Value of pension and net worth

[RobbieB]

If I won the lottery I would go for the 20 year plan.

 

[street]

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

Good luck.

^ LOL!
You don't always have to be right, and try to make people think the way you, want them to think.

 

[dixonge]

^ LOL!
You don't always have to be right, and try to make people think the way you, want them to think.

Yes he does. LOL

I have included lump sum amounts in net worth calculations in the past. It is quite disheartening to see that number plummet once the payments start! So it definitely feels better to include the NPV, even if it's only *really* useful for asset allocation decisions.

 

[NW-Bound]

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

I was talking about people who are malnourished. Can anyone become diabetic with 1000 cal/day?

They used to say that diabetes is a rich man's disease. As mentioned earlier, developing countries are now seeing a rise in diabetes. But look at the people. They have been gaining weight. From eating lots of carb, most likely.

 

[audreyh1]

I was talking about people who are malnourished. Can anyone become diabetic with 1000 cal/day?

They used to say that diabetes is a rich man's disease. As mentioned earlier, developing countries are now seeing a rise in diabetes. But look at the people. They have been gaining weight. From eating lots of carb, most likely.

Diabetes type 2 is a disease of diet - high carbohydrate intake.

However, believe it or not, obesity is a problem today in countries with insufficient food intake/malnourishment. Seriously messed up metabolisms I assume from childhood malnutrition. https://www.pri.org/stories/2012-11-22/africa-obesity-new-starvation

 

[zippy2020]

Please note I added this as an expansion to a single post in this thread. Because it has grown so quickly (10+pages), like many I skimmed thru parts of it. So this is merely a minor aside for those who aren't familiar with Defined Benefit Pensions (as there are so few left these days!).

....Yup acts just like a fixed income investment except you can't sell the asset. Can't pass it on in your will, it's just yours and if you die tomorrow, so will your pension.

Actually, that's not true. Many pensions are assignable. Some have a limited percentage assignable; others do not.

My DH took a 100% assignable pension. This lowers his monthly pension by about 11%. But it means if he dies, I get that same amount for the rest of my lifetime. I cannot assign to anyone else, however.

However if I die first, he can assign it to anyone else he wishes. And he can choose whether to NOT assign it again (thereby receiving the "full amount"), or do a 50% assignable or a 100% assignable.

Therefore, it all depends on how the pension contracts are negotiated. We know other people in different unions where their pension is only 50% assignable, maximum.

My [very, very tiny] pension from a long-ago private employer (one of the big insurance companies) was assignable as well.

 

[Big_Hitter]

Actually, that's not true. Many pensions are assignable. Some have a limited percentage assignable; others do not.

My DH took a 100% assignable pension. This lowers his monthly pension by about 11%. But it means if he dies, I get that same amount for the rest of my lifetime. I cannot assign to anyone else, however.

However if I die first, he can assign it to anyone else he wishes. And he can choose whether to NOT assign it again (thereby receiving the "full amount"), or do a 50% assignable or a 100% assignable.

Therefore, it all depends on how the pension contracts are negotiated. We know other people in different unions where their pension is only 50% assignable, maximum.

My [very, very tiny] pension from a long-ago private employer (one of the big insurance companies) was assignable as well.

qualified pensions are generally not assignable per ERISA - the only way a pension can be assigned is via a QDRO - see Section 414p of the IRC

you are conflating a joint and survivor annuity with an assignable annuity

 

[NW-Bound]

I did not know a pension could be assigned, whatever that means.

What I know is that at the commencement of a pension payout, the recipient has to select various options, including having the spouse to continue receiving payments after the principal has died. The continuing benefit could be 0, 50%, or 100%. And they need to know the age of the spouse in order to do actuarial calculations to know how much to offer. Once the contract is signed, it absolutely cannot be changed.

They certainly will not let you change the beneficiary, to someone younger for example.

 

[Rianne]

I did not know a pension could be assigned, whatever that means.

What I know is that at the commencement of a pension payout, the recipient has to select various options, including having the spouse to continue receiving payments after the principal has died. The continuing benefit could be 0, 50%, or 100%. And they need to know the age of the spouse in order to do actuarial calculations to know how much to offer. Once the contract is signed, it absolutely cannot be changed.

They certainly will not let you change the beneficiary, to someone younger for example.

Yes, but what is a "10 Year Certain and Life Annuity." The monthly payment on this option is less than the Single Life Annuity and less than the 100% Joint and Survivor Annuity. It doesn't make sense. Or does it mean it's paid regardless of life or death?

 

[Big_Hitter]

Yes, but what is a "10 Year Certain and Life Annuity." The monthly payment on this option is less than the Single Life Annuity and less than the 100% Joint and Survivor Annuity. It doesn't make sense. Or does it mean it's paid regardless of life or death?

the 10 year c&l is paid regardless for the first 10 years, then life only thereafter to the primary annuitant - there should be an explanation in your packet

is the spouse significantly older? that may be why the 10C&L is less than the 100% J&S

 

[Big_Hitter]

I did not know a pension could be assigned, whatever that means.

it means I can give/sell you my future pension payments - generally illegal unless you get divorced, then the former spouse can get part or all of it

 

[NW-Bound]

it means I can give/sell you my future pension payments - generally illegal unless you get divorced, then the former spouse can get part or all of it

But your life expectancy is different than mine. And if a pension is calculated based on the recipient's life expectancy, how can that be changed?

You discover you are about to die after drawing a pension for 20 years, so you transfer it to your younger brother? That's why they cannot let the contract be changed afterwards.

