How do I allocate social security in retirement?

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1937bert
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How do I allocate social security in retirement?

Post by 1937bert » Sat Sep 22, 2018 11:00 am

Should I consider my social security as income received from my fixed income portfolio? If so would I then allocate more of my investment portfolio to equities and less to cash and bonds?

22twain
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Re: How do I allocate social security in retirement?

Post by 22twain » Sat Sep 22, 2018 11:13 am

Enter "social security as bonds" in the search box at the top right of the page. This does a Google search restricted to this forum. You'll find lots of previous threads on this subject which you might find useful, educational and/or entertaining. 8-)
My investing princiPLEs do not include absolutely preserving princiPAL.

delamer
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Re: How do I allocate social security in retirement?

Post by delamer » Sat Sep 22, 2018 11:27 am

The degree to which Social Security benefits cover your expenses in retirement is a more important factor in deciding on an allocation.

If SS covers 80% of your expenses you should invest differently than if it covers 20% of your expenses.

ryman554
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Re: How do I allocate social security in retirement?

Post by ryman554 » Sat Sep 22, 2018 12:11 pm

As the poster above me said, SS is an income stream. Guaranteed. So count as income. Just like a pension.

Then figure out how much income you need from investments. sS is not an investment.

Dandy
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Re: How do I allocate social security in retirement?

Post by Dandy » Sat Sep 22, 2018 2:40 pm

What did you do with your salary? Social Security is inflation adjusted income. Having it can allow you to take more risk if you prefer as would a pension or annuity. So, if you feel you can and wish to take more risk then up your equity allocation a bit. But, don't twist yourself into a pretzel trying to make it look like a pseudo bond.

So, if you are 50/50 and get Social Security maybe you want to take a bit more risk -- go to 60/40. But, the 40 will be real bonds/bond funds that can be withdrawn to cover expenses or used to reblance when the equities decline.

grok87
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Re: How do I allocate social security in retirement?

Post by grok87 » Sat Sep 22, 2018 5:26 pm

ryman554 wrote:
Sat Sep 22, 2018 12:11 pm
As the poster above me said, SS is an income stream. Guaranteed. So count as income. Just like a pension.

Then figure out how much income you need from investments. sS is not an investment.
agree.
Keep calm and Boglehead on. KCBO.

grok87
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Re: How do I allocate social security in retirement?

Post by grok87 » Sat Sep 22, 2018 5:28 pm

some discussion here as to how to integrate social security into your retirement income/investing framework

viewtopic.php?f=10&t=245377

"the three-legged stool approach to retirement planning"
Keep calm and Boglehead on. KCBO.

Ron Scott
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Re: How do I allocate social security in retirement?

Post by Ron Scott » Sun Sep 23, 2018 7:02 am

Dandy wrote:
Sat Sep 22, 2018 2:40 pm
What did you do with your salary? Social Security is inflation adjusted income. Having it can allow you to take more risk if you prefer as would a pension or annuity. So, if you feel you can and wish to take more risk then up your equity allocation a bit. But, don't twist yourself into a pretzel trying to make it look like a pseudo bond.

So, if you are 50/50 and get Social Security maybe you want to take a bit more risk -- go to 60/40. But, the 40 will be real bonds/bond funds that can be withdrawn to cover expenses or used to reblance when the equities decline.
I agree with you but would comment that estimating today’s capitalized value of future benefits isn’t all that hard to do, especially given the calculators out there and doing so might help you narrow changes to your AA. And the impact of SS is negatively correlated with wealth, so one size does not fit all.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. Preparing for financial challenges is more fruitful than trying to predict them.

JoeRetire
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Re: How do I allocate social security in retirement?

Post by JoeRetire » Sun Sep 23, 2018 7:26 am

ryman554 wrote:
Sat Sep 22, 2018 12:11 pm
As the poster above me said, SS is an income stream. Guaranteed. So count as income. Just like a pension.

Then figure out how much income you need from investments. sS is not an investment.
This.

Social Security benefits are an income stream. They aren't investments. They aren't bonds.
Treat this income stream just like other income streams.

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bertilak
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Re: How do I allocate social security in retirement?

