How is Your Pension Counted when Calculating Net Worth.

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
Jelloanddon
Posts: 123
Joined: Sat Oct 04, 2014 12:18 pm

How is Your Pension Counted when Calculating Net Worth.

Post by Jelloanddon »

How do you calculate your net wealth
with a pension?
BogleBoogie
Posts: 745
Joined: Tue May 13, 2014 11:15 am
Location: AK

Re: How is Your Pension Counted when Calculating Net Worth.

Post by BogleBoogie »

Do an internet search, there are calculators that will convert your pension into a value.
User avatar
Nestegg_User
Posts: 2109
Joined: Wed Aug 05, 2009 1:26 pm

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Nestegg_User »

Since pension is not "owned" by me...only the net income that I will recieve, it CANNOT be included (nor should it be included) in net worth.
am
Posts: 4232
Joined: Sun Sep 30, 2007 9:55 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by am »

I have the option to get an annuity at 62 or receive a lump sum at any time. This lump sum is (interest+contributions)*2. So I include the lump sum in my net worth because this is what I would get at the time of calculation. I do not however include this in my asset allocation since I can not manage it- rebalance, tax loss harvest etc.
User avatar
BTDT
Posts: 783
Joined: Sun Aug 29, 2010 10:40 am
Location: Grand Lake OK

Re: How is Your Pension Counted when Calculating Net Worth.

Post by BTDT »

Warning- Including a pension in your net worth may open a proverbial 'can-of-worms' on this forum. If you insist on treating a pension as part of your net worth, you can check the annuity sellers for an equivalent cost/benefit. I personally calculate it both ways just for 'grins', and have kept my equity allocation a little higher because of two government pensions, and SS at 70 :beer
If past history was all that is needed to play the game of money, the richest people would be librarians.
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: How is Your Pension Counted when Calculating Net Worth.

Post by The Wizard »

Step one is to quit worrying about your Net Worth and focus on what matters.
When I retired, I converted a portion of my accumulated wealth to an immediate annuity and my net worth fell by exactly that many hundred K$.
This bothered me not at all...
Attempted new signature...
Independent
Posts: 551
Joined: Tue Sep 22, 2009 1:09 pm

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Independent »

I agree with the two posts above.

Why are you calculating a net worth? Answer that question, and you'll probably know how you want to handle your pension.

I don't have much interest in converting my pension income into a lump sum number. I am more interested in the other direction -- converting my lump sum savings into retirement income.
So I don't think about net worth, I think about how much retirement income I can expect from all sources.
Ron Ronnerson
Posts: 3559
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Ron Ronnerson »

I don't calculate my pension as part of my net worth. It is a future income stream. Don't count your chickens before they're hatched. I do, however, factor in the pension for determining my asset allocation.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by retiredjg »

Jelloanddon wrote:How do you calculate your net wealth with a pension?
I don't. There's no point that I can see. My pension is just an income stream.
Carefreeap
Posts: 3881
Joined: Tue Jan 13, 2015 6:36 pm
Location: SF Bay Area

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Carefreeap »

I just do a quick and dirty calculation by calculating the value of a pension as a total of the stream of first payments through my estimated life span. So to make the math easy, if I'm supposed to get $1000/mth at age 55 and live to 85 I have 30 years of $1000 payments or $360,000. I've rounded it down to $300k. My pension is indexed for inflation.

Technically that's not the correct way to do it. You're supposed to calculate it with a net present value (a discount based on projected inflation and the lower purchasing power in the future) and add in a 30 year COLA. With both inflation and interest rates so low I don't think it matters for a current NW value.

YMMV :wink:
Every day I can hike is a good day.
DFrank
Posts: 474
Joined: Thu Mar 20, 2014 10:44 pm
Location: North Idaho

Re: How is Your Pension Counted when Calculating Net Worth.

Post by DFrank »

I don't count my pension benefit in my net worth.

When evaluating how much savings I need to support our retirement, and recognize the pension as a low risk income stream that will cover a portion of our spending needs.
Dave
JW-Retired
Posts: 7189
Joined: Sun Dec 16, 2007 11:25 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by JW-Retired »

We don't count the pension in net worth. We do roughly compute our net worth as part of our AA spreadsheet, but we don't have any actual use for the number.

I did consider pension/SS in deciding what investible asset AA to chose for our investments.
JW
Retired at Last
User avatar
CABob
Posts: 5091
Joined: Sun Feb 25, 2007 7:55 pm
Location: Southern California

Re: How is Your Pension Counted when Calculating Net Worth.

