phantom assets and 4% withdrawal rate

[SteveLS]

Does the 4% rule, or any withdrawal rate% calculation include phantom assets in calculation of one's net worth?....

i.e. phantom assets defined as the theorhetical amount of money in a fixed asset to produce an income stream equal to what one receives from a pension or social securuty......
FOR EXAMPLE a $1200 per month social security payment is equivalent to having approximately $411,428.00 in a fixed instrument paying 3.5%.

Should this sum be included in one's net worth to calculatrd a 4% withdrawal rate?

 

[Brat]

Not in my opinion. 

The 4% is the (customary, recommended) withdrawal rate from pension savings that will last a lifetime.

 

[retire@40]

Should this sum be included in one's net worth to calculatrd a 4% withdrawal rate?

No.  Your social security payments are not part of your net worth.

Of course if you need $40K in retirement and $14K of it comes from social security, then you would only need $26K withdrawals from your investments.  So, instead of needing $1mil for the $40K withdrawals, you would only need $650K for the $26K withdrawal.

Your social security benefit of $14K gives you additional "phantom net worth" of $350K, if you want to look at it from a ghostly point of view.

 

[REWahoo]

Your social security benefit of $14K gives you additional "phantom net worth" of $350K, if you want to look at it from a ghostly point of view.

retire@40,

I realize your are a youngster and probably haven't given this any consideration, but I can assure you that us old f*rts more seasoned posters do not want to look at anything in retirement from a ghostly point of view.

REW

 

[retire@40]

I realize your are a youngster and probably haven't given this any consideration, but I can assure you that us old f*rts more seasoned posters do not want to look at anything in retirement from a ghostly point of view.

You're right, I didn't mean to "spook" the old-timers here.  But keep your "spirits" up.  Having a good understanding of "phantom" assets is good for the "soul."

 

[REWahoo]

You're right, I didn't mean to "spook" the old-timers here. But keep your "spirits" up. Having a good understanding of "phantom" assets is good for the "soul."

Dead on....

REW

 

[maddythebeagle]

I think that some on this board have inclued pension income esp. from government employement (since it is probably more secure) and it is vested. I dont think social security is set in stone anyway (and you might not stand a GHOST of a chance getting at my age).

 

[REWahoo]

.... (and you might not stand a GHOST of a chance getting at my age).

Young punk.....

 

[grumpy]

SteveLS,

As has already been stated, most do not include phantom assets in net worth calculations. However, I do count pension assets as if they came from a large T-bill investment in terms of calculating my overall asset allocation . Since I have a large pension, I think of this as already having a very large fixed income allocation and I therefore allocate almost all non-pension assets to equities. If I were to ignore the phantom assets it would look like my allocation to equities was close to 80%. By my method of calculation the equity allocation is less than 40%.

Grumpy

 

[AltaRed]

Agree with grumpy that significant DB type pensions need to be considered for asset allocation purposes of the rest of the portfolio. I will be in a similar situation when I ER in 9 months. It will appear that DW and I will be close to 70% equities without considering the pension and closer to 50% when factoring in the pension at a multiplier of about 20 (no COLA).

 

[uncleharley]

I use the clculated value of social security and my promised pension when I did my asset allocation plan. I classified the SS and pension as bonds and found that it made a huge difference in how I approach the investment of my savings. Other than bragging rights, I can't think of any other use for the gross value of social security or a pension plan.
:

 

[Mr._johngalt]

I never thought of including SS benefits (future) in my "back of the
envelope" net worth calculations. OTOH, for years I have included
the estimated value of a product line I sold off which produces royalties. The value is loosely based on the return it throws off.
Based on this I guess I should include SS as I am quite near to
collecting.

An aside..............we could weather just about any disaster and still
be retired. But, SS
each month and on time is absolutely the linchpin upon which our
ER turns. No SS= no ER (other than possum living). Simple as that.

JG

 

[uncleharley]

Using a 4% annual drawdown rate, a $1000.00 per month SS check is equal to $300,000.00 in net worth. Obviously it gives one a somewhat different perspective when deciding how much they need in fixed income assets such as bonds, CD's etc.