1/2/2024 0 Comments Andy griffith spouseThe term refers to the sum of non-taxable interest income, adjusted gross income and one-half of social security benefits. In determining the amount of social security benefits that are excluded, the threshold of $32,000 (joint filers) refers to “combined income” which is a defined term. It’s not really a “$32,000 exclusion” because it is a re-iterative calculation. “With SS, joint retirees get a $32,000 exclusion, but that exclusion isn’t indexed to inflation and hasn’t changed since 1984.” It’s simpler to view SS as a real cash flow that reduces the amount of withdrawals that an investment portfolio needs to generate in retirement.Īdditional analysis is available in the Bogleheads Wiki: Social Security as an investment Heirs do not inherit the remainder of your SS “bond” when you die. It isn’t possible to rebalance a portfolio using the value of a SS “bond”. SS benefits are not received for only 20 years they last for a lifetime. One could compare the price of an inflation-indexed deferred annuity or SPIA to a market portfolio of bonds that could be used to purchase the annuity, but they are not the same thing. SS is more like an inflation-indexed deferred annuity, or single premium immediate annuity (SPIA) once a person is receiving benefits. Good investment advisors should be able to explain how SS is different from an inflation-indexed bond. At best, there is controversy over whether to consider Social Security (SS) to be an inflation-indexed bond. If I were to go a financial advisor to talk about my retirement (I don’t because I trust myself) and he/she didn’t say in the first meeting something like “Think of your Social Security benefit as an inflation-indexed bond,” I wouldn’t return. In this case, 60% of your net worth (not including the equity in your house and any other major assets) is in stocks. So now it doesn’t look as if your retirement net worth is heavily into stocks. Let’s say that the value of that currently is $1.5 million. So let’s say that you’ve invested all your retirement assets, other than your house, in a stock index fund like Vanguard Total Market Index. You have, in essence, a $1-million inflation-indexed bond. Then the value of the SS bond is about $981,000. The value of the Social Security “bond” is the present value of a stream of income of $60,000 for 20 years. A principle I taught my students in my Cost/Benefit Analysis course is that you discount real magnitudes using real interest rates. What’s the value of the bond? That depends on the interest rate, of course. Let’s say you’re both relatively healthy and both expect to live for another 20 years.īecause SS benefits are indexed for inflation, you get annual “coupons” as if your SS is a bond. Because you’ve been taxed heavily for these benefits for, probably, over 40 years and because many of those years have been high-income ones, you and your spouse get $60,000 in SS benefits annually. Let’s say you’re 67 and have a spouse who’s also 67 and you’re about to start taking SS benefits. Here’s what you should know as someone thinking about your investment portfolio especially if you’re in your sixties or older: Social Security is like an inflation-indexed bond. Although she mentions one couple living “mainly on Social Security benefits,” that’s the only mention of Social Security. She interviews people about their strategy but, except for the case of Wayne Winquist, the reader gets very little feel for the net worth of the people being interviewed. (The electronic version, published July 4, has a somewhat different headline: “ America’s Retirees Are Investing More Like 30-Year-Olds.”) “Older Americans Invest Like 30-Year-Olds.” So reads the headline of a news story by Anne Tergeson on the front page of the July 6 Wall Street Journal.
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