Pretending Social Security is an annuity and calculating a base for it???

[LostDollar]

All good answers but Rednecks don't look at it like that. We used a simple formula called Gimmemydamncheck.

You must be special. How are you going to get a check?

 

[scagnt83]

Social Security is set to run out by 2035. How would you feel if you invested in a system that promised to pay you when you retire and you never received anything from that investment?.

That is incorrect. It is set to not have enough, but that is very different than "running out".

If your restaurant bill is $20, and you only have $18... does that mean you have no money?

Or does that mean you just need to move some money into that account and budget differently moving forward?

SS is not set to run out. Its set for a 20% reduction if congress does not fix the budget.

 

[rmhaire]

You must be special. How are you going to get a check?

Definitely not special. But every 4th Wednesday I'm a happy little turd.

 

[LostDollar]

(Caveat, not an agent.)

For retirement asset allocation purposes:

If one wanted to pretend Social Security is an annuity and make some lifespan assumptions:

How would they compute a $ basis for the annuity payment in order to do asset allocation %'s with other retirement assets?

Thank you.

Not an asset, it ends at death, so I would say it is an income, just like a pension or a part time job is. An asset is generally something that has a calculated value that can be sold or left as an inheritance. Solely my opinion, not part of my Harvard education

But other much smarter professionals than I do consider it an inflation adjusted asset that should come into play in your asset allocation assumptions. Obviously, people that meet their needed income needs from SS & pensions can have a more aggressive portfolio than someone that must generate X amount of income from a more limited portfolio

Note that OP's post is not stating SS is an asset, he is just asking about the mechanics one would use for the process discussed in your second paragraph.

The video addresses that. At the moment, somarco's approach was quick and simple and it was what I used to address my immediate asset allocation problem.

As far as Social Security as an asset, I think the income stream could be considered an "asset" (as in monthly financial resource) if one anticipates a long-term need for a survivor benefit.

 

[Life Hawk]

Social Security works more like a Ponzi scheme.

Yes and no... one attempts to perpetuate a scheme by using other people's money through illegal (unmandated) activity, the other attempts to perpetuate a scheme by using other people's money through legal (mandated) activity...

however; the latter operates the presses and levies the taxes to perpetuate the scheme while controlling the methods and means to enforce compliance to the agenda.

"The Law" by Frederic Bastiat... interesting read.

Now before anyone goes and gets all huffy, I'm just adding additional perspective.

 

[LostDollar]

Reverse engineer a SPIA quote. Your monthly income for life = how much you'd have to put down initially to get that amount.

You're going to get a decent idea that way.

Then assume that the whole thing is a spend down savings account, meant to be zero at life expectancy. That way, the only wrong calculation (you live a long time) is in your favor.

That is an interesting idea. Thank you for the perspective. Since I am not an agent, I don't think of a quick and easy way to get an SPIA quote, so I am going to use somarco's comment as a quick and easy frame of reference for my immediate problem. I'll have to keep your comment in mind for the future.

 

[Tahoe Ray]

Since I am not an agent, I don't think of a quick and easy way to get an SPIA quote

Here you go: [EXTERNAL LINK] - Advanced Annuity Calculator — ImmediateAnnuities.com

 

[LostDollar]

FWIW, you would need $400k earning 6% to generate $2k in monthly income. As Allen indicated, SSA has "some" inflation protection but it is an asset that disappears at the death of the beneficiary.

Another consideration is . . . the SSA benefit is normally non-taxable which makes it even more valuable.

If one thinks in terms of possibly outliving their own financial assets and sees the SS survivor benefit as a long term payout, then there is a (valuable) resource that does not disappear at the death of the beneficiary.

Your estimate approach gives me a quick idea about relative risk to my overall income from aggressive risk in the particular asset allocation I was concerned about.

Thanks.

 

[Deborah Armstrong]

Sorry for the delayed response. I think there was a misunderstanding about my comment. The initial comment was more of a comparison because I misread the question. My apologies. I was thinking the question was "is Social Security an annuity?" and I was saying it was more like a Ponzi scheme than an annuity.

As far as the real question and not what I thought was being asked. Many of you answered sufficiently. I have nothing more to add.

As far as being accused of being a troll. The definition of a troll is someone who is deliberately trying to upset others with their comments. That was not my intention. I was merely making a comparison and then explained why. I didn't say it was a Ponzi scheme, I said it was more like a Ponzi scheme than an annuity. The majority of those receiving Social Security outnumber those that were paying into the system. It doesn't matter if it is the law and that everyone has to pay. It is being propped up by making cuts to what we were promised. They aren't keeping the original promise. Eventually we will no longer have Social Security. It may not be in our life time, but I just don't see it lasting forever. Like Tahoe Ray said: you can only kick a can so far.

Should have stated it will run out by 2035, probably not. I wish I could retrack that statement. However, I said it only because it is a stated common theme, that we hear regularly, so I put it out there.

 

[somarco]

sees the SS survivor benefit as a long term payout

SSA survivor benefits are generally not long term and (almost?) always tied to dependent children under age 18.

I generally don't get involved with SSA benefits but, unless things have changed, it is rare for a surviving widow/widower to collect benefits. One exception is a surviving spouse collecting SSA at age 62 based on the decedents earnings.

What are you thinking of?