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Treating SS as a bond for AA purposes
Old 11-30-2008, 10:04 AM   #1
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Treating SS as a bond for AA purposes

We've talked about this before, but I thought this piece by Jason Zweig in yesterday's WSJ was a nice summary:

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Old 11-30-2008, 10:08 AM   #2
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A good read. This is a key element of the article:

"The market meltdown may have scared you into wanting to cut back your stockholdings by 10% or 15%. But Uncle Sam already has done that for you automatically [when you include the value of SS in the mix]. Do you really need to do it again, just as the markets have declared the sale of the century on stocks?"
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Old 11-30-2008, 10:12 AM   #3
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Clever. Funny though how the past few years the meme has changed from 'Don't depend on your SS' to 'Depend on your SS when your investments take a hit'
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Old 11-30-2008, 10:13 AM   #4
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Clever. Funny though how the past few years the meme has changed from 'Don't depend on your SS' to 'Depend on your SS when your investments take a hit'
Glass half full or half empty?
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Old 11-30-2008, 10:13 AM   #5
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Good article. Yes, many of us are looking at SS much differently today.

While I have not managed my portfolio with SS as an assumed bond... this is a good (additional) reason to invest in stock for the long-term and not over do it in bonds... especially if you need to fund a long retirement.
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Old 11-30-2008, 10:19 AM   #6
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Good catch! I view SS as a nice bonus. I expect to get it, after studying the issue I believe the hysteria over SS doesn't have much basis, but I don't think about it much.

The real problem is Medicare, I fully expect that to blow up.

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Old 11-30-2008, 11:01 AM   #7
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This is a rehash of many past threads. Do you calculate the NPV of SS, pension, or annuity and then treat it as part of your asset allocation?

I have fixed on a dollar amount that I estimate would be needed to supplement my small pension and SS for a decent but basic retirement. It worked out to be 40% fixed with 60% in equities. With my equities down considerably, I'm holding the dollar amount constant in my fixed which has me around 55% fixed and 45% equities.

That's how I've set things up and its pointed towards a clear minimum objective. If I calculated my NPV and plugged them in, I'd have a much higher fixed number but I wouldn't change anything.

I think my approach makes good sense for someone about to be or already retired. For a young wanna-be, it's probably meaningless to put a pension or SS into the mix since it's so far out in the future.
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Old 11-30-2008, 11:11 AM   #8
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The real problem is Medicare, I fully expect that to blow up.
You are making me feel MUCH better about working two extra years past financial independence, just so that I qualify for lifetime medical!! I just returned from vacation (actually two vacations, back to back), and really wish they could continue. I only have less than one of those two years to go, though. Still, on Tuesday I'll be singing "hi ho, hi ho, it's off to work I go".

I am not optimistic about Medicare, and even in the best case I think the premiums for Medicare, Part B, will increase even more dramatically than they already have.
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Old 11-30-2008, 11:23 AM   #9
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Good catch! I view SS as a nice bonus. I expect to get it, after studying the issue I believe the hysteria over SS doesn't have much basis, but I don't think about it much.

The real problem is Medicare, I fully expect that to blow up.
the drug benefit from 2004 was supposed to slow the rate of growth and there are still a lot of things they can do to cut costs, like putting more restrictions to accessing care and making the whole thing an HMO type plan
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Old 11-30-2008, 11:26 AM   #10
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You are making me feel MUCH better about working two extra years past financial independence, just so that I qualify for lifetime medical!!
Could you clarify this? I believe Medicare may be part of your lifetime medical. I have friends who worked for the Feds, and when they turned 65, they went onto Medicare. Only their supplemental and drugs were paid for by their Federal package. Not sure who paid the Part B premium.

Same way for retired career military who elected to go on Tricare For Life. Medicare provides their primary coverage after age 65.
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Old 11-30-2008, 11:36 AM   #11
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Could you clarify this? I believe Medicare may be part of your lifetime medical. I have friends who worked for the Feds, and when they turned 65, they went onto Medicare. Only their supplemental and drugs were paid for by their Federal package. Not sure who paid the Part B premium.

Same way for retired career military who elected to go on Tricare For Life. Medicare provides their primary coverage after age 65.
FEHB (Federal Employees Health Benefits) is primary until age 65, when Medicare Part A, the free part of Medicare, becomes primary and FEHB becomes secondary. No matter what Part A provides or doesn't provide in the future, FEHB picks up the rest. They just aren't going to pay for something that you already get for free.

