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Social Security minimizes risk

By Jennie L. Phipps ·
Monday, November 14, 2011
Posted: 3 pm ET

If you're feeling nervous about investing your retirement savings in this unstable investment environment, Jerry Golden, who is an actuary as well as a registered investment adviser, thinks you should calm down.

He advises people doing retirement planning to remember they are going to get Social Security, and "Social Security is one of very few financial instruments that provides retirement payments that are payable for life and increase with the cost of living."

He tells his clients to keep these two factors in mind when they integrate Social Security into their overall retirement plan:

  • Product/asset allocation. "Determine the current present value of your Social Security benefits and assign it the lowest risk category. For example, a typical Social Security benefit might be worth $400,000 over today's lifetime. If between your personal savings and 401(k) you have another $600,000, then plan your allocation for $1 million," Golden says.
  • Income simulations. "Integrate the cash flow from Social Security into any income simulation, including the testing of various draw-down strategies. The predictability of the Social Security payments might impact your strategy."

The lifetime value of Social Security is at least $700,000 for most couples. If you have another $700,000 in personal savings, Golden says to think of it this way: You have 50 percent in fixed income, so you can invest the remaining 50 percent less conservatively.

If half your income is in Social Security, "You can withstand some of the vagaries of the market. Even if you have a few misses, your misses aren't going to be as significant," Golden says. "You can afford to be flexible."

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November 19, 2011 at 3:03 pm

It is monstrously irresponsible to say that Social Security could vanish at any moment. It's been around for 70 or so years, longer than most private plans, it has billions of dollars in bonds behind it, and it is fully funded over the next 20 years. Only after that time is there a risk that payments can be reduced but not disappear. When I look at what has happened to private pensions and 401(k)s I can see Social Security is the lowest risky form of retirement income. Unfortunately, it's just not enough. But it is a safety net.

November 15, 2011 at 3:11 pm

If the budget deadline taught us anything is that you SHOULDN'T count on your Social Security.

It's not ALWAYS going to be there and it isn't a guarantee.
It can be taken away at any moment if the US Government deems it so, no matter what any of you could say.

I think it's irresponsible to say that Social Security is "fixed income" when it could completely vanish at any point, specially now that Boomers are beginning to collect.

The only money you can truly count on is your own, not a government hand-out.