Net worth Poll

[rescueme]

Quote:

Originally Posted by Spanky Your pension can also be considered as part of your net worth.

No it can't, IMHO.

It only has "value" while you are alive. If it has survivor benefits, it will only have value while the survivor is alive.

It can't be measured or used in a legal sense to show total estate assets, but it does have value if you wish to buy or rent under a retail contract, since those usually require a constant source of income.

It's no different than looking at SS in the same manner. If I die first, my DW will get the increased SS over hers, measured as what I would have received on the day before my death (we're both retired and of SS age). However, once she dies there is no way the "value" can be passed on to our estate beneficiaries.

We provide an updated net worth document to our elder law every year since his firm is in charge of liquidating our estate. "Temporary" income sources are not counted as part of that "estate net worth" but the value of items such as life insurance and SPIA residual value (if we both die before the end of the guaranteed period) do have value.

BTW, if you are still wo*king, do you consider your pay part of your net worth (beyond the portion you are saving/investing)? Pensions/SS are no different.

Just another rehash of an old subject ...

[Meadbh]

There are pensions and pensions. I have a defined contribution "pension" which has no guarantees, so it's really just an employer sponsored savings plan. As I am leaving this year, I will get access to it, but I have to turn it into one of three forms of locked in vehicle (not the subject of this thread). That is "money in the bank" and I do count it in my net worth. But it is minuscule. 4% of my lump sum would be cat food.

Someone who has a defined benefit pension (i.e. guaranteed income) is in a much better position than I am because even a relatively low income can be multiplied by the SWR factor (25 @ 4%) to find out what it's real value is (unless you die). If posters with pensions are not including this number, you and I are talking apples and oranges. To replace that pension income, I need to have a higher net worth than people with defined benefit pensions.

When I do my annual calculations at the end of the fiscal year (in a week or two) my NW will be over $3m for the first time. That is, unless we have Armageddon next week.

[Moemg]

Quote:

Originally Posted by rescueme No it can't, IMHO. It only has "value" while you are alive. If it has survivor benefits, it will only have value while the survivor is alive. ...

Since most pensions only allow you to have spouses or young children as survivors . I would think most single retirees would opt for the lump sum unless the pension comes with health benefits and then it is a guessing game on whether you will come out ahead .

[haha]

I really can't understand the problem here. Any stream of payments has value, and for some purposes it might help you to account for that value. For other purposes, such as collateral, an annuity will rarely have value to the banker. The fact that the stream stops when you die (if your particular pension does do that) will affect the value, but will not make it valueless. And even for the same purpose, different people will assign different value to the pension, depending on an assessment of the payer, the discout rate assumed, etc.

Ha

[jdw_fire]

Quote:

Originally Posted by rescueme No it can't, IMHO. you have the right to have your opinion but let me point out a few things. It only has "value" while you are alive. therefore it has value, no quotes required If it has survivor benefits, it will only have value while the survivor is alive. It can't be measured or used in a legal sense to show total estate assets this is true only from a probate perspective (what i mean by this is that someone who is interested in how your estate will be dispersed after you die wont be interested in knowing about income flows that stop at your death) however such income flows (eg, DB pensions, SS, SPIAs) are of value in such activities as borrowing money etc. as you point out in the following., but it does have value if you wish to buy or rent under a retail contract, since those usually require a constant source of income actually if you have enough liquid assets a constant source of income isnt required, you see the 2 are often interchangable, we often do the same (interchange an income flow with liquid assets) on this board by using the 25x (or 33x or whatever multiplier you are comfortable with) rule. It's no different than looking at SS in the same manner agreed, SS has value too and not just what you state in the following. If I die first, my DW will get the increased SS over hers, measured as what I would have received on the day before my death (we're both retired and of SS age). However, once she dies there is no way the "value" can be passed on to our estate beneficiaries this is true but that doesnt mean it didnt have value while you and or your wife were living. We provide an updated net worth document to our elder law every year since his firm is in charge of liquidating our estate since their purpose is specificly liquidating your assets that remain after you die your next sentance follows of course but that doesnt change the fact that while either of you are alive any cash flows you have are valuable. "Temporary" income sources are not counted as part of that "liquidatable estate net worth after death" but the value of items such as life insurance and SPIA residual value (if we both die before the end of the guaranteed period) do have residual value. BTW, if you are still wo*king, do you consider your pay part of your net worth (beyond the portion you are saving/investing)? Pensions/SS are no different not so, to get income from your job you have to keep working (you are trading human effort for money) but to get income from a pension/SS already earned or a SPIA already purchased all you have to do is stay alive (no trading of labor is required as they are already paid for). if these income streams have no value how can an insurance company collect any money for an SPIA?. Just another rehash of an old subject ...

comments imbedded above

the only way to try and make a net worth comparison between all the people on this board an apples to apples comparisons is to value all "guaranteed" cash flows and include them. probably the best way to do this valuation is to use the price of an equal SPIA, but using a 25x formula is an easy short cut for a COLAed lifetime income stream.