Post by CABob »

I guess that I don't calculate or track net worth. I track invested assets for purposes of asset allocation, performance, and such things. My "assets" record is essentially my net worth except for property that is not included such as home, vehicles, personal property, etc. A pension would be considered as an income source and would be used to offset income needed from other sources.
Bob
User avatar
Wildebeest
Posts: 1204
Joined: Fri Dec 27, 2013 1:36 pm

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Wildebeest »

Hi Jelloanddon,

Bobblehead already came up with the formula in the spreadsheet for Networth survey 2015. You may want to enter your data and see.

viewtopic.php?f=2&t=154364#p2314992

I do believe that calculating net worth has little practical application and other then it is all about emotion and can make you feel good, bad or ugly about your "Number" and yourself .

"The income Stream " from a pension, social security or annuity is much more important "Number" than networth to determine if you can retire and if you can afford to travel, live it up before your health/ interests decline.

A secure income stream would allow you to sleep well at night, while tracking the "Networth Number" may cause sleepless nights.

If you want to feel good about your Networth " Number", my suggestion would be to use 33 times the yearly pension since this would be safe withdrawal rate for the next 40-50 years.

A trustworthy mortality calculator would IMO be part of the calculation in SWR from a networth number.

I did not find a calculator in "The Number" by Lee Eisenberg, which I bought and decreased "My Number" by $26 but was an enjoyable expenditure nonetheless.

Wildebeest
The Golden Rule: One should treat others as one would like others to treat oneself.
Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Professor Emeritus »

By rough count there have been 3465 threads asking the question Do you or how do you put a stream of payments in your asset allocation or net worth? answers have ranged from the hilarious to the serious.

viewtopic.php?f=1&t=153824
User avatar
TomatoTomahto
Posts: 17100
Joined: Mon Apr 11, 2011 1:48 pm

Re: How is Your Pension Counted when Calculating Net Worth.

Post by TomatoTomahto »

Do you count SS or future earned income in your net worth? Why is this of interest to you?
I get the FI part but not the RE part of FIRE.
ourbrooks
Posts: 1575
Joined: Fri Nov 13, 2009 3:56 pm

Re: How is Your Pension Counted when Calculating Net Worth.

Post by ourbrooks »

Suppose you were a member of a religious order and had taken a vow of poverty in exchange for the church providing your support for life, including after you retire. After looking at your records, you discover that the church will be providing you with about $30,000 a year in retirement, if you count the nursing home benefit. One day, a parishioner points you to an annuity pricing web site. <insert reference to a deity> you discover that your net worth is more than a million dollars. Does this mean you've violated your vow of poverty? Should you quit accepting money from the church and try and earn it instead?

My suggestion for a way out of this moral dilemma is to only count the pension towards your net work when you start receiving it and then, only count the part of it which you saved and didn't spend.

Rather than calculate net worth, calculate how much income you'd receive each year for life if you liquidated your assets. By all means, count pensions and Social Security as well as stocks and bonds and real estate, including your house. The number may change year by year as pensions, etc. kick in. If the minimum in any year is above $20,000, you're well off. If the number is above $40,000 you're in the upper 7%.
am
Posts: 4232
Joined: Sun Sep 30, 2007 9:55 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by am »

Can most pensions be cashed out before retirement age? My state pension can since I no longer work there. I can roll over my lump sum into an IRA at Vanguard. Despite all the reforms that have been discussed. I believe this lump sum refund is safe.

I like to track networth to keep up with my progress to achieving financial independence. I have tracked it for 3 years in a spreadsheet and it has truly been amazing seeing the progress. The bull market and house appreciation for a paid off house has helped and has overwhelmed my savings rate.
Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Professor Emeritus »

am wrote:Can most pensions be cashed out before retirement age? My state pension can since I no longer work there. I can roll over my lump sum into an IRA at Vanguard. Despite all the reforms that have been discussed. I believe this lump sum refund is safe.

