Value of pension and net worth

[CardsFan]

$120K/yr income + $1.5M or just $4M, which is better?

I dunno, but I won't think too hard about it. It is all hypothetical, as I do not have the choice. I am spending a lot more time thinking whether I should execute a stock/option trade or not. That decision has a real consequence.

I know you are just musing, but you bring up a point. If I had no heirs, i would probably say the first. When I factor in leaving it to DS, then second is probably better.

But, then again, is the money in tIRA, Roth, or after tax?

 

[Rustic23]

I count it in my net worth. Drives accountants crazy, reason enough for me.

It's a feel good! If I just look at savings, I don't feel quite as well off. Capitalize my pensions, and that four million looks real good, and I sleep at night.

 

[street]

yes - typically the healthy people take the annuity and the unhealthy take the lump sum - that type of adverse selection essentially removes pooling

worst thing that ever happened to DB plans, IMO

lump sums have been shown to cause poverty - you can do an internet search on it

Well, I'm not sure the first sentence is totally a correct assumption for all people but take your logic to that choice. Is was the opposite in my case.

The last sentence is an assumption also, and I would assume people that take a lump sum that aren't savers or frugal would have it all spent. On the other hand people that have worked hard and saved and are frugal will secure those holdings and are wise with what they do with a large asset. I also was an exception to the internet research that lump sums will cause poverty.
Just my 2¢.

 

[Koolau]

Late to the party - as usual. Full disclosure, I haven't read all the posts, so if covered, please excuse me.

I'm trying to think how you would value an asset that is worth less every month. At age 52, your underlying "asset" (that provides your $3100/mo) MUST be worth MORE than it will be when you are (hopefully) 92. Also, as "Tomorrow is promised to no man" your pension value could be zero if you die before the first check is cut. I think, at a minimum, you would have to "revalue" this asset quite often. What if (heaven forbid) you were given a terminal diagnosis? Would you lower the value? By how much?

I think (like others) it would be best to use you're pension to calculate how much risk you could take in equities, etc. The "value" is probably, practically "indeterminate." Just enjoy the fact that (as long as you are alive) you know where your next month's $3100 (adjusted for inflation) is coming from. Plan with that in mind but use any calculation of asset value just for "fun." YMMV

 

[Big_Hitter]

Well, I'm not sure the sentence is totally a correct assumption for all people but take your logic to that choice. Is was the opposite in my case.

The last sentence is an assumption also, and I would assume people that take a lump sum that aren't savers or frugal would have it all spent. On the other hand people that have worked hard and saved and are frugal will secure those holdings and are wise with what they do with a large asset. I also was an exception to the internet research that lump sums will cause poverty.
Just my 2¢.

those are both general statements, there will always be exceptions

think of the rank-and-file participants in a DC or DB plan

https://crr.bc.edu/working-papers/t...n-pensions-does-it-influence-elderly-poverty/

" This study examines pension coverage, lump-sum distributions, annuitization, and annuity life options among Health and Retirement Study households observed at ages 65-69 and 75-79 and relates these pension provisions to poverty incidence and the risk of falling into poverty at older ages. "

 

[joeea]

lump sums have been shown to cause poverty

LOL!

I'm pretty sure it's not the lump sum that causes poverty.

 

[Big_Hitter]

LOL!

see above

 

[foxfirev5]

All I know is that my kids are better off if I don't have a pension. Or an annuity. (that's their story and they're sticking to it.)

 

[joeea]

see above

I did.

Please quote the section that says "lump sums have been shown to cause poverty".

In my reading, it's not there. Perhaps I missed it.

In similar news, "french fries and chips have been shown to cause blindness". Google it.

 

[target2019]

I usually give up after reading an Abstract.


"The results indicate that households with pensions that are annuitized with the joint-and-survivor life option and that do not take lump-sum distributions before age 55 are best able to avoid income and asset poverty."
https://crr.bc.edu/wp-content/uploads/2015/06/wp_2015-17.pdf

 

[Big_Hitter]

I did.

Please quote the section that says "lump sums have been shown to cause poverty".

In my reading, it's not there. Perhaps I missed it.

In similar news, "french fries and chips have been shown to cause blindness". Google it.