I would sure hate to face old age with nothing but Medicare, Part A.

Medicare, Part B provides a few benefits that are not provided by FEHB or Part A, but not enough to persuade most retired feds to pay the increasingly substantial premiums for it. FEHB will pick up most of what Part B covers, so Part B is quite redundant. Medicare, Part D is completely redundant.

More information about FEHB is available here, if you are interested: http://www.opm.gov/insure/health/index.asp
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Old 11-30-2008, 11:37 AM   #12
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Doesn't bother me. I do everything I can to take care of my health, zero refined foods (no animal foods, no white flour, soymilk, etc) and plenty of exercise. And so my stats are perfect. If I still get some horrible disease - oh well, we're not meant long for this world any way you cut it.

Maybe it comes from my Dad working in the pharmaceutical industry. I don't put my faith in them or the doctors. My Dad doesn't either, he won't take medications (still doing great into his 70's)

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You are making me feel MUCH better about working two extra years past financial independence, just so that I qualify for lifetime medical!! I just returned from vacation (actually two vacations, back to back), and really wish they could continue. I only have less than one of those two years to go, though. Still, on Tuesday I'll be singing "hi ho, hi ho, it's off to work I go".

I am not optimistic about Medicare, and even in the best case I think the premiums for Medicare, Part B, will increase even more dramatically than they already have.
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Old 11-30-2008, 11:43 AM   #13
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The real problem is Medicare, I fully expect that to blow up.
I don't think that will happen - not at the dawning of universal health care.
Also, it is very easy for the government just to increase the percentage workers have deducted from their pay to cover any government costs.

On the SS question - I don't see the value in including it in an allocation.
I just include it in my cash flow computation.

Estimated expense budget
Less SS
Equals amount to be withdrawn from investments.
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Old 11-30-2008, 11:49 AM   #14
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I wonder if universal health care will be done within the next decade. Such a hot button issue quickly took a backseat.

SS,medicare will be around. I mean all we have to do is keep printing money right?
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Old 11-30-2008, 11:50 AM   #15
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I don't think that will happen - not at the dawning of universal health care.
Also, it is very easy for the government just to increase the percentage workers have deducted from their pay to cover any government costs.
Also, retiring baby boomers will be the biggest voting block.
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Old 11-30-2008, 12:52 PM   #16
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More information about FEHB is available here, if you are interested: OPM-Federal Employees Health Benefits Plan Home Page
Thanks for posting that link - lots of interesting info there.
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Old 11-30-2008, 01:06 PM   #17
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I wonder if universal health care will be done within the next decade. Such a hot button issue quickly took a backseat.
Probably will not be an issue until one year prior to next presidential election (2011) as there is too darn many other hot button items to handle now ~ two wars, rotten economy, Hillary C. will be SOS not Senate universal healthcare driver, which dog should Obama girls get....glad that the new school in DC issue is already settled.
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Old 11-30-2008, 08:13 PM   #18
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this may be heresy, but having been born in 1958, i don't count on it being there in the way my current statement says it will be.
if it is, i am a happy camper.
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Old 11-30-2008, 08:50 PM   #19
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On the SS question - I don't see the value in including it in an allocation.
I just include it in my cash flow computation.

Estimated expense budget
Less SS
Equals amount to be withdrawn from investments.
Ditto that.

Estimated expense budget
Less SS
Less Pension
Equals amount to be withdrawn from investment
Allocation was 50/50 now 40/60.
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Old 12-01-2008, 01:15 PM   #20
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i don't count on it being there in the way my current statement says it will be.
This is how I treated my SS benefits during my accumulation period also. When I started doing a bit of reading on SS in the early 70s I could see that there could possibly be a big bunch of trouble down the line when I retired so in my savings plan (very unsophisticated at the time) I assumed that I would only have whatever $ I could save, invest and could be generated by a pension.

My simple plan, it turns out, was a rare stroke of genius (or luck) as I will be receiving full SS benefits in a couple of years to the tune of about $25k annually. All this, in addition to my savings/investment plan and pensions, guarantees that we will have many restful nights of sleep in the future.

"Plan for the worst. Hope for the best."
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