Post by bertilak » Sun Sep 23, 2018 7:33 am

I see two purposes to an investment portfolio:

Provide income: If you have some income (e.g.SS) there is no need to assign a net asset value and asset class to it just so you can try to predict how much income it can provide and with what reliability -- you already know the answer to that!

Provide a legacy (e.g. inheritance, charitable donations): SS does nothing for a legacy so it is not part of an investment portfolio from that perspective.
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UpperNwGuy
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Re: How do I allocate social security in retirement?

Post by UpperNwGuy » Sun Sep 23, 2018 7:42 am

Social security is not part of your investment portfolio. The best way to take it into account is to subtract the monthly social security payment from your total monthly budget. The portion of the budget that remains is what you need to cover with your investment portfolio.
Retiree with a pension and a 60/40 taxable portfolio: Total Stock + Total Int'l + Total Bond + Interm Term Tax Exempt.

blevine
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Re: How do I allocate social security in retirement?

Post by blevine » Sun Sep 23, 2018 8:07 am

bertilak wrote:
Sun Sep 23, 2018 7:33 am
I see two purposes to an investment portfolio:

Provide income: If you have some income (e.g.SS) there is no need to assign a net asset value and asset class to it just so you can try to predict how much income it can provide and with what reliability -- you already know the answer to that!

Provide a legacy (e.g. inheritance, charitable donations): SS does nothing for a legacy so it is not part of an investment portfolio from that perspective.
+ 1
Exactly what I was thinking

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White Coat Investor
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Re: How do I allocate social security in retirement?

Post by White Coat Investor » Sun Sep 23, 2018 9:25 am

UpperNwGuy wrote:
Sun Sep 23, 2018 7:42 am
Social security is not part of your investment portfolio. The best way to take it into account is to subtract the monthly social security payment from your total monthly budget. The portion of the budget that remains is what you need to cover with your investment portfolio.
I agree. That's how I would treat any guaranteed payments like SS or pensions.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

MnD
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Re: How do I allocate social security in retirement?

Post by MnD » Sun Sep 23, 2018 10:35 am

I like playing with numbers so with the help of resources I found from this board I computed the net present value of my pension and our social security claims to compare to our investment portfolio. It comes out like this:

Net present value:
Our Investment portfolio 43%
My pension 32%
Our Social Security 25%

I agree the income from pensions and social security it what counts in a retirement plan - you can't buy groceries with NPV.
But it shows to me yet another line of evidence of just how valuable pensions and Social Security are in a retirement plan.
I'm also very comfortable being 70/30 for life in my investment portfolio and would not be absent pension and SS.
I roll my eyes when people state here from time to time that they "ignore" or "don't count" pensions or social security income in their savings and retirement budget planning because they don't own them, can be taken away, SS is going bankrupt etc.
That attitude seems to play right into the hands of those that want to eliminate the remaining pension plans out there and cut social security benefits.

Austintatious
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Re: How do I allocate social security in retirement?

Post by Austintatious » Sun Sep 23, 2018 11:35 am

There are a number of forum threads discussing Mr. Bogle's characterization of Social Security as a bond-like financial asset. And here's an article quoting him on the matter of Social Security being considered part of one's fixed income investments:

http://www.sandiegouniontribune.com/bus ... story.html

the relevant text:
Many advisers tell clients to own fewer stocks (which tend to earn more) and more bonds (which tend to be safer) as they age. Bogle certainly agrees, but he says many people forget about Social Security or their pension.

“Social Security is a huge, fixed-income investment, worth somewhere between $300,000 and $400,000” in present cash value, he said. Lumping this value in with bonds allows a retiree, who at 65 can expect to live another 20 years, to sleep well at night with a higher proportion in stocks.


Bogle's characterization makes perfect sense to me. Social Security is perhaps the most important and beneficial fixed-income investment we might make. Over our working lifetime, we contribute a small part of our earnings to the collective pot, in the process, contributing to the social well being of our society at large as well as assuring that we'll benefit from a meaningful and very reliable income stream in retirement. That's a pretty good investment, in my opinion.

