How should I account for Social Security contributions?

Question

I'm currently tracking all my finances with GNUCash, and splitting the various paycheck deductions into expenses. It's pretty nice to be able to correctly predict what will be on my W2, and it's even better to be able to calculate net worth. But I'm unsure of how to account for future social security benefits. I'm currently just marking the deductions as expenses, but this is understating the present value of (distant) future income. Any ideas on valuing SS as an (illiquid) asset?

Answer 1

It seems you may have answered your own question. The only way to arrive at precise future net worth and cash flows is to capitalize social security contributions. I suggest to create an account in the long term investment category of the balance sheet.

However, since it’s possible that not all social security contributions are recovered, a periodic valuation adjustment should be made to this account. This will leave the true investment portion of these contributions at an even more precise balance.

More information about your future social security benefits as of any given date can be found by visiting the SSA website:

https://www.ssa.gov/oact/cola/Benefits.html

I recommend setting up a “my Social Security” benefits account!