how would you account for these assets?

[Big_Hitter]

Well to begin with your response is a bit left field since it has nothing to do with us repeating certain topics. Having trouble focusing today?

Yes, some people do it for a living, but they do it for a group of lives, not for an individual life. Its the difference between group moratlity and individual mortality... even a pension actuary should be able to understand that.

these types of present values are also calculated when dividing a defined benefit pension upon marital breakdown on an individual basis using group mortality assumptions

yes I apologize I may be a bit unfocused - still trying to get used to not having to go to w*rk anymore

 

[pb4uski]

wasn't there a multi page thread on including db pensions in net worth?

sure we do - lump sum calculations are just that

for my own portfolio I value my life annuity as an asset - no biggie

Under your construct using group mortality assumptions you would have the same value for a 50 yo male that is in great health and a 50 yo male that has been diagnosed with stage 4 cancer and has 6 months to live.... right?

Group mortality isn't refined enough to differentiate between the two situations so the value for the 50 yo male is probably understated and the value for the other 50 yo male with cancer is hugely overstated.

 

[Big_Hitter]

Under your construct using group mortality assumptions you would have the same value for a 50 yo male that is in great health and a 50 yo male that has been diagnosed with stage 4 cancer and has 6 months to live.... right?

for lump sum calculations, yes, we used statutory mortality tables and generally ignore the health of the individual unless the calculations is a commuted value of a disability pension or something

that's why lump sum options introduce anti-selection risk, bigly

 

[Big_Hitter]

but to your point, If I had a 6 month diagnosis, the present values I may be using to value my life annuity and SS would be much different, but there would be a fairly sizable life insurance payout - should I do that 23 and me thing?

(for the record I don't count either as an "asset" since they are just planned spending offsets in my model but to each his/her own)

 

[mrfeh]

why? SS is essentially a contributory defined benefit plan

Why wouldn't I count that as an asset since I've been putting in about 12% a pay for the last 33 years?

I'm not gonna argue something that's been discussed dozens of times on this board.

If you can find me a CPA that counts SS benefits in net worth, I'll consider changing my mind.

 

[pb4uski]

but to your point, If I had a 6 month diagnosis, the present values I may be using to value my life annuity and SS would be much different, but there would be a fairly sizable life insurance payout - should I do that 23 and me thing?

(for the record I don't count either as an "asset" since they are just planned spending offsets in my model but to each his/her own)

Where would the sizeable life insurance payout come from? Not the life annuity! SS is all of $255! Not near sizeable. And most retirees don't have significant life insurance coverage. So where is this mysterious "sizable (sic) life insurance payout" coming from?

On the last part it sounds to me like you are talking out of both sides of your mouth.... but I agree with you that spending offsets is preferable.

 

[Big_Hitter]

Where would the sizeable life insurance payout come from? Not the life annuity! SS is all of $255! Not near sizeable. And most retirees don't have significant life insurance coverage. So where is this mysterious "sizable (sic) life insurance payout" coming from?

On the last part it sounds to me like you are talking out of both sides of your mouth.... but I agree with you that spending offsets is preferable.

I have a large paid up whole life policy - I count the cash value as an asset

Just because I don't count SS as an asset doesn't mean it isn't countable

for example, traditional qualified plan design almost ALWAYS includes an anticipated SS payout - that's why we have permitted disparity (SS offsets, etc.) in pension plans

 

[Big_Hitter]

If you can find me a CPA that counts SS benefits in net worth, I'll consider changing my mind.

that would be problematic since almost none of them know how to do the calculation

CPA = Can't Pass Actuarial exams

 

[pb4uski]

Not true... we know how to do it... it is just that we have more important things to do so we delegate menial chores to the actuaries.

P.S. When I was working some of my best friends were some of our life actuaries... some of them called me a wanna-be actuary... I sternly said no... I have too much personality for that.

 

[brett]

I would not account for either. Too minor.

The pension value is probably too insignificant in the grand scheme of things to be concerned about. And less so as time moves on and the amount remains static. The studio, unless indivisible is the same. Once you have deducted the expenses-actual or nominal, the profit will probably be insignificant. Plus it is only present as long as you own the home and rent out the studio.

Why sweat the small stuff

 

[Big_Hitter]

Not true... we know how to do it... it is just that we have more important things to do so we delegate it to the actuaries.

P.S. When I was working some of my best friends were some of our life actuaries... some of them called me a wanna-be actuary... I sternly said no... I have too much personality for that.

LOL - I tell people you can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility

 

[pb4uski]

LOL - I tell people you can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility

Yea.... those retirement plan actuaries are a dying breed.

 

[ER_Hopeful]

btw, does your pension have a lump sum option? what happens to it when you die

Yes, I can take it as a lump sum or get monthly payout starting at 65. The monthly payout can be for me only or with beneficiary for a reduced amount.

 

[brett]

I consider an asset something that I can sell or convert to cash. My ten year min DB payout is just about finished. Even though it has a 60 percent benefit to my spouse it cannot be turned into cash. So my view is that it is not an asset even though it has value to me.