[haha]

If you are having another pissing contest, just have someone make up the rules.

Ha

[GregLee]

I'll suggest that, for the next similar poll, if the main idea is to get a measure of expected lifestyle in retirement, then the poll should ask about expected retirement income, rather than net worth. Actually, for me, what is of most interest is expected household retirement income, because I'm concerned about the lifestyle also of my wife after I die or, depending, my lifestyle after she dies.

[jdw_fire]

Quote:

Originally Posted by haha If you are having another pissing contest, just have someone make up the rules. Ha

your post before the 1 i quoted above seems to be in agreement with mine so why this post?

[jdw_fire]

Quote:

Originally Posted by GregLee I'll suggest that, for the next similar poll, if the main idea is to get a measure of expected lifestyle in retirement, then the poll should ask about expected retirement income, rather than net worth. Actually, for me, what is of most interest is expected household retirement income, because I'm concerned about the lifestyle also of my wife after I die or, depending, my lifestyle after she dies.

actually even that would have a problem, early retirees on here are comfortable with different WRs so still apples to oranges. but it isnt a big problem and there would be value in your suggested poll. go for it

[rescueme]

Quote:

Originally Posted by jdw_fire the only way to try and make a net worth comparison between all the people on this board an apples to apples comparisons is to value all "guaranteed" cash flows and include them. probably the best way to do this valuation is to use the price of an equal SPIA, but using a 25x formula is an easy short cut for a COLAed lifetime income stream.

So what you are saying is that DW/my SS income, at a combined rate of $57K/year would be multiplied x 25 (or any number of years you wish, since that income would be at age 66/70 for us) would be worth over $1.4M added to our other "estate gross net worth" amount?

Sounds good, but in the IT term, it's "vaporware" (in otherwords, making a position sound better than it actually is).

Sorry, I'd rather work with "real" current numbers of asset value, not future possibilities based on being alive at a certain age. That's a forecast net worth (same as you do in retirement income planning) but does not represent what your current net worth is, as of this moment in time.

I understand if you are younger and want to make your asset/net worth base look better (heck, I also played the game that way, at one time) but in reality the only thing you can count on is today from a measurment standpoint. The past, is past. The future is not guaranteed. That's why I always look at the question as the term "estate gross net worth" (e.g. before taxes - the same way most folks look at the value of their TIRA's).

[seabourne]

Yes, the NPV of your SS at the year you can start it would be 25x your annual benefit, but to get what it is worth now would also require you discount it by something like 7% per year to get NPV for this year. For instance, I have 35 years to 67 (fully vested), so if I were to collect $18k/year then the NPV of the money in the year I could start collection would be $450,000. But the value of the future income stream today would be reduced by a factor of 1.07^35, or about 10.67, which means the NPV of my SS is probably around $42,000, which seems ballpark correct to me, but would be over $81,000 with a 5% discount rate. Not critical stuff, but worth considering, since without SS (which I don't generally plan on getting) I'd have to replace that income some other way, or it will replace income that I've already accounted for and allow me to not draw down my savings by the equivalent amount per month.

[chris2008]

"My" net worth is much higher than the net worth of my investments.....
And I did not include pension plans as I do not have the money yet.

[rescueme]

Quote:

Originally Posted by seabourne Not critical stuff, but worth considering, since without SS (which I don't generally plan on getting) I'd have to replace that income some other way, or it will replace income that I've already accounted for and allow me to not draw down my savings by the equivalent amount per month.

I'll agree to the point of if you don't have SS (or substantial SS income) you may have to plan on having other sources of income, including a higher value retirement portfolio, but it brings up another discussion point as related to if you look at SS as a bond and adjust your portfolio to include that future stream vs. today's holdings, e.g. if you treat it as a bond, your current portfolio will be equity heavy in anticipation of that future income and will be subject to more adjustment as time goes on, rather than just stick to an AA specified in your IP using the contents of your portfolio.

At least DW/me don't have to worry about SS since we're already SS age. Anyway, IMHO adjustments will be made over time (as they have been in the past) to increase the wage base, increase SS tax, and increase FRA age with a further discount of age 62 benefits. Something DW/me have already gone through at an earlier age (nothing new under the Sun). I'm sure SS will be around long after we've turned to dust.

Since that's not part of the original question of net worth, I'll let the forum members "stew" over that one (which of course, has also been discussed without agreement in the past) ...

[haha]

Quote:

Originally Posted by chris2008 "My" net worth is much higher than the net worth of my investments.....

This is an intersting point. When I was a teenager and I heard my Dad talk of net worth it just made me feel sad, as it seemed diminishing and pitiful to think of oneself in pure $$ terms.

Even now, I prefer terms like "net invested assets". It is more specific, speaks more to the assets that wil take care of you versus those that you will have to take care of, and doesn't have that existential downer bundled within.

