Understanding the Monetary Value of Social Security Benefits

In my Op-ed published on December 8 by Bloomberg News (at http://bloom.bg/v2UCRq ), I suggested that the Social Security System could be made financially stronger while giving Social Security beneficiaries more choices about how and when their benefits are distributed.

I indicated in last week’s blog that I would show the advantages of a strategy of staging the election of Social Security benefits.

Before doing that, it’s important to establish a principal not well understood – the monetary value of the right to receive income for the rest of your life from a trusted source such as Social Security, a pension plan, or insurance company. Just because this right may terminate at your death (which can be ameliorated with a surviving spouse or beneficiary option) doesn’t mean it has no value. As long you are of average health, that value can be calculated quite readily – and even if you are not of average health, there is still value.

For example, the value of a Social Security benefit of $2,000 per month for a male 66 in average health could be worth $400,000 or more. That’s the personal store of value referred to in my Op-ed piece. What are the implications of that number?

  • It’s large and can represent a significant part of your retirement savings.
  • You should have options on how best to utilize that $400,000 of value.
  • Delaying the election of benefits in whole or in part (under the reform proposal) can grow that value for future consumption.

Certain commentators described my Social Security reform proposal as overly complex. My responses are: (a) it’s a mistake not to provide the beneficiary more choices with so much at stake;(b) Social Security policymakers and administrators can determine how many choices they offer to individual beneficiaries; and (c) there’s a cottage industry today providing Social Security advice, and with this reform they’ll simply expand their tool set.

Jerry Golden
Your Retirement Advisor