Net worth calculator

[TheWizard]

If a person with whatever investments or future liabilities was given a free $100K a year COLAed pension are they effectively wealthier or not?

Only if they sock away some percentage of that additional income into investments in coming years.

If he were to spend all of that additional income on luxury cars, casinos, etc, then no his Net Worth would not increase due to the additional income...

 

[Ultrac]

Only if they sock away some percentage of that additional income into investments in coming years.

If he were to spend all of that additional income on luxury cars, casinos, etc, then no his Net Worth would not increase due to the additional income...

I deliberately did not to use the term Net Wealth, I was asking whether they would be wealthier or not, ie that they would have a higher standard of living.

 

[TheWizard]

Similarly, when I retired in 2013, I "spent" $500k from my 403(b) to buy a lifetime pension/immediate annuity. Therefore, my Net Worth took a major hit on that one day!

Note: because I chose 10-year guarantee period on that pension/annuity, my NW did not decline by the full $500k amount, probably only half that or a bit less.

What this tells us is that Net Worth is nowhere close to the whole story when dealing with retirement finances, not by a long shot...

 

[TheWizard]

I deliberately did not to use the term Net Wealth, I was asking whether they would be wealthier or not, ie that they would have a higher standard of living.

Wealth is a tricky word, correct.
But higher income definitely equates to higher standard of living, no question...

 

[mathjak107]

Only if they sock away some percentage of that additional income into investments in coming years.

If he were to spend all of that additional income on luxury cars, casinos, etc, then no his Net Worth would not increase due to the additional income...

no different then our pay checks ..only what we save increases net worth and only as it comes in .

i wouldn’t count future income yet i didn’t receive anymore then i would count future bills

 

[TheWizard]

no different then our pay checks ..only what we save increases net worth and only as it comes in .

i wouldn’t count future income yet i didn’t receive anymore then i would count future bills

Absolutely correct.
Terms like Net Worth and Wealth may not be identical, but they refer to an ACCUMULATION of assets, both by contributions of new money and by capital appreciation of assets already owned.

One's income is usually the starting point to building wealth, but not always. Working folks who fail are called "living paycheck to paycheck."

Retired folks aren't generally expected to be BUILDING wealth, just making it last for 30+ years...

 

[Ultrac]

Absolutely correct.
Terms like Net Worth and Wealth may not be identical, but they refer to an ACCUMULATION of assets, both by contributions of new money and by capital appreciation of assets already owned.

One's income is usually the starting point to building wealth, but not always. Working folks who fail are called "living paycheck to paycheck."

Retired folks aren't generally expected to be BUILDING wealth, just making it last for 30+ years...

Is a pension an asset?

 

[mathjak107]

Is a pension an asset?

technically the asset belongs to the pension fund not you .

they just agree to send you an income stream , in effect a pay check.

some have buyout options but until those assets shift from them to you they aren’t yours

 

[Ultrac]

technically the asset belongs to the pension fund not you .

they just agree to send you an income stream , in effect a pay check.

some have buyout options but until those assets shift from them to you they aren’t yours

Let's agree that the definition of Net Wealth does not include pensions as an asset.

The question is, is someone with a pension effectively wealthier than the same person without one?

 

[mathjak107]

no problem from me but i have been in many arguments where others include lump sum values .

it’s just mental masturbation.

i never post in any net worth thread …. just no point with everyone counting what they want.

i wouldn’t say wealthier with a pension until they receive a check , they may be more secure . they may even add to their net worth until spent .

it’s akin to saying is someone with a job and pay check wealthier .

not really unless they save it. they may be more secure and spend down less but wealthier is a realitive term

 

[TheWizard]

Is a pension an asset?

"Asset" is a bit of a fuzzy word.
Income streams such as pensions and SS are definitely assets in a generic sense but since they tend to terminate when you do, you can't include possible future payments from them for anything. Sorry.

But I'm really glad to have those income streams.They allow me to pay my bills and even have money left over most months to invest. And that money that i invest most months in retirement? That tends to increase my wealth/net worth, subject to Mr. Market...

 

[RetiredHappy]

Pension is an income and not an asset. When the pensioner dies, the income goes poof. Assets can be transferred and inherited.

 

[TheWizard]

Let's agree that the definition of Net Wealth does not include pensions as an asset.

The question is, is someone with a pension effectively wealthier than the same person without one?

Yes, I think we can agree, within the limitations of the English language, that someone with a pension is EFFECTIVELY wealthier than someone without that pension but with the same level of Investible Assets.
This should be obvious to anyone.

In my case, without a $100k pension, I'd be forced to withdraw $50k per year from my investments rather than put $50k per year of excess income INTO investments.
So that would decrease my wealth a lot depending on remaining years...

 

[Ultrac]

no problem from me but i have been in many arguments where others include lump sum values .

it’s just mental masturbation.

i never post in any net worth thread …. just no point with everyone counting what they want.

i wouldn’t say wealthier with a pension until they receive a check , they may be more secure . they may even add to their net worth until spent .

it’s akin to saying is someone with a job and pay check wealthier .

not really unless they save it. they may be more secure and spend down less but wealthier is a realitive term

So imagine there are two retirees, X and Y, both are using a 4% SWR.