I'm not making this stuff up bro:

"Though DC beneficiaries are not worse off per se, DC pension holders have easier access to lump-sum distributions before retirement, and the results indicate that households that have taken a lump-sum payout before retirement are more likely to have income that falls below each poverty threshold. "

 

[street]

those are both general statements, there will always be exceptions

think of the rank-and-file participants in a DC or DB plan

https://crr.bc.edu/working-papers/t...n-pensions-does-it-influence-elderly-poverty/

" This study examines pension coverage, lump-sum distributions, annuitization, and annuity life options among Health and Retirement Study households observed at ages 65-69 and 75-79 and relates these pension provisions to poverty incidence and the risk of falling into poverty at older ages. "

Yes, I get it, just thinking I'm sure a lot get into trouble taking a lump. I actually know of one guy that did just that. Took the lump and in a few years was not doing well financially. It was a large lump sum to boot.

 

[pb4uski]

^^^^ I didn't read the paper but suspect it is just a milder version of how and why lottery winners or highly paid athletes go broke within a short time.... lack of financial discipline... which may be why they took the lump sum in the first place.... chicken or egg?

 

[NW-Bound]

OK.

I think I have a balanced asset/income mixture with SS + 401k. It's all good.

Good thing Uncle Sam does not let me have my SS in a lump sum. I could not put it all on dot-coms or bitcoins, even if I wanted to.

 

[NW-Bound]

... lack of financial discipline... which may be why they took the lump sum in the first place.... chicken or egg?

Neither chicken nor egg.

It's omelet now.

 

[Big_Hitter]

^^^^ I didn't read the paper but suspect it is just a milder version of how and why lottery winners or highly paid athletes go broke within a short time.... lack of financial discipline... which may be why they took the lump sum in the first place.... chicken or egg?

i'm guessing lack of financial acumen - many of these plans have no distribution options other than a lump sum

 

[joeea]

I usually give up after reading an Abstract.


"The results indicate that households with pensions that are annuitized with the joint-and-survivor life option and that do not take lump-sum distributions before age 55 are best able to avoid income and asset poverty."
https://crr.bc.edu/wp-content/uploads/2015/06/wp_2015-17.pdf

That's the gist of what the document says.

And it's clearly not the same as "lump sums have been shown to cause poverty".

 

[joeea]

I'm not making this stuff up bro:

"Though DC beneficiaries are not worse off per se, DC pension holders have easier access to lump-sum distributions before retirement, and the results indicate that households that have taken a lump-sum payout before retirement are more likely to have income that falls below each poverty threshold. "

Certainly you understand that none of this means "lump sums have been shown to cause poverty", right?

 

[joeea]

^^^^ I didn't read the paper but suspect it is just a milder version of how and why lottery winners or highly paid athletes go broke within a short time.... lack of financial discipline... which may be why they took the lump sum in the first place.... chicken or egg?

So, winning the lottery has been shown to cause poverty? Or being a highly paid athlete has been shown to cause poverty?

Or is it more like lack of financial discipline has been shown to cause poverty?

 

[Big_Hitter]

Certainly you understand that none of this means "lump sums have been shown to cause poverty", right?

There would be less poverty without them. What's the difference?

 

[joeea]

There would be less poverty without them. What's the difference?

Let's try an analogy...

There would be less diabetes if people didn't eat so much and controlled their weight.

Would it be proper for me to say "eating has been shown to cause diabetes"?

Do you see the difference now?

Clearly it's not the lump sum that causes poverty. It's what the individual does with their finances that cause poverty.

 

[Big_Hitter]

Let's try an analogy...

There would be less diabetes if people didn't eat so much and controlled their weight.

Would it be proper for me to say "eating has been shown to cause diabetes"?

Do you see the difference now?

Clearly it's not the lump sum that causes poverty. It's what the individual does with their finances that cause poverty.

If it would be impossible to overeat there would be less diabetes. If it were impossible to get lump sums there would be less poverty, per the article.

 

[joeea]

If it would be impossible to overeat there would be less diabetes. If it were impossible to get lump sums there would be less poverty, per the article.

I tried. I give up. Maybe someone else can get through. Maybe not.

Good luck.

 

[NW-Bound]

Do starved people die of diabetes?

I look on the Web, and they say developing countries are seeing a rise in diabetes. I bet they are feeding on lots of corn syrup and drink lots of Coke.

 

[audreyh1]

Do starved people die of diabetes?

Only if they can't make/get insulin, in which case they do starve.