Is Social Security considered as an asset in bankruptcy? No. Your Social Security income is not considered an asset. Social Security is not factored into your Means Test either. Even if you have built up a huge “asset” of prospective Social Security payments, the Bankruptcy Court is not interested in your expected future Social Security payments.
While your bankruptcy lawyer will expect you to bring your Social Security card to the 341 Creditors’ Hearing, and any present income from Social Security will be required to disclose, any future Social Security payments are not considered an asset. However, it is a significant asset! This article is a reminder to consider it so.
Is Social Security An Annuity?
Many financial planners are suggesting you consider Social Security as an asset to be factored into your retirement plan. That is, they are suggesting that you consider it an annuity. For example, if you are retiring at age 65 this year, and earned $50,000 per year, your monthly retirement benefit would be approximately $1,392, according to the Social Security on line calculator. The annuity amount of that would be considered to be about $250,000. This is assuming that there was an annual increase of 3% for cost of living allowed by the Social Security Administration, and a few other assumptions. Thus, you would have to have $250,000, to pay out that monthly amount over 25 years.
So what? Well, if you are allocating a portion of your portfolio to bonds (not bond funds), any annuity should be considered in that category. A 30 year bond that paid $1,392 would be put in the bond category, of course, and so should Social Security. After all, you are being paid by an agreement with the most financially stable entity in the world, the US Government, and the payments are for life. It’s similar to a bond that a financial planner would recommend. Thus, if you had $250,000 in your IRA or 401k plan, and wanted to have 50% in stocks and 50% in bonds, a conservative portfolio, you may want to consider putting all of the investment assets into stocks, or equity mutual funds. This is, of course, only a very rough example.
What About Real Estate in Asset Allocation?
Experienced financial planners point out that ownership in real estate is another form of an annuity. That is, once fully paid off, it is the equivalent of a bond paying you monthly. Why? Well, if rent for a similar home would be $1,392, you would have another $250,000 annuity to factor in.
Remember, the Homestead Act applies to real estate you own and live in. It protects that asset in bankruptcy. We are simply talking about assets and asset allocation here.
Hire an Experienced Bankruptcy Attorney
While most bankruptcy attorneys will know not to list your future Social Security payments as an annuity in your Bankruptcy Petition and Schedules, once you have your discharge you will be debt free and can focus on how to divide your portfolio. Be cognizant of two of your most significant assets: future Social Security payments, and your home. Furthermore, be careful on your bankruptcy petition to clearly identify any and all protected IRA’s, 401k’s, 403b’s and other pension plans.
If you need to file for bankruptcy, call Attorney Neil Burns for a free consultation.