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how would you account for these assets?
Old 01-22-2020, 09:32 PM   #1
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how would you account for these assets?

my former company has a pension plan, the balance is around $44k at the moment and will provide about $600 per month when I turn 65. would you include the $44k in your networth?

My house has a separate studio in the back which I plan to rent out when I retire early. I can get about $700 a month. How would you calculate its value for networth inclusion?
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Old 01-22-2020, 09:55 PM   #2
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$44k
$0k
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Old 01-22-2020, 10:18 PM   #3
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Sounds like the pension plan is a DC plan and you could opt to roll the $44k into an IRA or invoke the pension option... if so I would include the DC plan balance as an asset... if the only option is as a pension then nil (disclosure item only).

On the second part, it would be included in the value of your house, part of NW but probably not part of retirement assets.... at best, include $700/month as an offset to spending.
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Old 01-22-2020, 11:16 PM   #4
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$44k
$0k
Yes, $44K , and then at best $350/mo as all rentals have lots of expenses, taxes, empty time, and repairs.
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Old 01-22-2020, 11:30 PM   #5
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my former company has a pension plan, the balance is around $44k at the moment and will provide about $600 per month when I turn 65. would you include the $44k in your networth?

My house has a separate studio in the back which I plan to rent out when I retire early. I can get about $700 a month. How would you calculate its value for networth inclusion?
i'd include the pension but not the studio. it sounds like it's part of the main property the net value of which should be in your net worth. i would include the rent...if and when it happens...in your monthly budget.

btw, does your pension have a lump sum option? what happens to it when you die
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Old 01-23-2020, 01:05 AM   #6
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Originally Posted by ER_Hopeful View Post
my former company has a pension plan, the balance is around $44k at the moment and will provide about $600 per month when I turn 65. would you include the $44k in your networth?

My house has a separate studio in the back which I plan to rent out when I retire early. I can get about $700 a month. How would you calculate its value for networth inclusion?
I don't compute net worth, because I have no use for it.
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Old 01-23-2020, 04:03 AM   #7
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I once asked someone about net worth and he said, "I cannot say that I am worth all that much, but am glad to report that dogs still wag their tails at me."

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Old 01-23-2020, 05:05 AM   #8
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I once asked someone about net worth and he said, "I cannot say that I am worth all that much, but am glad to report that dogs still wag their tails at me."
Thanks! I'm definitely stealing that line.
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Old 01-23-2020, 06:00 AM   #9
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Thanks! I'm definitely stealing that line.
Be my guest. The man who said this was about 80 years old at the time and it was just under 30 years ago. So, I don't think he'll mind that we are using it!

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Old 01-23-2020, 06:45 AM   #10
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my former company has a pension plan, the balance is around $44k at the moment and will provide about $600 per month when I turn 65. would you include the $44k in your networth?

My house has a separate studio in the back which I plan to rent out when I retire early. I can get about $700 a month. How would you calculate its value for networth inclusion?
For net worth? Zero for both.
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Old 01-23-2020, 07:29 AM   #11
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Absolutely count your pension as part of NW.

Studio is just part of the value of your house.
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Old 01-23-2020, 08:05 AM   #12
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Absolutely count your pension as part of NW.
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.
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Old 01-23-2020, 08:22 AM   #13
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.... If the holder dies, there is no value at all.
Not necessarily, many defined benefit pensions have survivor benefits, and all defined contributions plans would.
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Old 01-23-2020, 08:56 AM   #14
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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.
That is generally true for traditional defined benefit pensions, although even in that case, some would argue that any guaranteed right to receive future cash inflows meets the definition of an asset, especially if there are survivor benefits. And some consider it a bond-equivalent for AA purposes. I think there are reasonable arguments either way on those points. But FWIW, there is some rather obscure AICPA guidance for personal financial statements, which specifically excludes life-contingent pensions from net worth.

However OP appears to have a DC cash balance pension. DW had such a pension when working. She was required to contribute X% of her salary each paycheck and the balance grew according to the performance of the underlying pension trust assets. She was 100% vested in the balance, so if she had left that employer, she would have taken her balance and rolled it into an IRA. There was also an option to leave it at the employer and receive an annuity at some future date, like age 65, which sort-of sounds like what OP is describing. Turns out, DW retired from this employer and now receives the monthly annuity.

So... prior to her retirement, I included the pension cash balance as an asset in net worth, since we had the right to receive that money at any time had she terminated employment. It was essentially no different than a 401K balance at that point, except we did not control the underlying investments. After retirement, I do not include it because it is now just a guaranteed monthly cash inflow, which will stop when she dies (single life annuity option).

We definitely count the estimated market value of our rental property in net worth. The net cash flow it generates is just another income source, which reduces our need for portfolio withdrawals.
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Old 01-23-2020, 09:02 AM   #15
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I agree with all that you wrote.

I had a somewhat similar DC plan except mine was non-contributory. My employer contributed 7% of my earnings (the percentage was lower lower level staff and increased for more senior personnel... up to 7%). I selected what the money was invested in and the selections were identical to our 401k.

When I quit, I could have annuitized the balance... but the annuitization option wasn't compelling so I just rolled the balance into my tIRA. Since I was vested and had a lump sum option I included the DC plan as an asset.
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Old 01-23-2020, 10:05 AM   #16
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I agree, count in NW if DC and has beneficiary. I also have one not available until 65 (unless I kick the bucket, then it's immediately payable) and it has a current value, which increases a little more than 4% per year until I am 65. I have the current value at the end of each year in NW, but could I guess add the @65 FV.
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Old 01-23-2020, 11:06 AM   #17
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wasn't there a multi page thread on including db pensions in net worth?
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Old 01-23-2020, 11:10 AM   #18
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However OP appears to have a DC cash balance pension. DW had such a pension when working. She was required to contribute X% of her salary each paycheck and the balance grew according to the performance of the underlying pension trust assets. She was 100% vested in the balance, so if she had left that employer, she would have taken her balance and rolled it into an IRA. There was also an option to leave it at the employer and receive an annuity at some future date, like age 65, which sort-of sounds like what OP is describing. Turns out, DW retired from this employer and now receives the monthly annuity.
If there is some guaranteed future value, I agree it should be counted in net worth. If there is the possibility that no funds are ever received, then it should not be.

By some peoples' definitions, social security benefits would be counted as part of net worth, which is completely wrong, IMO.
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Old 01-23-2020, 11:11 AM   #19
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probably, but we repeat frequently as some members were either not around for that thread or didn't see it or weren't paying attention... as Mick Mulvaney would say... get over it.
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Old 01-23-2020, 11:21 AM   #20
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By some peoples' definitions, social security benefits would be counted as part of net worth, which is completely wrong, IMO.
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?
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