As a retired investor I continually analyze my portfolio and look for ways to balance risk vs. returns. One thing that many investors might ignore in their portfolio balance is their $800,000 – $1,400,000 bond. It’s called Social Security.

Investors should value their Social Security benefits as a bond in determining their portfolio mix. I’ll give you a way to determine what your Social Security is worth. You might have decided that at your age you want a 50/50 split between equities vs. fixed income (bonds, CD’s etc.) So, how much is my Social Security really worth?

Today if you are 66 years old, plan on delating your Social Security until age 70 (which I highly recommend), have a spouse who will take “spousal benefits” at age 66 your Social Security the maximum payment you’ll get at age 70 (both spouses) is $58,600. This assumes a very modest 2% annual inflation adjustment rate.

Therefore, what size bond do you have if your annual distribution is $58,600? Well that depends on the interest rate of the bond.  Let’s look at some examples:

Annual Distribution = $58,600

Bond Rate           Value of Bond

7%                          $837,143

6%                          $976,667

5%                          $1,172,000

4%                          $1,465,000

Today a bond paying 7% is probably “junk” rates and very risky, although a few years ago these bonds could have easily been AAA+ rated.

So, my point is that if you look at your Social Security as a “bond”, in your investment mix you might decide to allocate almost all of your other investments into equities, depending on the size of your total portfolio.

My current recommendation is to stay almost 100% in equities until the Fed raises interest rates and you can get either a 30 year Gov’t bond or a AAA corporate bond at 5 -7 % and then start to ladder into a bond mix. In the meantime, stay out of bonds.