Is Social Security a bond? Amateur planners love to calculate the present value of a $2,500 monthly benefit—roughly $430,000 at modern yields—and list it on their balance sheet under “fixed income.” This is a category error. You cannot sell your Social Security stream to pay for a medical emergency, you cannot borrow against it, and you cannot leave it to your children. Treating an illiquid government promise as a liquid bond proxy is a recipe for taking too much risk in the rest of your portfolio.
Instead, treat Social Security as a negative expense. In your cash flow model, it functions as a guaranteed floor that offsets your baseline spending, lowering your portfolio’s required annual draw and thereby reducing your sequence of returns risk.
To be conservative, account for political risk. The Social Security Trust Fund is projected to deplete its voluntary reserves by 2033, after which incoming FICA taxes will only cover roughly 79% of promised benefits. For long-range high-net-worth projections, model your future Social Security stream at 79% of the amount shown on your SSA statement. If your retirement plan still shows a safe withdrawal rate below 3.5% under this haircut, your balance sheet is bulletproof.