You are likely much wealthier than you realize.

People own lots of different kinds of assets. Bank accounts, retirement plans, property, a business, home, etc. You have a pretty good idea of what these assets are worth because you get account statements, tax assessments or financial reports.

But the value of your expected Social Security benefits doesn’t really show up anywhere.

Sure, the Social Security Administration provides statements that show how many years you’ve worked and what your monthly benefit would be at full retirement. But unless you have an unusual fondness for numbers, you probably don’t calculate what this stream of future benefits is worth as an asset.

You Can Get a Rough Idea of the Value of Your Social Security Benefits

A bond is a security that pays you interest over time. If you own a bond or bond fund in a retirement plan or brokerage account, you get statements that show the interest you’re being paid and the market value of your investment.

Social Security pays benefits to retirees over time. But they don’t report to you the value of this asset.

Which makes some sense. You can’t know exactly what your benefits are worth. That will depend on how long you work, how much you earn, and how long you will live. Also, unlike most assets, you can’t sell your future benefits to someone else.

But if you can’t know exactly what your Social Security Benefits are worth, you can see from some examples that they are likely worth a lot.

Some Illustrative Numbers

According to the Social Security Administration, the average monthly benefit paid to a retired worker in July 2020 was $1,515. The spouse of a retired worker was paid an average $786 per month, so that’s $2,301 for a retired couple.

Let’s assume that these benefits are going to be received for 20 years. What are they worth today?

Using an online financial calculator, we can add up the value in today’s dollars of all these future payments. Here’s what we find:

Present Value of Average monthly Social security benefits to retirees

Source: Calculations by America First Investment Advisors; Social Security Administration benefit data as of July 2020; Treasury bond yields reported by the Wall Street Journal 8/16/20 used for corresponding discount rates. Calculations exclude possible cost of living adjustments.

So, the table shows that the individual retiree who draws average Social Security benefits for 20 years has an asset worth $319, 716. A retired couple who receives the average individual retired worker benefit and the average benefit to a spouse has an asset worth $485,800.

True, this asset can’t be sold. But it has real value to the individual or couple who will receive monthly benefits for years.

A Second Example: Maximum Monthly Benefits

Let’s look at another example, this time for an individual who qualifies for the maximum monthly Social Security benefit.

The Social Security Administration reports that the maximum monthly benefit in 2020 for someone retiring at age 66 is $3,011. What is the value of this larger monthly stream?

Present value of maximum monthly Social security benefits to Retirees

Source: Calculations by America First Investment Advisors; Social Security Administration benefit data as of July 2020; and Treasury bond yields reported by the Wall Street Journal 8/16/20 used for corresponding discount rates. Calculations exclude possible cost of living adjustments.

An individual who will receive the maximum benefit for 20 years has an asset worth nearly $650,000. If both individuals in a couple qualified for the maximum monthly benefit, the asset value would be twice as high.

Receiving this maximum benefit is tall task because it requires earning a high level of income for many years. But the point remains: Social Security benefits can be worth a lot.

Some Implications

Recognizing the asset value of Social Security benefits can provide some useful insights:

• You shouldn’t be too discouraged if your bank account and other savings aren’t as high as you’d hoped. If you or a spouse have been working and paying into Social Security, you’ve built real asset value. It just isn’t shown on any account statement.

• Your assets may be safer and more diversified than you know. Social Security benefits can be thought of as a sizable fixed-income asset with the best guarantee of credit quality. It’s like having a stack of certificates of deposit from the bank.

• If you own stocks, understand that stock market volatility has less impact on your total wealth than you might think. That’s because the value of your Social Security asset doesn’t change when stocks go up or down.

• Social Security is an annuity you already own. A fixed annuity is a contract in which an insurance company guarantees to pay you income over a certain number of years. People are drawn to them because they like the promise of guaranteed income.
  
  But annuities have big drawbacks. They are expensive, complicated and force you to tie up your money for years. And the value of the guarantee depends on the health of the insurance company, which can decline.
  
  Social Security is an annuity without these drawbacks. Payment is guaranteed by the government, and you will receive monthly benefits for as long as you live.

Learn More: See if a financial advisor can help you, and why America First Investment Advisors may be right for you.

Barry Dunaway, CFA®
Managing Director
America First Investment Advisors, LLC
Omaha, Nebraska

This post expresses the views of the author as of the date of publication. America First Investment Advisors has no obligation to update the information in it. Be aware that past performance is no indication of future performance, and that wherever there is the potential for profit there is also the possibility of loss.