headingout
Recycles dryer sheets
- Joined
- Feb 18, 2008
- Messages
- 147
'...fixed pension, then you own, in essence, a bond issued
by your former employer. If that employer was the government, you
can capitalize (that is, discount) its payments by a low rate --
say 6%. Your Social Security payments should be capitalized in
the same way....it would not be a bad idea to increase your stock
holdings to reflect the "bonds" you effectively own via your
pension and Social Security.' [Four Pillars, Bernstein, p.278]
I agree with this, and have chosen to allocate my assets this way. So how exactly should I compute the PV of my future Social Security payments? Here is the actual Excel formula I've been using:
=PV(6%, years_to_retire, 0, -(12*monthly_payment)/6%)
But two things concern me:
(1) Would it be more realistic to use the safe withdrawal rate of 4% as that 2nd rate above?
(2) Social Security payments are inflation-adjusted, which would seem to imply a larger PV. How should I account for this inflation-adjustment: do I just add 3% to that first rate above?
If there are any good financial heads out there who can help with this, I'd appreciate it. Thanks!
P.S. I realize the future of Social Security is debatable. I'm choosing to handle that with a separate 'safety factor', not shown here, but let's debate that issue in another thread if necessary.
by your former employer. If that employer was the government, you
can capitalize (that is, discount) its payments by a low rate --
say 6%. Your Social Security payments should be capitalized in
the same way....it would not be a bad idea to increase your stock
holdings to reflect the "bonds" you effectively own via your
pension and Social Security.' [Four Pillars, Bernstein, p.278]
I agree with this, and have chosen to allocate my assets this way. So how exactly should I compute the PV of my future Social Security payments? Here is the actual Excel formula I've been using:
=PV(6%, years_to_retire, 0, -(12*monthly_payment)/6%)
But two things concern me:
(1) Would it be more realistic to use the safe withdrawal rate of 4% as that 2nd rate above?
(2) Social Security payments are inflation-adjusted, which would seem to imply a larger PV. How should I account for this inflation-adjustment: do I just add 3% to that first rate above?
If there are any good financial heads out there who can help with this, I'd appreciate it. Thanks!
P.S. I realize the future of Social Security is debatable. I'm choosing to handle that with a separate 'safety factor', not shown here, but let's debate that issue in another thread if necessary.