 

[Big_Hitter]

But your life expectancy is different than mine. And if a pension is calculated based on the recipient's life expectancy, how can that be changed?

You discover you are about to die after drawing a pension for 20 years, so you transfer it to your younger brother? That's why they cannot let the contract be changed afterwards.

when a pension is assigned as a result of divorce, it can be either a "stream of payments" division or a "separate interest" provision

under stream of payments, the payments follow the original benefit election, under separate interest, the annuity that is assigned to the alternate payee is adjusted for difference is life expectancy

 

[NW-Bound]

Thanks. It makes sense that they have to allow for a divorce. And also, the adjustment for life expectancy.

When it comes to money, things can get complicated quickly.

 

[Big_Hitter]

the key is that the QDRO is not a plan amendment - i.e. the present value of benefits has to be the same before and after the benefit is assigned - hence why there is an age adjustment for separate interest QDROs

 

[retire202052]

Diabetes type 2 is a disease of diet - high carbohydrate intake.

However, believe it or not, obesity is a problem today in countries with insufficient food intake/malnourishment. Seriously messed up metabolisms I assume from childhood malnutrition. https://www.pri.org/stories/2012-11-22/africa-obesity-new-starvation

Haha....not sure how my OP turned into a topic on diabetes and world malnourishment....but very interesting

 

[NW-Bound]

It is all related.

If you have diabetes, your pension is not as valuable as that of a healthy person. That has to be taken into account.

 

[street]

I have included lump sum amounts in net worth calculations in the past. It is quite disheartening to see that number plummet once the payments start! So it definitely feels better to include the NPV, even if it's only *really* useful for asset allocation decisions.

Do you mean when you have to start RMD is when the numbers plummeted and disheartening?

There was a thread about wealth going down when people start taking out for RMD. The consensus was that a portfolio still grows if reinvested back into the market from the RMD.

Thanks

 

[NW-Bound]

I have included lump sum amounts in net worth calculations in the past. It is quite disheartening to see that number plummet once the payments start! So it definitely feels better to include the NPV, even if it's only *really* useful for asset allocation decisions.

Do you mean when you have to start RMD is when the numbers plummeted and disheartening?

There was a thread about wealth going down when people start taking out for RMD. The consensus was that a portfolio still grows if reinvested back into the market from the RMD.

Thanks

I believe what Dixonge means is that he used to look at the lump sum value as part of his net worth. When he started the benefit and chose not to take it as a lump sum, that option was gone forever and replaced by just an income stream. He misses that lump sum option, and feels "poorer".

When you do not have a lump sum option, such as with SS payments, you do not think about it that much. I don't. I think of SS more as an income.

Perhaps this has been posted earlier, but Kitces estimated that at the maximum benefit of $2,642/month in 2015, the SS lump sum value was $572,000 for men and $683,000 for women who claimed SS at the FRA of 66.

The SS lump sum equivalent is lower than I thought, but then I know little about annuity. By the way, that's 5.5% WR, and COLA'ed too.

See: https://www.kitces.com/blog/valuing...s-as-an-asset-on-the-household-balance-sheet/

 

[street]

Ah, thanks NW-Bound. Okay, now I get it.

 

[Amethyst]

You mean you didn't report them on your tax return?

I did not know how much I received from dividends and interest until now.

 

[Amethyst]

NW doesn't signify because most of our income is from pensions. I can see where NW would be important to people who sell assets for "income."

The only time I thought seriously about NW was when we did our estate plan. Naturally, pensions were not included.

Oh, and 30 years ago when we bought a house, and had to provide a list of assets to the mortgage company. They were interested in dividends and interest, but were not at all interested in our eventual pensions.

 

[NW-Bound]

... I did not know how much I received from dividends and interest until now.

You mean you didn't report them on your tax return?

Only those on the after-tax accounts, which are now a smaller part of the total stash. Much of my investable assets are now in IRA/401k/Roth. Om these accounts, all I care to see is their balance.

My after-tax accounts were spent down significantly while I was waiting for the age of 59-1/2 to draw from retirement accounts. I still have quite a bit in I bonds bought many years ago, but the significant accrued interest on these is tax-deferred until I withdraw.

The money I spend now comes from tax-deferred accounts, so I am paying taxes on every dollar withdrawn. No difference between principal and cap gain/dividend.

On the other hand, I can trade stocks and sell options in the tax-deferred accounts without having to think of tax implications because everything is going to be taxed.

 

[UnrealizedPotential]

I am entitled to a pension at a reduced amount starting next January at age 50.
I will not begin collecting it then . I have in the past come up with a crude way to figure out the pensions worth depending on what it pays out. I do not include this to my net worth. I don't feel there is a reason to do that .

It's just for my information only and it's not a big deal to me. But what I do is figure out what amount would pay out the pension amount at 3.5%. The 3.5 % payout is just a number I made up. Again, this is no big deal to me but I have played around with the numbers just for fun.

 

[retire202052]

I am entitled to a pension at a reduced amount starting next January at age 50.
I will not begin collecting it then . I have in the past come up with a crude way to figure out the pensions worth depending on what it pays out. I do not include this to my net worth. I don't feel there is a reason to do that .

It's just for my information only and it's not a big deal to me. But what I do is figure out what amount would pay out the pension amount at 3.5%. The 3.5 % payout is just a number I made up. Again, this is no big deal to me but I have played around with the numbers just for fun.

Interesting article on this topic:

https://www.budgetsaresexy.com/do-y...bout-art-insurance-homes-cats-baseball-cards/

Of course you can't count your pension until you start receiving it, but starting at such a young age (50), I'd bet that number looks pretty good multiplied by lets say 20 years.