X has $1M of investable assets and so can spend $40K a year, Y has $500k of investable assets and so can spend $20K a year but also has an income of $60K a year from pensions and SS. So Y can spend $80K a year.

While X has twice as much net wealth than Y, I think Y is much wealthier (not net weathlier) as Y can spend twice as much.

 

[TheWizard]

So imagine there are two retirees, X and Y, both are using a 4% SWR.

X has $1M of investable assets and so can spend $40K a year, Y has $500k of investable assets and so can spend $20K a year but also has an income of $60K a year from pensions and SS. So Y can spend $80K a year.

While X has twice as much net wealth than Y, I think Y is much wealthier (not net weathlier) as Y can spend twice as much.

Yes, there are people who equate spending to wealth, incorrectly.

In my case, I spend maybe $80k per year of my retirement income. But I invest around $50k per year of excess retirement income.

So I could easily spend $130k per year if I chose.
Would that make me wealthier?
Think about it...

 

[Ultrac]

Yes, there are people who equate spending to wealth, incorrectly.

In my case, I spend maybe $80k per year of my retirement income. But I invest around $50k per year of excess retirement income.

So I could easily spend $130k per year if I chose.
Would that make me wealthier?
Think about it...

Of course not, but fact that you could afford spend more means that you are wealthier than someone who couldn't,

 

[mathjak107]

So imagine there are two retirees, X and Y, both are using a 4% SWR.

X has $1M of investable assets and so can spend $40K a year, Y has $500k of investable assets and so can spend $20K a year but also has an income of $60K a year from pensions and SS. So Y can spend $80K a year.

While X has twice as much net wealth than Y, I think Y is much wealthier (not net weathlier) as Y can spend twice as much.

on the other hand bill has a million dollars in 30 year bonds and sees 40k a year income .

joe has no savings and a 40k pension , who’s wealthier ?


if joe dies a year later what’s he got ?

 

[Ultrac]

on the other hand bill has a million dollars in 30 year bonds and sees 40k a year income .

joe has no savings and a 40k pension , who’s wealthier ?


if joe dies a year later what’s he got ?

You didn't answer my question (you didn't answer my previous one either). But I will answer yours.

They have the same effective weath.

After he's dead, Joe has nothing.

His heirs may or may not have anything. If he had a $2M term life policy then they get that, but Net Wealth doesn't include term life so another reason it fails.
.

 

[HI Bill]

For most ER folks and FIRE folks, Net Worth is more of a fun figure than a useful one.

My tracking spreadsheet includes NW, but the most important number for me, is at the very top: Invested Assets (IA). I use the IA value to calculate my SWR, annually, using Boglehead's VPW. Later, I'll add in my SS payment, and my SWR will drop a little.

 

[TheWizard]

You didn't answer my question (you didn't answer my previous one either). But I will answer yours.

They have the same effective weath.

After he's dead, Joe has nothing.

His heirs may or may not have anything. If he had a $2M term life policy then they get that, but Net Wealth doesn't include term life so another reason it fails.
.

Umm, Net Worth DOES include life insurance in force at time of death.
No idea how you think otherwise...

 

[mathjak107]

networth is a snap shot in time ..

if he ain’t dead at the time of snap shot it’s not his money . it’s in the insurance company cash register. in fact it’s never his as it goes to others

even whole life which has a cash value either has a policy in effect not received by the beneficiaries which is owned by the insurance company or the policy is cashed in for the cash value , in which case the policy no longer exists.

so assets not in one’s own possession and control can be difficult to deal with .

not when one is doing it for themselves but for posting in show me yours and i’ll show you mine threads.

which goes back to what i said , they are useless discussions

 

[Ultrac]

Umm, Net Worth DOES include life insurance in force at time of death.
No idea how you think otherwise...

The cash value of life insurance is counted, term life isn't, for example here is Bankrate stating this:

https://www.bankrate.com/smart-spending/personal-net-worth-calculator/

 

[Ultrac]

networth is a snap shot in time ..

if he ain’t dead at the time of snap shot it’s not his money . it’s in the insurance company cash register. in fact it’s never his as it goes to others

even whole life which has a cash value either has a policy in effect not received by the beneficiaries which is owned by the insurance company or the policy is cashed in for the cash value , in which case the policy no longer exists.

so assets not in one’s own possession and control can be difficult to deal with .

not when one is doing it for themselves but for posting in show me yours and i’ll show you mine threads.

which goes back to what i said , they are useless discussions

I agree that these discussions are useless as you won't answer my questions.

 

[TheWizard]

The cash value of life insurance is counted, term life isn't, for example here is Bankrate stating this:

https://www.bankrate.com/smart-spending/personal-net-worth-calculator/

Nice website, but I disagree.
I said life insurance IN FORCE AT TIME OF DEATH.
It's not necessary to agree with me...

 

[Aerides]

it's not necessary for any one to agree, as there is no accepted standard definition, so the arguments and CAPS are not necessary.