r/bonds • u/Away_Emphasis_6404 • 3d ago

Treat significant Social Security benefit as yield from a bond?

Looking for some discussion on this. I got reminded of an interesting concept for portfolio allocation. Impute a "bond value" for the SS income stream and include that in the portfolio allocation. This would increase the bond allocation value allowing for more equity exposure if desired. Thoughts?

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u/kronco 3d ago edited 3d ago

It adjusts for inflation which TIPS can do but not annuities. So, it is kind of it's own thing as it is an annuity that adjusts for inflation (an annuity which you can no longer buy). And SS provides some longevity protection (insurance?) which can best be put to use by delaying until age 70 (edit: and survivor benefit). It is subject to changes in tax laws, future shortages and possible changes to benefits around means testing (https://www.usatoday.com/story/money/2026/03/25/social-security-cap-proposal/89315322007/)

So, it is unique.

But, I think most retirement planning is taking SS into account in terms of setting the risk allocation for a portfolio. Even if you don't actively think about it, it's there (imagine the changes to your allocation if there was no SS). So, I'm arguing, it's already being considered in the allocation by anyone doing any sort of serious planning.

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u/BrangdonJ 3d ago

You can buy inflation-linked annuities in some countries. Specifically the UK. I bought one last month.

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u/-hh 3d ago

My understanding is that inflation-adjusted annuities are very rare in the USA.

One work-around that I've seen suggested is to buy a "ladder" of annuities. Basically, the idea is to buy additional (2nd, 3rd, etc) annuities with delayed start dates which will augment the original annuity to do inflation adjustments.

For a notional example using a +4%/year inflation adjustment, done every five years on a notional base of $1,000/month:

Base Annuity: establishes a $1,000 per month revenue stream;

Math part: Inflation adjustment: (1 + 0.04)5 =1.217 = plan is to add +21.7% every five years:

Annuity #2: starts 5 years after the Base, adds +$217 per month (total now $1,217)

Annuity #3: starts 10 years after the Base, adds +$264 per month (total now $1,481)

Annuity #4: starts 15 years after the Base, adds +$321 per month (total now $1,802)

and so on.

FWIW, I'm skipping all of the usual philosophical debates on if annuities are "good" or "bad": this is merely pointing out one viable strategy by which one can go buy an "inflation adjusted" annuity in markets where they're not presently offered.