Net worth Poll

[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]

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]

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]

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]

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]

"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]

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]

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]

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 ...

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'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...

 

[GregLee]

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.

I did that.

 

[Geoffrey]

The "net worth" demographics revealed by this poll are impressive, especially since the data includes members who are still in the accumulation phase. I am curious what the results would be if the poll was confined to members who are in the distribution phase. Would the typical "net worth" profile jump appreciably? Stay the same? Decrease?

 

[W2R]

It is hard to know what value to assign to SS benefits if one is not already collecting them. Monthly SS benefits can vary depending on the age at which they are claimed, and some of our younger members feel they may never see them. One can say they shouldn't be included unless they are already claimed, but is the person who has been receiving SS for a month any richer than his friend who will file his claim for SS next month? Ridiculous (just IMHO, anyway).

And then value of one's house, in a collapsing/collapsed housing market (at least in some locations), if it is not under contract at present? Pretty hard to nail down, too.

All in all, the entire concept of net worth seems pretty difficult to nail down right now. That's OK. I can't think of any reason I have to know my net worth at present. Maybe it will be easier to figure out once the recession is behind us.

 

[Moemg]

When I figured my net worth I did not add in my SS . I did include my pension and for the value of my house which had dropped over $200,000 from the peak I put in the property appraisal which is usually lower than what the houses sell for . I also checked Zillow . I luckily bought my house before the run up so I am still ahead in that area. From the last time we did net worth in 2007 I am down but not as significantly as I thought.

 

[NW-Bound]

I do not include SS either, but do expect to get something when I get to that age.

Regarding counting only money you hold in hand, I remember that rescueme talked about providing for his disabled child. And I remember another poster, modhatter (darn, I wish my memory were always this good), also talked of the same provision. So, people in this situation have a different viewpoint of what to count in their net worth, and what they can spend.

 

[aaronc879]

I personally would not include SS or pension(unless lump sum actually in my possession) in net worth calculation. I would just use the monthly income from those and reduce that from my required expenses to figure out what I need to save to FIRE. Future monthly income has no place in net worth calculation IMO.

 

[W2R]

I personally would not include SS or pension(unless lump sum actually in my possession) in net worth calculation. I would just use the monthly income from those and reduce that from my required expenses to figure out what I need to save to FIRE. Future monthly income has no place in net worth calculation IMO.

Those were my thoughts, as well. Plus, as I mentioned above, I was confused about what value to assign to SS. I didn't include either.

Also, I didn't include my house at all because a house is only worth what somebody is willing to give you for it, and I got no offers on mine recently (even though pricing significantly below appraisal value and below my realtor's suggested selling price, and offering incentives as well). It might have sold had I waited a year or more, but is that relevant to today's net worth? I just don't see it.

 

[rescueme]

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...

I'm going to really raise some eyebrows with my retort to the questions posed, but that's something I feel comfortable to do...

Actually, on the day that you purchase an SPIA, your net worth will actually increase, based upon the type of policy you purchase.

Let me explain. My DW/me have an SPIA that we purchased at the time of my retirement, four years ago (since I have no pension and am delaying SS). The policy terms are that it is a joint life policy with fixed payments and a minimum term. What that means is that the policy will pay a fixed amount (not inflation adjusted) for "x" number of years as long as we are alive. If one dies, payments continue at 100%. If we both die before the end of the specified term, payments continue to our estate till the term ends (or our estate can request a full lump sum in lieu of payments, at 100% of remaining payment value). The reason you might want to continue payments to an estate (as we will) is to provide for income for an estate beneficiary.

That means on the date the contract was accepted/executed, the total current "value" was the monthly payment x 12 months x the number of years in the term. In our case, it was a value that was a multiple of our original premium so yes, our total estate gross net worth increased with our purchase (amazing, isn't it?) rather than decreased.

BTW, every month as we receive our monthly SPIA "check", I deduct that amount from the remaining value. On an annual basis, the remaining value is reported to our elder law attorney (managing our estate) for their records. BTW, when we set up our estate/trust records/accounts, that contract was required by our attorney to determine if it would be part of our estate net worth. If it would have been joint life only, then it would not have been.

As far as your comment "since SPIA is much less secure than SS stream", I can't agree (of course).

You have to remember that based upon conditions of the contract your SPIA (or other annuity) income is protected under state law under limits depending on where you live. You can check at:

http://www.annuityadvantage.com/stateguarantee.htm

To find your state's limits on annuity contracts.

While our SPIA is in excess of our state's limit, we were willing to take that risk. First of all, in any "investment" everybody's risk assessment is different. We are comfortable with our decision. Part of that decision was also the fact that at the time, the SPIA premium represented a little less than 10% of our total retirement investments (which have grown since then).

If you have done any reading on annuities (specifically SPIA's) you will see a reference to not "converting" more than 50% of your retirement investments to an annuity. That is to ensure that you have other funds to cover those times an emergency may crop up, and the SPIA does not provided enough money to cover your needs.

In fact, we had to attest on our SPIA application to this fact. It was asked if the current SPIA applied for, along with all other existing annuities represented more than 50% of our total investments. That indicates that even the insurance companies are aware of this fact.

Again, I'll just restate our belief (even though some don't agree, and that's OK) that SS is not part of measuring our gross estate net worth. In most instances, it ceases to have any value upon death, other than a possible step-up in benefits for the spouse or the rare occasion it is use to provide income for underage children.

Our SPIA however? It will have value, even after we're both gone - assuming that we both pass before the specified term. Oh yes, if one/both live longer than the term? Payments continue at 100% and also increase our IRR return (not that we'll understand what I'm talking about at that age).

And yes, NW Bound is correct in stating that I/DW may look at the question a bit differently since we are providing for the next generation - our disabled son, after we're gone. That's why we look at what we have today, not what we may have in the future, based upon income streams that only exist if we do.

 

[Texas Proud]

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.

But you can monetize a pension stream...

Sell Your Pension Payments | Get cash for your Pension NOW!!!

Pension Loan. Now You Can Sell Your Future Pension payments


And that is only taking a two minute look....




I think the big problem with this discussion is why do you want to figure out your net worth...

If it is 'how much do I have now'.... then including pensions is probably not correct....

If it is 'how much will I need when I retire'... then including them is needed IMO...

I have two sisters who are retired with state pensions... and the value of these are quite large... one is getting over 90% of her salary (worked 41 years to get it).... ignoring this considering how much her and her husband saved would mean she would still be working...

My past mega has a pension plan.... and they give you a NPV (or cash value)... I include it in my net worth... I do not include SS...

 

[MasterBlaster]

RescueMe:

Are you ignoring the diminishing real value of the SPIA payments as inflation eats away at the things each payment will buy ?