Ha

[Texas Proud]

Quote:

Originally Posted by rescueme So what you are saying is that DW/my SS income, at a combined rate of $57K/year would be multiplied x 25 (or any number of years you wish, since that income would be at age 66/70 for us) would be worth over $1.4M added to our other "estate gross net worth" amount? Sounds good, but in the IT term, it's "vaporware" (in otherwords, making a position sound better than it actually is). Sorry, I'd rather work with "real" current numbers of asset value, not future possibilities based on being alive at a certain age. That's a forecast net worth (same as you do in retirement income planning) but does not represent what your current net worth is, as of this moment in time. I understand if you are younger and want to make your asset/net worth base look better (heck, I also played the game that way, at one time) but in reality the only thing you can count on is today from a measurment standpoint. The past, is past. The future is not guaranteed. That's why I always look at the question as the term "estate gross net worth" (e.g. before taxes - the same way most folks look at the value of their TIRA's).

Since there is a discussion on a value of an income stream... and should it be counted or not... I will throw in my 2 cents...

If you have a guaranteed income stream such as a pension (or lottery winnings that you get every year)... you can SELL that stream of money to someone and get real $$$s.... so, if someone is willing to pay you for this stream, it has 'value' today...

Is the amount that you will get 25X No... they discount their payment big time.... but you can sell your pension if you want.... it is the opposite of a life insurance policy.... they hope you live a long time...

SOOOO, a pension has a value today to the holder of that pension... and can be calculated.... true, when he dies, it is gone... but that is in the future..

[haha]

Quote:

Originally Posted by Texas Proud SOOOO, a pension has a value today to the holder of that pension... and can be calculated.... true, when he dies, it is gone... but that is in the future..

Sell now, commit suicide, and die a winnah!

Ha

[Major Tom]

What is the actual purpose of the argument on whether to include an income stream such as SS or a pension in your net worth total?

I look at the total of my invested assets (thanks Haha) run it through Firecalc to get an estimate of what income I could draw. Then from the SS website I estimate how much extra income I'll get from SS when I reach the qualifying age to get the total income I can expect.

Whether or not you include an income stream in your total net worth, what is the purpose of doing so - just so that we can "measure" ourselves against each other?

Extra line added after original comment made: I guess I can see understand why you'd do this if you were considering whether to consider the income stream a "stabilizing factor" so you can include more equities in your portfolio.

[Nords]

Quote:

Originally Posted by rescueme No it can't, IMHO. It only has "value" while you are alive. If it has survivor benefits, it will only have value while the survivor is alive. It can't be measured or used in a legal sense to show total estate assets, but it does have value if you wish to buy or rent under a retail contract, since those usually require a constant source of income. Just another rehash of an old subject ...

Quote:

Originally Posted by rescueme Sorry, I'd rather work with "real" current numbers of asset value, not future possibilities based on being alive at a certain age. That's a forecast net worth (same as you do in retirement income planning) but does not represent what your current net worth is, as of this moment in time.

Quote:

Originally Posted by rescueme I'll agree to the point of if you don't have SS (or substantial SS income) you may have to plan on having other sources of income, including a higher value retirement portfolio, but it brings up another discussion point as related to if you look at SS as a bond and adjust your portfolio to include that future stream vs. today's holdings, e.g. if you treat it as a bond, your current portfolio will be equity heavy in anticipation of that future income and will be subject to more adjustment as time goes on, rather than just stick to an AA specified in your IP using the contents of your portfolio.

You're pointing out that some assets have no value to you because you haven't collected them yet.

However actuaries can assess "human capital", accountants will track "accounts payable", factors will pay you for those APs or lend you money on them, and lawyers will surely sue you on your lifetime potential earnings (in addition to what you have listed in your brokerage account).

And yes, including future SS benefits can change an AA. But I don't know any 62-70-year-olds who will go out and load up on equities once they start receiving their SS deposits. That reasoning has nothing to do with logic and everything to do with emotion. Either choice is valid because each investor has to choose the rules they're more likely to follow. However math doesn't change just because one chooses a different set of values.

Your personal preference is at odds with mainstream accounting practices. Investors don't have to change their practices or even their opinions, but it's worth keeping the inconsistency in mind... especially when purchasing umbrella liability insurance.

[LARS]

A few thoughts. I would imagine there are significant differences in net worth as reported because:

i) Taxable vs. deferred-taxable accounts. To be accurate, the deferred accounts (IRA/401K etc.) should be net of taxes.
ii) Pensions: at a minimum if to be included they should be net of taxes and adjusted for expected life.

Personally, I would not include pensions/SS in a net worth calculation. A pension cannot be monetized due to death risk.

[smjsl]

Say I have $1M in cash and tomorrow I buy SPIA with it. Would my net worth become $1M less tomorrow?

And since SPIA is much less secure than SS stream, I would think if you answer "no" to above question, you should account for SS as part of your NW somehow...