Bogle Says Social Security Is Fixed Income

by: Roger Nusbaum

Seeking Alpha contributor David Van Knapp posted an article that recapped Jack Bogle's thoughts about social security and dividends with some additional thoughts from David on these subjects. The big idea, and you've probably read this before, is that your Social Security benefit is a proxy for the fixed income portion of a diversified portfolio. Please remember this is Bogle's opinion.

David works through the number but basically Bogle says that the typical social security benefit can be "capitalized" as a $300,000-$350,000 fixed income portfolio but better in Bogle's opinion because it has an inflation adjustment feature.

Bogle goes on to say that the money you accumulate in a 401k or anywhere else would be the equity portion of a diversified portfolio. The example he used was $300,000 accumulated outside Social Security which following his train of thought would make for a 50/50 portfolio. And with the 50% in equities he is suggesting dividend paying stocks. It was not clear from what I read whether he meant individual stocks or some sort of index fund tilted toward dividend payers one way or another.

Either way Bogle's focus was about creating an income stream from both sides of the ledger. Obviously 3% on a $300,000 equity portfolio is $9,000 and if your total Social Security benefit is somewhere between $20,000 and $30,000, then is that enough to get it done? For some people it would be but it doesn't leave much for one-off expenses that we discuss here regularly like new tires or vet bills or anything else that will come along.

Based on what we are told by various studies, $300,000 will be a difficult number for the vast majority of Americans but will be easier for the person interested enough in investing to seek out content on the subject. Taken to an extreme, someone wanting to follow Bogle's advice without making investing their full time job could buy a domestic dividend fund and a foreign dividend fund in some combination that suits them and rely on Social Security for fixed income.

If you are reading this then you probably are not looking for a two fund portfolio but as a point made before, to the extent you are the person your friends and family go to for investing advice, I do think there are some building blocks in Bogle's idea.

One last caveat to all of this is that it relies on Social Security not going out of business or otherwise being radically changed.