I like to track networth to keep up with my progress to achieving financial independence. I have tracked it for 3 years in a spreadsheet and it has truly been amazing seeing the progress. The bull market and house appreciation for a paid off house has helped and has overwhelmed my savings rate.
IMHO while I am a strong believer in counting all assets as part of net worth (IFF there is a reason to do a net worth calculation) , AFAIK net worth has little or nothing to do with financial independence. As an example a vast increase in the value of a house is of no help on financial independence unless you sell the house. The same with stocks. Both are subject to liquidity and market risk. You never count your money while you're sittin' at the table

Financial independence
if it exists is based on immunity from financial shock. It is an alternative to financial investment. When you sell your stock and buy an inflation protected SPIA you may have financial independence. TIPS can work too.
User avatar
Duckie
Posts: 9767
Joined: Thu Mar 08, 2007 1:55 pm

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Duckie »

I am retired and my pension is paid monthly so I consider it an income stream and do not list it in my net worth assets or have it in my AA.

However, while I was working I had the option to roll the pension into an IRA when quitting. Because of that, for those years I did list it in my net worth assets although it was still not in my AA.
island
Posts: 1971
Joined: Tue Jul 23, 2013 1:45 pm

Re: How is Your Pension Counted when Calculating Net Worth.

Post by island »

I don't understand the purpose of calculating and tracking net worth. Is it just a feel good kind of thing? Maybe I should start a thread to investigate, but I digress :happy

DH and I will have non COLA pensions when we retire and don't count them in current or future net worth. We consider them a future income stream that will hopefully still be there when needed. Past accumulation is solid, but my employer is trying its best to discontinue it going forward and even if they don't, who knows how they'll change the calculation in the future. Not counting those unhatched eggs since still have almost a decade before we get our hands on them.
Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Professor Emeritus »

island wrote:I don't understand the purpose of calculating and tracking net worth. Is it just a feel good kind of thing? Maybe I should start a thread to investigate, but I digress :happy

DH and I will have non COLA pensions when we retire and don't count them in current or future net worth. We consider them a future income stream that will hopefully still be there when needed. Past accumulation is solid, but my employer is trying its best to discontinue it going forward and even if they don't, who knows how they'll change the calculation in the future. Not counting those unhatched eggs since still have almost a decade before we get our hands on them.
The only use I ever found for calculating net worth was in determining if retired people were spending too high a percentage of their "income" on housing. I.e. were they "house poor"? You can do it either as an income stream ( including imputed income from the house or as capitalized wealth. In either case if the housing is more than 30% of the full income stream or the capitalized wealth people are considered to be "house poor"

Imagine a tribe of SPREADSHEET Bogles, clad only in their spread sheets . They have the absolute right to farm or lease out a vast area of farmland. They live very well, but they are very sad since their High priest told them they have no NET WORTH. They consult their oracles endlessly but are assured they have NO NET WORTH. Their spreadsheets are empty since they have no net worth, but they do serve for clothes.

Next door Are the REFORM Bogles, who decided the high Priest was full of stuff. They have the same quantity of land and the same income but they are very happy since they know they have an enormous net worth. They calculate the net worth by capitalizing the income stream Their spreadsheets are full of numbers So they use leaves instead
Stonebr
Posts: 1472
Joined: Wed Jan 21, 2009 10:19 am
Location: Maine

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Stonebr »

island wrote:I don't understand the purpose of calculating and tracking net worth. Is it just a feel good kind of thing? Maybe I should start a thread to investigate, but I digress :happy
Net worth is handy for doing things like asset allocation and, in retirement, determining withdrawal amounts.

Also, there's a saying in the business world that you can't manage what you haven't measured.
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear
alex_686
Posts: 13286
Joined: Mon Feb 09, 2015 1:39 pm

Re: How is Your Pension Counted when Calculating Net Worth.

Post by alex_686 »

Stonebr wrote:Net worth is handy for doing things like asset allocation and, in retirement, determining withdrawal amounts.

Also, there's a saying in the business world that you can't manage what you haven't measured.
+1

A pension is a bond like asset, so you can throw in your pensions when doing your AA. Generally speaking, if you have a strong pension (as in decent amounts, well funded) one can generally tilt your portfolio more towards equities. Conversely, if one does not have a pension or a annuity then should tilt your portfolio more towards bonds.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
island
Posts: 1971
Joined: Tue Jul 23, 2013 1:45 pm

Re: How is Your Pension Counted when Calculating Net Worth.

Post by island »

Stonebr wrote:
island wrote:I don't understand the purpose of calculating and tracking net worth. Is it just a feel good kind of thing? Maybe I should start a thread to investigate, but I digress :happy
Net worth is handy for doing things like asset allocation and, in retirement, determining withdrawal amounts.

