Social Security: It Is an Asset, But Not a Bond



This question comes up over and over, year after year — both in my email inbox as well as on the Bogleheads forum.

Social Security is an asset. It’s true that it is not a liquid asset (i.e., you cannot sell it). But even illiquid assets show up on balance sheets. Same goes for lifetime annuities. They are assets, even if they are not liquid.

And yes, Social Security is a fixed-income asset. So it’s more bond-like than stock-like.
But it’s definitely not a bond.

There are a lot of differences between a) having a $2,000 monthly Social Security benefit at full retirement age (i.e., a stream of income with a present value of about $350,000) and b) having $350,000 of bonds in your brokerage account.

Social Security is what it is — and it isn’t what it isn’t.

The desire to classify everything as either a stock or a bond is completely bananas.

For example, do you classify your house as a stock, because its value goes up and down considerably over time? Or do you classify it as a bond, because it pays you “interest” in the sense that you do not have to pay rent each month? (I hope the answer is obvious: it’s neither a stock nor a bond, because it is a house.)

The distinctions between different types of assets are real and useful.

Social Security:
  • Is inflation-adjusted,
  • Will last your entire lifetime,
  • Will not extend beyond your lifetime (or beyond you and your spouse’s lifetimes if married, child benefits notwithstanding),
  • Is absolutely illiquid (i.e., it’s not just hard to sell; it cannot be sold at all), and
  • Is subject to political risk.
By shoehorning that into the “bond” category, you are ignoring some or all of those unique characteristics. You are ignoring useful information.

Relatedly, if you have decided, for example, that you want 40% of your portfolio in bonds, but you haven’t yet decided what will count as a bond, how did you decide that 40% was the right number? Perhaps the line of reasoning that went into that decision had some flaws.

Rather than counting Social Security income as part of your bond allocation, I’d suggest using this method for fitting it into your overall retirement plan:
  1. Determine how much money you plan to spend each year during retirement.
  2. From that, subtract any part-time job or business income you expect to earn.
  3. From the remaining amount, subtract your Social Security/pension income to determine how much you will need to spend from your portfolio each year.
  4. Then make any portfolio-related decisions (including asset allocation) with that net required-spending-from-portfolio figure in mind.
Do you want to know more information about the health insurance in pa then please contact us in the comment section and send your queries.

Comments

Post a Comment

Popular posts from this blog

Value-Based Care and Behavioral Health Treatment

Image
For value-based care to provide truly holistic, coordinated care to patients, it must incorporate behavioral health treatment. This can result in improving the quality of health care for your employees, especially those with chronic medical conditions. Despite the benefits of integrating behavioral health treatment into value-based care, physical and behavioral medicine too often remain siloed in our health care systems — even under value-based care arrangements. The Need for Inclusive Treatment Comprehensive primary care has begun to seek ways to integrate behavioral health treatment to improve outcomes and cost-effectiveness. Behavioral health conditions frequently co-occur with chronic diseases, but these symptoms may be overlooked. Depression symptoms, for example, may be masked by other medical conditions. Patients with diabetes often receive mental health education along with diabetes education, since anxiety and depression are frequently associated with this...
Read more

Ways to Maximize Medicare Benefits

Image
Medicare is vital to the health of nearly 60 million Americans. Yet many of its benefits are overlooked, underused or misunderstood. Consider the annual "wellness" visit, during which a doctor will assess your health risks, take your blood pressure and other routine measurements, check for cognitive impairment, and offer personalized health advice. It's free. Yet less than 11% of Medicare beneficiaries took advantage of the benefit in 2012, according to the Dartmouth Institute for Health Policy and Clinical Practice. Recent research suggests that number hasn't budged much since then. That's not the only Medicare benefit left lying on the examining table. Many healthy seniors pass up a host of free preventive services, ranging from bone mass measurement to cancer screening–"the kinds of things that people don't generally think of if they're not sick," says Bonnie Burns, a consultant at California Health Advocates. Other benefits, such as...
Read more

The Children's Health Insurance Program (CHIP)

Image
If your children need health coverage, they may be eligible for the Children's Health Insurance Program (CHIP). CHIP provides low-cost health coverage to children in families that earn too much money to qualify for Medicaid. In some states, CHIP covers pregnant women. Each state offers CHIP coverage, and works closely with its state Medicaid program. See if your children qualify and apply for CHIP Each state program has its own rules about who qualifies for CHIP. You can apply right now, any time of year, and find out if you qualify. If you apply for Medicaid coverage to your state agency, you’ll also find out if your children qualify for CHIP. If they qualify, you won't have to buy an insurance plan to cover them. How to apply for CHIP: Fill out an application through the Health Insurance Marketplace. If it looks like anyone in your household qualifies for Medicaid or CHIP, we’ll send your information to your state agency. They’ll contact you about enrollment. ...
Read more