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Question: Can we value Social Security as a Defined Benefit Pension?
Answer: Yes, we can.
Conceptually, there is no difference between Social Security and a defined benefit pension..
Both are a stream of payments that may increase with inflation, begin at a certain age, and continue until the recipient dies.
Both may have annual increases. For Social Security, this is the annual inflation adjustment. For defined benefit pensions, this is the cost of living adjustment (COLA).
If you wanted to treat Social Security as a defined benefit pension, you would do the following:
1. Create a defined benefit pension for each party's Social Security. Enter all the information requested, including the anticipated monthly payment. The retirement age would be the party's age when the payments begin (which could be before or after "regular retirement").
2. You would not make an entry on the Social Security income screen. (You might use the Social Security screen to project what the actual payment will be, if the person is retiring earlier or later than the regular retirement age. But you would then delete those entries.)
Why is this not the standard custom? Federal law and its interpretation by the US Supreme Court. The following discussion is excerpted from research provided by National Legal Research Group:
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Notwithstanding the legal situation, in our view, from a financial perspective, Social Security should be entered with the defined-benefit pension screen in all cases.
This is especially the case in situations where one party will be relying on Social Security and the other party has a defined benefit pension.