Also, there's a saying in the business world that you can't manage what you haven't measured.
And no stat that can't be manipulated. :happy
User avatar
obgyn65
Posts: 770
Joined: Sun May 06, 2012 9:11 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by obgyn65 »

Please note the bogleheads annual NW survey includes pensions. It may be worth it to create a wiki page on how to calculate NW.
Nearing_Destination wrote:Since pension is not "owned" by me...only the net income that I will recieve, it CANNOT be included (nor should it be included) in net worth.
"The two most important days in someone's life are the day that they are born and the day they discover why." -John Maxwell
Ron
Posts: 6972
Joined: Fri Feb 23, 2007 6:46 pm
Location: Allentown–Bethlehem–Easton, PA-NJ Metropolitan Statistical Area

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Ron »

I don't include any "asset" that cannot survive me by one day.

If I die on a Tuesday, the balance/value of my savings/investments/real-personal property stay pretty much the same on Wednesday. Even my SPIA still has value. If I die first, payments continue (at 100%) to my wife. If we both die before the age of 87 (calculated joint life), it has residual value that will be passed on.

If I die on a Tuesday, income from my VA Disability, along with my (future) SS stops. It no longer has value.

I only include those items that would be included in my Estate Gross Net Worth (minus anticipated taxes) as having value.
Any other calculation to inflate that value is just a "feel good" exercise - nothing else.

FWIW,

- Ron
User avatar
midareff
Posts: 7711
Joined: Mon Nov 29, 2010 9:43 am
Location: Biscayne Bay, South Florida

Re: How is Your Pension Counted when Calculating Net Worth.

Post by midareff »

I count my pension as an income stream, just like SS. It isn't transferable, can't be inherited and is worth nothing to anyone but me. I do not count it (or SS) in net worth.
Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Professor Emeritus »

midareff wrote:I count my pension as an income stream, just like SS. It isn't transferable, can't be inherited and is worth nothing to anyone but me. I do not count it (or SS) in net worth.
Let me assure you that any divorce or other court would find your definition hilarious

"net worth" is always computed for a purpose. That purpose defines what is or is not included in net worth.

It has no meaning otherwise.
Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Professor Emeritus »

Ron wrote:I don't include any "asset" that cannot survive me by one day.

If I die on a Tuesday, the balance/value of my savings/investments/real-personal property stay pretty much the same on Wednesday. Even my SPIA still has value. If I die first, payments continue (at 100%) to my wife. If we both die before the age of 87 (calculated joint life), it has residual value that will be passed on.

If I die on a Tuesday, income from my VA Disability, along with my (future) SS stops. It no longer has value.

I only include those items that would be included in my Estate Gross Net Worth (minus anticipated taxes) as having value.
Any other calculation to inflate that value is just a "feel good" exercise - nothing else.

FWIW,

- Ron
Ok you own a 10 million dollar rental property . You sell the remainder interest for a million dollars and you keep the life estate

Your gross estate is now 1 million dollars .

POOF by your Math 9 millions dollars in net worth just disappeared!!!

Where did it go?
User avatar
midareff
Posts: 7711
Joined: Mon Nov 29, 2010 9:43 am
Location: Biscayne Bay, South Florida

Re: How is Your Pension Counted when Calculating Net Worth.

Post by midareff »

Professor Emeritus wrote:
midareff wrote:I count my pension as an income stream, just like SS. It isn't transferable, can't be inherited and is worth nothing to anyone but me. I do not count it (or SS) in net worth.
Let me assure you that any divorce or other court would find your definition hilarious

"net worth" is always computed for a purpose. That purpose defines what is or is not included in net worth.

It has no meaning otherwise.

That's what pre-nups are for professor. Your statement doesn't hold water here.
Carefreeap
Posts: 3881
Joined: Tue Jan 13, 2015 6:36 pm
Location: SF Bay Area

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Carefreeap »

midareff wrote:
Professor Emeritus wrote:
midareff wrote:I count my pension as an income stream, just like SS. It isn't transferable, can't be inherited and is worth nothing to anyone but me. I do not count it (or SS) in net worth.
Let me assure you that any divorce or other court would find your definition hilarious

"net worth" is always computed for a purpose. That purpose defines what is or is not included in net worth.

It has no meaning otherwise.

That's what pre-nups are for professor. Your statement doesn't hold water here.
LOL, I hope you never have to go in front of a judge who thinks otherwise. :wink:
Every day I can hike is a good day.
leonard
Posts: 5993
Joined: Wed Feb 21, 2007 10:56 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by leonard »

Count it for what it is - an annuity cash flow that begins at a particular point in the future.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
User avatar
steve roy
Posts: 1855
Joined: Thu May 13, 2010 5:16 pm

Re: How is Your Pension Counted when Calculating Net Worth.

