There is no accessible value to put on a client’s balance sheet and there never will be.

Social Security is definitely not a bond. It is an inflation-adjusted immediate annuity with a survivor benefit.

However, Social Security has some quirks that make it different than a commercially available annuity.

Taxation of a commercial annuity is based upon an “exclusion ratio” that can make a portion of the payment non-taxable until the basis has been fully paid out. Social Security is taxed based upon a “combined income” which is recalculated each year. Combined income is Adjusted Gross Income + ½ Social Security benefits + non-taxable interest. 

If combined income is below $25,000 for an Individual filer or $32,000 for joint filers, Social Security is not taxed. If it exceeds $34,000 and $44,000 respectively, up to 85% of the benefits are taxable.

You can get a commercial annuity covering two lives with just about anyone. The payment amount is based on the respective ages of the income recipients.

The Social Security survivor benefit is payable only to certain people. Generally this is a surviving spouse, some surviving ex-spouses, minor children or children disabled before they turned 22. The payment amount is based upon the wages history of the deceased and is adjusted based upon the recipients age. Payments can be zero for a time (under age 60 not disabled or caring for deceased’s minor or disabled children).

For married couples, the survivor gets the larger of their own retirement benefit or the retirement benefit of the deceased, whichever is larger, not both. The survivor benefit to a surviving spouse will be between ½ and 2/3rds of what the household was receiving before the death. 

If A’s retirement benefit is $2,000/month and B’s is also $2,000, the household total is $4,000.  When either dies, the survivor’s benefit will be $2,000 – a 50% cut.  If either A or B was receiving anything less than the other, the survivor benefit becomes the larger of the two, netting a reduction of less than 50%.

However, if one of the spouse’s retirement is low enough, that spouse could have been receiving a spousal benefit of up to one-half the higher-earning spouse’s retirement benefit. So, say A’s retirement benefit is $100/month and B’s is $2,000. Depending on the ages involved, A could get a spousal benefit of up to $1,000 for a household total of $3,000.  At the first death, only the $2,000 continues  – a one-third reduction.