How to Calculate the Value of a Social Security Benefit

The question: how much money would John and Mary need to invest today, to provide monthly withdrawals of $3,300, increasing with inflation, for 25 years?

The simple answer: $700,000, assuming a 6% investment return and 3% inflation.

But does this capture the true value? Well, yes, if John and Mary are able to earn at least a 6% return consistently, and if inflation stays fairly consistent at 3%, and if John and Mary do not live past age 90.

But neither investment risk, nor inflation risk, nor mortality risk has been factored into the calculation. John and Mary may lose some sleep worrying about whether the simple answer is correct. The risk-adjusted value is at least twice as much, or more than $1,400,000.

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