 

[RunningBum]

Do whatever makes sense to you, for whatever purpose you want to use the number for. It really doesn't matter what an accountant would do, you are not going to be audited for accuracy.

If it's to calculate your withdrawal rate, either include the value or figure out how to do a future cash flow. I include the present value of both my pension and SS for this purpose. Someone told me how to do the other way but I forget exactly how, and I'm satisfied with how I'm doing it.

If you're trying to figure out your estate value, don't include either unless a survivor would get some or all of the benefit.

If you're doing it for bragging rights, I don't know because I don't total up other non-investment assets, and I keep my number private anyway. If you're comparing to others on here it's best to use a method with others, but I don't put much stock in internet polls anywhere so I'm not sure it matters much.

I don't know what to make of future possible rental income. Personally I probably wouldn't include it in case I decide not to rent it, or can't rent it. If I got rental income, I'd consider that a bonus.

If someone tells you it's wrong, well, you asked, so you can't say too much, but you can nod and do it your way, because it doesn't affect them. IMO no method is "wrong" that works for you. It may be against accounting principles, but I'm not obliged to follow those.

 

[rodi]

Technically, both have value and should be accounted in some way for your net worth - if you are calculating the net worth for somereason.... I don't bother... that number doesn't mean anything to me since much of my networth by percentage is tied up in our house.

I have 2 very small pensions, non COLA, that I am collecting. I count the income from these pensions as income, non-COLA.

We have a granny flat on our property that generates rental income (offset by rental expenses)... This net income also gets counted as income for my planning/budgeting. I consider this to be COLAd, since rents go up in most markets. When we were using it to house my in-laws, there was no rental income. But it's bringing in good money now.

I count the *value* of the granny flat in our overall equity in our home since they are both on the same parcel and can't be subdivided/sold separately.

I don't count SS in our net worth - but I do count the income when generating budgets.

I find 'investable assets" a more useful number for determining things like withdrawal rates.

When I budget I look at all the income sources: net rent, pensions, hubby's SS, and withdrawals from savings/investments. I don't look at networth at all.

 

[ut2sua]

OP, I have rental income. I just list 50% of it as a "pension" in FIRECALC. I don't count the value of the rentals in my NW. I think this works out fine if your purpose if to find out if your numbers work out for RE. If you have the option to cash out your pension, then I guess you have the option to count that $ as part of your NW, just make sure that $ will not "grow" in any calculation assuming you don't have access to that amount today.

 

[ER_Hopeful]

maybe "magic number" is a better word than networth.

what I'm trying to get at is:
say my FIRE number is $1mil, my investments(taxable plus non-taxable) is at $920k. so if I include the 44k pension and say 100k for the studio (100k times 5% gives me about 5k of income, just a nice round number), then that would put me over $1mil and I've achieved FIRE.

Not that I'll quit my job tomorrow but just a nice feeling that i'm actually 144k closer than I thought.

 

[hpnutty]

$44k
$0k

+1

 

[rk911]

I'll never understand why people say this. If the pension is taken as a lump sum, then it is an asset, and is a component of net worth.

Until then, it is only a potential future income stream. If the holder dies, there is no value at all.

and looked at it that way then the OP's survivor's net worth is decreased by whatever is left in the 'account'. but i believe the OP indicated that upon death the balance is paid lump sum to his beneficiary.

 

[ncbill]

I wouldn't calculate either as an asset, I'd just add it to "amount available annually for discretionary spending."

 

[Markola]

maybe "magic number" is a better word than networth.



what I'm trying to get at is:

say my FIRE number is $1mil, my investments(taxable plus non-taxable) is at $920k. so if I include the 44k pension and say 100k for the studio (100k times 5% gives me about 5k of income, just a nice round number), then that would put me over $1mil and I've achieved FIRE.



Not that I'll quit my job tomorrow but just a nice feeling that i'm actually 144k closer than I thought.

By that logic, why not also calculate and include SS as if it was an annuity with a principal value? All of your home equity? It feels good to mentally add a couple million more to the net worth tally but those assets also don’t help you much until you activate them.

 

[Nature Lover]

maybe "magic number" is a better word than networth.

what I'm trying to get at is:
say my FIRE number is $1mil, my investments(taxable plus non-taxable) is at $920k. so if I include the 44k pension and say 100k for the studio (100k times 5% gives me about 5k of income, just a nice round number), then that would put me over $1mil and I've achieved FIRE.

Not that I'll quit my job tomorrow but just a nice feeling that i'm actually 144k closer than I thought.

Skip all the NW discussion ----you want to know if how near you are to FI. For the pension, I'd include it (we're not preparing personal financial stmts). True that it's not that big a number overall....but for the calculation/goal you're pursuing, it's still relevant certainly. As for the rental, if you expect to continue renting in retirement, I'd consider recalculating your magic number reflect the expectation that you'll need less income from your investment portfolio.

I'm with others here that suggest you do it the way that works for you.