Social Security as long term bonds
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Social Security as long term bonds
I've thought about this from time to time since adopting the PP a few years before getting ready to retire. If you think of Social Security like a long term government bond then should this affect your thinking on whether or not to keep 25% of your PP in long bonds? Don't recall HB or Craig and MT talking about it though I could have missed it.
My own thinking is just to consider them two completely separate things. Ideally, my goal is to be able to live either 100% on SS or 100% on my PP if I had to and I'm not that far off.
http://money.cnn.com/2015/06/11/retirem ... ?iid=SF_LN
My own thinking is just to consider them two completely separate things. Ideally, my goal is to be able to live either 100% on SS or 100% on my PP if I had to and I'm not that far off.
http://money.cnn.com/2015/06/11/retirem ... ?iid=SF_LN
Formerly known as madbean
- MachineGhost
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Re: Social Security as long term bonds
SS is income like an annuity. PP is wealth. You generally don't combine the two. Equity needs the bonds and gold as downside protection.
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Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Re: Social Security as long term bonds
Yes, but both depend on the full faith and credit of the U.S. government so they have that in common. Just thinking about having too many eggs in one basket though I really have no intention of changing my strategy. Just bringing it up as a conversation point.MachineGhost wrote: SS is income like an annuity. PP is wealth.
Formerly known as madbean
Re: Social Security as long term bonds
I wouldn't try to combine them.madbean2 wrote:Yes, but both depend on the full faith and credit of the U.S. government so they have that in common. Just thinking about having too many eggs in one basket though I really have no intention of changing my strategy. Just bringing it up as a conversation point.MachineGhost wrote: SS is income like an annuity. PP is wealth.
Just treat them as separate streams of income in retirement.
As far as whether the Social Security promise from the government is good, welfare for old people is basically cut-proof given how they turn out to vote.
Changes to Social Security have historically been phased in with long lead times so that the people who are getting screwed have no way to complain about it because they don't connect the dots when Congress enacts future cuts.
Health care in retirement is probably something to worry about more than income streams. Always remember that you've got up to 18 months of COBRA coverage through your employer, which would allow you to retire at 63.5 and bridge to Medicare eligibility without too much trouble.
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Re: Social Security as long term bonds
Yes, but don't wait more than 3 months after 65 to sign up for Medicare if you are on COBRA, because COBRA DOES NOT COUNT as employer-provided health insurance for the purpose of preventing a "late signup" PERMANENT increase in your Medicare premium.MediumTex wrote:I wouldn't try to combine them.madbean2 wrote:Yes, but both depend on the full faith and credit of the U.S. government so they have that in common. Just thinking about having too many eggs in one basket though I really have no intention of changing my strategy. Just bringing it up as a conversation point.MachineGhost wrote: SS is income like an annuity. PP is wealth.
Just treat them as separate streams of income in retirement.
As far as whether the Social Security promise from the government is good, welfare for old people is basically cut-proof given how they turn out to vote.
Changes to Social Security have historically been phased in with long lead times so that the people who are getting screwed have no way to complain about it because they don't connect the dots when Congress enacts future cuts.
Health care in retirement is probably something to worry about more than income streams. Always remember that you've got up to 18 months of COBRA coverage through your employer, which would allow you to retire at 63.5 and bridge to Medicare eligibility without too much trouble.
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Re: Social Security as long term bonds
To answer the original point, SS is not very much like a long-term bond, for at least the following reasons:
1. You can't rebalance into or out of it, or sell it if you need the money.
2. It has certain tax advantages that may or may not be significant depending on your other income.
3. It is theoretically inflation-adjusted.
4. Deciding when to take it is very complicated.
...
1. You can't rebalance into or out of it, or sell it if you need the money.
2. It has certain tax advantages that may or may not be significant depending on your other income.
3. It is theoretically inflation-adjusted.
4. Deciding when to take it is very complicated.
...
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Re: Social Security as long term bonds
Also, long-term bonds are very different from most other bonds or a bond index fund. They are handpicked for the portfolio to swing into action when you need them most, whereas most types of bonds serve mainly to merely not go down when stocks do. (Not on a day-to-day basis, of course).
Social Security of course, won't suddenly surge in value to save you from other things crashing.
Social Security of course, won't suddenly surge in value to save you from other things crashing.
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Re: Social Security as long term bonds
If we were looking at extreme deflation, I think Social Security might very well surge in value, just like long bonds. Whether it could be sustained in the resulting political environment is another story.dualstow wrote: Social Security of course, won't suddenly surge in value to save you from other things crashing.
Last edited by screwtape on Fri Jun 12, 2015 5:32 pm, edited 1 time in total.
Formerly known as madbean
Re: Social Security as long term bonds
Social Security is adjusted for inflation. I suspect that if deflation got bad enough they would just make it so that the inflation adjustment could be negative and reduce your monthly dollar benefit (spending power would be the same).madbean2 wrote:If we were looking at extreme deflation, I think Social Security might very well surge in value, just like long bonds. Whether it could be sustained in the resulting political environment is another story.dualstow wrote: Social Security of course, won't suddenly surge in value to save you from other things crashing.
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Re: Social Security as long term bonds
People would riot! It's capped at 0% like I-Bonds, which is a great feature to help offset inflation that doesn't cover your actual inflation. TIPS can get a negative inflation adjustment, right?MediumTex wrote: Social Security is adjusted for inflation. I suspect that if deflation got bad enough they would just make it so that the inflation adjustment could be negative and reduce your monthly dollar benefit (spending power would be the same).
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!