Post by steve roy »

The wife and I have two private pensions. We don't consider the pensions as part of our net worth. The income stream they'll provide will only impact the withdrawal rates out of our money stashes.
Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Professor Emeritus »

Carefreeap wrote:
midareff wrote:
Professor Emeritus wrote:
midareff wrote:I count my pension as an income stream, just like SS. It isn't transferable, can't be inherited and is worth nothing to anyone but me. I do not count it (or SS) in net worth.
Let me assure you that any divorce or other court would find your definition hilarious

"net worth" is always computed for a purpose. That purpose defines what is or is not included in net worth.

It has no meaning otherwise.

That's what pre-nups are for professor. Your statement doesn't hold water here.
LOL, I hope you never have to go in front of a judge who thinks otherwise. :wink:
As just one example try leaving ANY asset of any kind out of a pre-nup and you will see something go POOF in a New York Minute.
anonforthis
Posts: 414
Joined: Sat Oct 19, 2013 1:45 pm

Re: How is Your Pension Counted when Calculating Net Worth.

Post by anonforthis »

I counted pension in our net worth because the monthly payments will go to an investment account not expenses.
Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Professor Emeritus »

steve roy wrote:The wife and I have two private pensions. We don't consider the pensions as part of our net worth. The income stream they'll provide will only impact the withdrawal rates out of our money stashes.
Your pensions are no different from a house you own and live in. both are assets that provide a stream of benefits.

Farmland provides a stream of crops. Bonds throw off interest. Most assets are both stock and flow

A few like cash and gold are only stock and some like annuities and pensions are only flow But they are all assets.

Liabilities are the same. some are flow some are stock A promissory note you owe in 20 years is a liability.
So is a monthly mortgage.
kaudrey
Posts: 1143
Joined: Fri Nov 22, 2013 1:40 pm

Re: How is Your Pension Counted when Calculating Net Worth.

Post by kaudrey »

DFrank wrote:I don't count my pension benefit in my net worth.

When evaluating how much savings I need to support our retirement, and recognize the pension as a low risk income stream that will cover a portion of our spending needs.
+1 to this and the other posts like it.
kaudrey
Posts: 1143
Joined: Fri Nov 22, 2013 1:40 pm

Re: How is Your Pension Counted when Calculating Net Worth.

Post by kaudrey »

DFrank wrote:I don't count my pension benefit in my net worth.

When evaluating how much savings I need to support our retirement, and recognize the pension as a low risk income stream that will cover a portion of our spending needs.
+1 to this and the other posts like it.
User avatar
midareff
Posts: 7711
Joined: Mon Nov 29, 2010 9:43 am
Location: Biscayne Bay, South Florida

Re: How is Your Pension Counted when Calculating Net Worth.

Post by midareff »

Professor Emeritus wrote:
Carefreeap wrote:
midareff wrote:
Professor Emeritus wrote:
midareff wrote:I count my pension as an income stream, just like SS. It isn't transferable, can't be inherited and is worth nothing to anyone but me. I do not count it (or SS) in net worth.
Let me assure you that any divorce or other court would find your definition hilarious

"net worth" is always computed for a purpose. That purpose defines what is or is not included in net worth.

It has no meaning otherwise.

That's what pre-nups are for professor. Your statement doesn't hold water here.
LOL, I hope you never have to go in front of a judge who thinks otherwise. :wink:
As just one example try leaving ANY asset of any kind out of a pre-nup and you will see something go POOF in a New York Minute.

Sounds like you are speaking from (unfortunate) personal experience PE. Sorry, but this isn't NY and Henley and the Eagles aren't playing and this is not a community property state. As I said, that's what pre-nups are for and when properly written cover ALL assets and properties that have monetary value.
Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: How is Your Pension Counted when Calculating Net Worth.

Post by Professor Emeritus »

midareff wrote:.

Sounds like you are speaking from (unfortunate) personal experience PE. Sorry, but this isn't NY and Henley and the Eagles aren't playing and this is not a community property state. As I said, that's what pre-nups are for and when properly written cover ALL assets and properties that have monetary value.
I'm a retired law professor and FWIW married for 40 years . If you leave any kind of asset out of a prenup, it makes the prenup Fraudulent.

Case closed
Post Reply