I realized the 52 vs 62 thing ten minutes after I posted
But for me personally, since I do want to plan out to 100, it is all pretty much the same. But that is just me.
OK, so you are calculating the bond equivalent of a stream of SS payments. But if the intention is to determine how it might impact an
individual's asset allocation, I still think you need to look at what FireCalc would tell you about how it impacts the
individual. That is still the thing, not the average value of that SS stream.
Let's go back to my earlier FireCalc example (defaults including 30 year cycle):
Run FIRECALC. Set to retire in 2007 and the defaults. Set the results to show portfolio required for 95% success.
I get $754,716 starting portfolio with zero SS.
I get $503,135 starting portfolio with $10,000 SS starting in 2007.
Further, let's assume each wanted an equivalent 75/25 split of Equities/Bonds. Let's round to $750K and $500K portfolios.
With zero SS, a 75/25 split would point to a $562K equity, $188K bond, portfolio. However, the person with the SS payment is thinking of these as bond equivalents. W/O SS, they would have had $562K in equities. But, they only have $500K total. So, it appears to me that they would keep their entire $500K in equities, no bonds.
I suppose another valid view would be Buffet's other statement, think of the SS payments as an average 5% bond dividend. Then the $10,000 SS payments represents $200K of 'phantom bond assets'. End up about the same,$750K minus $200K in bonds gets you to $550K equities - the whole thing.
I just don't think that the probable ending value of the portfolio fits into this calculation. We do not know that until the day the person dies, so we just plan on what we can. In this case, 30 years and a good chance of success based on the market history - maybe a big pile at the end, maybe not. On an
individual basis, the size of the pile could end up at either extreme, we can't really 'plan' on either - it will be what it will be.
Is there a flaw in that logic? Or is that not the 'problem' you were trying to solve?
Oh, so my own answer to the question you posed to C-T is, yes, I would assign a 25x multiplier to the SS stream. Because that is how it impacts my personal portfolio, and that is my concern.
Edit/Add: One small point. This just became an iterative problem since we ran the defaults at 75/25, but the SS guy points to 100/0. So I re-ran FireCalc with 100% equities for the SS case. It wants a slightly higher starting portfolio of $528K, so it would still be all equities.
-ERD50
PS: I hope you don't think I'm just trying to be argumentative on this. I am trying to get a handle on this for my own needs. I'm really just trying to validate if my position is correct. If I am shown that I'm wrong, I will have learned something. That's a good thing. Or, it could be that people decide there are different, but still valid views to take. That is fine, too.