Plus, and it's a big plus, it affords us greater leeway to invest more of our wealth in the stock market at times in our lives where, in the absence of that reliable income stream, we'd be compelled to follow a more cautious and likely less lucrative investment path for ourselves and our heirs.

I consider Social Security to be a financial asset, Paul Merriman's perspective to the contrary. I consider it to be a retirement income stream of the highest quality. And I consider it to be bond-like at least in the sense of it's relative security and reliability, certainly worth considering as an important part of one's fixed income portfolio. In the end, it all depends on what those terms mean to each of us.

Whatyear?
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Re: How do I allocate social security in retirement?

Post by Whatyear? » Sun Sep 23, 2018 11:40 am

I don't consider SS a financial asset or part of my portfolio, but before age 70 I plan to have a 50/50 AA, then after age 70 (when I start collecting SS) I will increase the equity % to 65% because at that point I feel I can afford more risk.

JW-Retired
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Re: How do I allocate social security in retirement?

Post by JW-Retired » Sun Sep 23, 2018 11:56 am

1937bert wrote:
Sat Sep 22, 2018 11:00 am
Should I consider my social security as income received from my fixed income portfolio? If so would I then allocate more of my investment portfolio to equities and less to cash and bonds?
It depends. If you are choosing your AA by the old rule of "age in bonds" and you consider SS income as bond-like, then yes. I don't do that but I do choose to have a heck of lot more equities because I have good SS and a pension. Wife and I will probably stay with 60/40 forever.

At one time, if I tried to estimate the present value of our SS & pension and call them bonds, the adjusted AA did come fairly close to our age-in-bonds. Now I'm older, bonds are down, and our nominal 60% stocks are near the high end of their band, so the Bogle rule isn't a very good fit now.
JW
Retired at Last

NoHeat
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Re: How do I allocate social security in retirement?

Post by NoHeat » Sun Sep 23, 2018 12:08 pm

1937bert wrote:
Sat Sep 22, 2018 11:00 am
Should I consider my social security as income received from my fixed income portfolio?
No.

Just like a pension or fixed annuity, SS is a steady cashflow stream that offsets the expenses you must fund from a portfolio.

If a retiree increased his expenses by switching to a better brand of Scotch, that would be the same effect on him as a reduction in his SS income. His Scotch is not an input into calculating his portfolio’s asset allocation, and neither is his SS income.

Ron
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Re: How do I allocate social security in retirement?

Post by Ron » Sun Sep 23, 2018 12:42 pm

I'm fortunate that in addition to my age-70 SS, I have two other retirement income streams that more than cover my budgeted net expenses each year. The only action I take with my IRA's is to cover the FIT due on those three sources of retirement retirement income, along with the FIT due on my TIRA RMD withdrawals (no state/local tax due on any retirement income/withdrawals). The after tax RMD's are reinvested in taxable funds.

That being the case, if I would look at my retirement income as bonds, it would mean that I would hold 100% equities in my T/Roth IRA's - something I'm certainly not willing to do from my view of acceptable risk, for my situation.

I maintain a 60/40 (60% equity, 40% bonds/cash) in my combined Traditional/Roth IRA's. Some would say a bit high in equities given my age; however, my primary investment goal is to leave my disabled son a sizable estate for his remaining life care after I'm gone and I'm satisfied with the risk.

To each their own :-? ...

- Ron

Austintatious
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Re: How do I allocate social security in retirement?

Post by Austintatious » Sun Sep 23, 2018 12:52 pm

NoHeat wrote:
Sun Sep 23, 2018 12:08 pm
1937bert wrote:
Sat Sep 22, 2018 11:00 am
Should I consider my social security as income received from my fixed income portfolio?
No.

Just like a pension or fixed annuity, SS is a steady cashflow stream that offsets the expenses you must fund from a portfolio.

If a retiree increased his expenses by switching to a better brand of Scotch, that would be the same effect on him as a reduction in his SS income. His Scotch is not an input into calculating his portfolio’s asset allocation, and neither is his SS income.
Well, it could just as easily be considered a reduction in his income from his holdings in the stock market or from his bond holdings or his bitcoins. But more importantly, however, is to ask why in the world he'd be drinking scotch in the first place when we all know that the retiree of better judgment drinks only single batch bourbons.

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