A reader writes in, asking:
“At our local Bogleheads chapter meeting, there was a heated discussion about Social Security, specifically, whether it should be counted as a bond in your asset allocation. My view is that it’s not really an asset because you can’t sell it. But one of the more experienced people in our group was emphatic that it’s a mistake to leave Social Security out of an asset allocation analysis and that it should be counted as a bond because it provides predictable payments.”
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:
- Determine how much money you plan to spend each year during retirement.
- From that, subtract any part-time job or business income you expect to earn.
- From the remaining amount, subtract your Social Security/pension income to determine how much you will need to spend from your portfolio each year.
- Then make any portfolio-related decisions (including asset allocation) with that net required-spending-from-portfolio figure in mind.
"An excellent review of various facts and decision-making components associated with the Social Security benefits. The book provides a lot of very useful information within small space."
FAQs
An asset is something containing economic value and/or future benefit. An asset can often generate cash flows in the future, such as a piece of machinery, a financial security, or a patent. Personal assets may include a house, car, investments, artwork, or home goods.
Does social security count as an asset? ›
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.
Is social security like a bond? ›
That's because Social Security is inflation-protected while the pension is taking on a lifetime of inflation risk. The pension is like a super long-term bond, whereas Social Security is an inflation-adjusted paycheck for life.
What is risk asset allocation? ›
A risk allocation approach diversifies a portfolio based on the risk of each asset class rather than the amount of money in each asset class. Asset classes with lower risk receive a greater allocation, while asset classes with higher risk receive a lesser allocation.
What's in asset? ›
Personal assets can include a home, land, financial securities, jewelry, artwork, gold and silver, or your checking account. Business assets can include such things as motor vehicles, buildings, machinery, equipment, cash, and accounts receivable.
What is considered an asset? ›
Assets are things you own that have value. Assets can include things like property, cash, investments, jewelry, art and collectibles. Liabilities are things that are owed, like debts. Liabilities can include things like student loans, auto loans, mortgages and credit card debt.
How much money can you have in the bank and still get Social Security? ›
Social Security will take into consideration the amount of your assets, because it is a needs-based program. To be eligible for SSI, your assets must be less than $2,000 for an individual and less than $3,000 for a married couple.
How much money can you have in the bank when on Social Security disability? ›
Individuals in the Social Security Disability Insurance (SSDI) program receive long-term income because they are unable to work; the program does not place any limits on savings account amounts or other financial assets generally.
How to avoid being cut off SSI benefits when you get a sum of money? ›
Utilizing a “Spend Down” to Maintain SSI Benefits
If you're on SSI and recently received a large sum, you can utilize a “spend-down” to ensure that you remain with SSI's resource minimums. Per the SSA, a “spend-down” involves spending the cash that you've received until you're below the resource maximum.
What will happen when Social Security runs out? ›
Reduced Benefits
If no changes are made before the fund runs out, the most likely result will be a reduction in the benefits that are paid out. If the only funds available to Social Security in 2033 are the current wage taxes being paid in, the administration would still be able to pay around 75% of promised benefits.
Social Security will not give you a loan or let you borrow against your future benefits. You can't, for example, ask to borrow $5,000 and then simply have Social Security deduct that sum from your benefits once you start collecting them.
Which president borrowed the most from Social Security? ›
Bush 'borrowed' $1.37 trillion of Social Security surplus revenue to pay for his tax cuts for the rich and his war in Iraq and never paid it back”.
Which asset is the most liquid? ›
Cash is the most liquid asset possible as it is already in the form of money. This includes physical cash, savings account balances, and checking account balances.
Is now a good time to buy bonds? ›
Bond yields have shot higher since March 2022, when the Federal Reserve began raising interest rates. The 10-year Treasury yield has soared to 4.67% Friday (April 26) from 1.72% Feb. 27, 2022. It even hit a 16-year high of 5% last October.
Is a 401k considered an asset? ›
Your 401(k), and any other retirement accounts, are financial assets. These are portfolios in which you hold securities and investment products that have either realized or potential value. This makes your 401(k) portfolio an asset in your name as long as you own the account and as long as it has a positive balance.
Which asset is best to invest in? ›
20 Best Investment Options in India in 2024
| Investment Options | Period of Investment (Minimum) | Returns Offered |
|---|
| Stock Market Trading | As per the investment Profile | 7- 20% |
| Mutual Funds | Min. 3 years for ELSS | 8-20% p.a. |
| Gold | As per the investment Profile | 13% Avg. Returns in 2023) |
| Real Estate | As per the investment Profile | 6-12% p.a. |
14 more rowsAs a rule of thumb, financial advisors generally recommend holding three- to six-months' worth of living expenses in a cash account that's easy to access. By keeping your emergency fund in cash, you avoid the risk of having to sell other assets you own, such as stocks, at a potential loss when something comes up.
What is not considered an asset? ›
Business assets include money in the bank, equipment, inventory, accounts receivable and other sums that are owed to the company. Hence, a building that has been taken on rent by the business for its use would not be regarded as an assets because company have no ownership of that building.
