- Joined
- Nov 27, 2014
- Messages
- 9,206
Looking for some thoughts on how to get my head around the change in my net worth given that I took a pension versus the lump sum.
Up until now, when I looked at things like my net worth, my investment performance and my potential withdrawal rate, I've handled my pension as the lump sum amount. However, this year, I had to decide on either the lump sum or the pension (monthly payment) and chose the pension. Now I'm looking at my year end results and am coming to terms with the change required. In round numbers, I had $2M in investments which included the lump sum estimate of my pension of $500K. So now my net worth has to reflect that. So now I have $1.5M, or said another way, my net worth just dropped by $500K or about 25%.
Of course, I'm not concerned about my FI, but how would you think about this? Should I do a present value of my pension payments and add it back to my net worth? That doesn't seem practical. Just take the mental hit and know it doesn't mean anything or that it was never really there? I guess it "hurts" a little bit because $2M was a nice milestone, the one I needed to hit for FI.
The good news is on the withdrawal side of the equation. The $500K will yield about $30K so the withdrawal rate on my balance is about 3.5% to get me to my $80K budget. My goal was 4% ($2M X 4% = $80K). Of course, since the pension is not COLA, the $1.5M has to cover inflation on the entire $80K so maybe I'm back up to 4% on my new base. Kind of feel like a circular reference going on.
Anyway, just wondering how others might have thought this through.
Up until now, when I looked at things like my net worth, my investment performance and my potential withdrawal rate, I've handled my pension as the lump sum amount. However, this year, I had to decide on either the lump sum or the pension (monthly payment) and chose the pension. Now I'm looking at my year end results and am coming to terms with the change required. In round numbers, I had $2M in investments which included the lump sum estimate of my pension of $500K. So now my net worth has to reflect that. So now I have $1.5M, or said another way, my net worth just dropped by $500K or about 25%.
Of course, I'm not concerned about my FI, but how would you think about this? Should I do a present value of my pension payments and add it back to my net worth? That doesn't seem practical. Just take the mental hit and know it doesn't mean anything or that it was never really there? I guess it "hurts" a little bit because $2M was a nice milestone, the one I needed to hit for FI.
The good news is on the withdrawal side of the equation. The $500K will yield about $30K so the withdrawal rate on my balance is about 3.5% to get me to my $80K budget. My goal was 4% ($2M X 4% = $80K). Of course, since the pension is not COLA, the $1.5M has to cover inflation on the entire $80K so maybe I'm back up to 4% on my new base. Kind of feel like a circular reference going on.
Anyway, just wondering how others might have thought this through.