Are you a secret multi-millionaire?
You might be, in a virtual kind of way.
The best part of all is that you don’t even have to work for it, at least not any more. The only requirement: You must be retired. And receiving Social Security benefits.
Yes, you may be a Social Security Virtual Multi-Millionaire!
I discovered this in an odd way. I was thinking about how important Social Security benefits are. Then I asked myself, “How much would you need in investment assets to produce the income in a Social Security benefit check?”
The short answer: A lot.
Gee whiz, that’s nearly $3 million!
Here’s an example. According to the most recent Social Security administration monthly snapshot, the average benefit check for retirees is now $1,510.83. That’s $18,111 a year if we round to the nearest dollar.
With the ten-year Treasury bond now yielding 0.68 percent, you’d need to have a whopping $2,666,176 invested to produce that amount of income. Yes, you read that right: nearly $2.7 million.
Higher yields mean you need a smaller portfolio
You can, of course, reduce the money needed by leaving the security of U.S. Treasury obligations. You can take some risk. Invest in the Total U.S. Bond market, current yield 1.49 percent, and you’ll need a mere $1,216,779.
But why stop there? Go out on a long, spindly limb. Invest in the S&P 500, current yield 2.22 percent, and you’ll need a mere $824,089. Just be prepared for a few dividend cuts from time to time. (Use the calculator below to see what your benefits are worth.)
[CP_CALCULATED_FIELDS id=”7″]
If your monthly Social Security benefit is higher than $1,510.83 – and about half are – you’ll need to scale up accordingly. A top 1 percenter in Social Security benefits, for instance, pulls in a nice $3,200 a month, or more. That would mean a portfolio of at least $6 million in ten-year Treasury bonds.
Social Security: Don’t retire without it
Do you feel rich yet?
Probably not.
You might, however, be developing a greater appreciation for the rising importance of Social Security in the grand scheme of things. Declining interest rates and declining dividend yields have been making Social Security an ever more important part of retirement income. For everyone.
That’s a good reason not to mess with it.
Astute readers will be quick to point out that the actual value of Social Security isn’t anywhere near these heroic figures. Why? Because benefits stop when we die.
The actual value is closer to the sum of the benefits we receive between retirement and death. So, here’s a calculator that will help you figure out what might be called the cash value of your Social Security benefits.
[CP_CALCULATED_FIELDS id=”6″]
Even as annuity values, these are big numbers
These lower values lose something in drama while gaining in literal accuracy. But it’s still a big number. The point here is that the importance of our virtual wealth in Social Security is skyrocketing relative to the importance of our actual retirement savings.
With pensions a thing of the past, Social Security is the elephant in the room for retirement security. It’s relevant to everyone except the Super Rich. That means both of our political parties need to do the math before they start making an already large mess larger.
Related columns:
Scott Burns, “How does your Social Security benefit compare to others?” 10/18/2018 https://scottburns.com/how-does-your-social-security-benefit-compare-to-others/
Sources and References:
Distribution of Monthly Benefits, December 2019 https://www.ssa.gov/oact/ProgData/benefits/ra_mbc201912.html
Social Security “Quick facts monthly statistical snapshot,” 5/2020 https://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Pexabay
(c) Scott Burns, 2020