returns risk. The risk that a bad market early in retirement permanently damages a portfolio, even if average returns are fine. Social Security is immune to it; a DC account is not — one reason the model flags certain cases even when they win on lifetime value.
Taxable maximum. The earnings ceiling on which Social Security taxes are levied and benefits accrue ($176,100 in 2026). Earners above it are treated identically to at-cap earners in the comparison.
Yellow flag. In this research, a case where the DC path wins on lifetime present value but its 10th-percentile-market monthly income would fall below the Social Security benefit — lifetime value is there, but downside monthly cash flow is not.
Educational purposes only — not financial, tax, or investment advice. Figures cited reflect the July 2026 model build and may change in later versions; see Corrections & Retractions. Past performance does not guarantee future results.