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Old 07-09-2021, 05:41 PM   #41
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No. This is untrue. It is part of your income. It is part of your cash flow. It is a very important part of being financially independent. Unless there is a value to your estate of your pension upon your/your spouse's death, it is not part of your net worth. Full stop.
Quite correct.
Net worth is calculated as of *today* and is not something that can be adjusted based on personal preference...
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Old 07-09-2021, 05:48 PM   #42
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Originally Posted by Golden sunsets View Post
No. This is untrue. It is part of your income. It is part of your cash flow. It is a very important part of being financially independent. Unless there is a value to your estate of your pension upon your/your spouse's death, it is not part of your net worth. Full stop.
Wrong. There have been many, many, many threads on this topic. A pension most certainly belongs in your NW....and that's not just my opinion. Like I said, it's been discussed and point proven many times on this board.

Like I said, mine is valued over 1 million...and it is most certainly in my NW
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Old 07-09-2021, 05:51 PM   #43
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Wrong. There have been many, many, many threads on this topic. A pension most certainly belongs in your NW....and that's not just my opinion. Like I said, it's been discussed and point proven many times on this board.

Like I said, mine is valued over 1 million...and it is most certainly in my NW
Well ok then.
Three cheers for your net worth...
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Old 07-09-2021, 05:52 PM   #44
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Your heirs may be shocked to see that $1M Asset evaporate on your/your wife's demise. Pffffft. Gone.
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Old 07-09-2021, 06:01 PM   #45
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Wrong. There have been many, many, many threads on this topic. A pension most certainly belongs in your NW....and that's not just my opinion. Like I said, it's been discussed and point proven many times on this board.

Like I said, mine is valued over 1 million...and it is most certainly in my NW
Proven? I must have missed all those threads. Link?

No one is suggesting a pension isn’t a valuable income source and a factor in determining FI, but it’s not a liquid asset.

But again, it makes zero difference…
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Old 07-09-2021, 06:04 PM   #46
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Wrong. There have been many, many, many threads on this topic. A pension most certainly belongs in your NW....and that's not just my opinion. Like I said, it's been discussed and point proven many times on this board.

Like I said, mine is valued over 1 million...and it is most certainly in my NW

Yes there have been. IIRC, the consensus was generally it is up to the individual as to whether they include it in their Net Worth calculations. Calculating one's NW has no real usable function. Not for getting a mortgage and not for determining how much Umbrella insurance to carry. Net Worth amount essentially makes one feel good or bad depending on the results.
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Old 07-09-2021, 06:12 PM   #47
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Actually, a guaranteed income stream does have a present value based on the remaining years and months that are guaranteed.
I chose a ten year guarantee on the amount that I annuitized for lifetime income back in 2013.

But let's not get into technical details, shall we?
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Old 07-09-2021, 06:51 PM   #48
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I participated in several of those threads. My recollection is that we went round and round and finally decided that pensions are a Special Case and everyone is entitled to include it in NW, or not, just as they please.

For those who want to include it, the advice was to go to an annuity site, plug in the yearly amount of the pension, and see how much it would cost, at your age, to get a lifelong annuity that pays the same amount. Be sure to compare apples with apples - i.e. COLA pensions with COLA annuities.

A pension's net present value, like an annuity's, goes down as your age goes up.
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Old 07-09-2021, 07:04 PM   #49
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No, not a part of net worth. Yes, income. Income offsets expenses and reduces draw on investments.

If you are covered by pensions and SS you are FI with no investments.
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Old 07-09-2021, 07:49 PM   #50
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I put a value on my pension just like opensocialsecurity.org puts a value on our SS accounts. That is what they are worth to my wife and I.
We manipulate those accounts to our best benefit. With the pensions, I choose how much of a survivor benefit my wife would get, If it is COLA'ed, etc. Each of those decisions involves a deduction from the gross Future Service Benefit. The gross number is what a single person would get with no COLA or survivor's benefit.
With SS, we choose when to take it to best care for a surviving spouse, for example.
I would not consider it a part of net worth in any sense, but counting the value of it makes sense to me. I use that value to plan our future income and spending.
If you have heirs that need support then that is what the invested monies are for.
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Old 07-09-2021, 11:36 PM   #51
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I do not count a pension as net worth. I count it as an income stream that negates some expenses. Why not count a pension as NW? I figure since I don't own nor control the underlying assets the pension is based on, I just receive a guaranteed for life income from it, therefore it's income.

Income can be used to FIRE as well as sufficient NW

Future safety of pensions - Corporate pensions are guaranteed by the PBGC. Unless you are a high dollar person like a United Airlines pilot with a big $$ pension, you may well be under the PBGC-taken-over max payout. Many UA pilots got dinged some when UA filed for bankruptcy years ago, as they were over the max PBGC dollar guaranty. I don't remember hearing anyone else getting dinged if the PBGC needed to take over. Maybe it just didn't make the news or I missed it. Dunno.
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Old 07-10-2021, 03:26 AM   #52
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I participated in several of those threads. My recollection is that we went round and round and finally decided that pensions are a Special Case and everyone is entitled to include it in NW, or not, just as they please.
I may have one of the most conservative definitions of NW around.

I think of it as liquidation value. If I wanted to turn it all into $1 bills right now and make a pile, what would it be? That means I load an income tax liability next to my 401k, NQDC plan, etc.

I'm a little sloppy b/c I don't calculate taxes on unrealized capital gains...but I don't put my carry forward capital gains losses on the balance sheet either and I think they about net to zero right now.

In that light, I think the right to calculate the NW value of a pension is to find out what the lump sum distribution would be and pop it into the balance sheet. In the OP's case, sounds like $118k belongs on the balance sheet.
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Old 07-10-2021, 05:49 AM   #53
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Wrong. There have been many, many, many threads on this topic. A pension most certainly belongs in your NW....and that's not just my opinion. Like I said, it's been discussed and point proven many times on this board.

Like I said, mine is valued over 1 million...and it is most certainly in my NW
Actually, a pension doesn't belong in your NW. At least not in the opinion of the Financial Accounting Standards Board and the American Institute of CPAs.

It is a contingent asset based on a single life.... if the pensioner is living as of the date that the monthly pension benefit would be paid then that is the qualifying event that causes the asset (that month's pension benefit) to be recognized with an offset to pension income.

Now interestingly, on the other side of the transaction, the pension plan or the insurer providing the pension does record a liability for the pension payment because they have thousand of lives in play.

So the world's books don't balance, but that is where the standard setters drew the line decades ago.

That said, since you're doing it for you own purposes you can include it if you wish... but to make a blanket statement that it "most certainly belongs in your NW" and it is a "point proven" is foolish.

Plus, if you review the posts subsequent to your post and also the practice of most forum members, it is clear that most posters believe that a pension is not part of NW... perhaps that is why the call it "generally accepted" accounting principles rather than universally accepted.... in this case it is generally accepted that a pension is not an recognizable asset and therefore not part of NW.
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Old 07-10-2021, 05:54 AM   #54
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Actually, a guaranteed income stream does have a present value based on the remaining years and months that are guaranteed.
I chose a ten year guarantee on the amount that I annuitized for lifetime income back in 2013.

But let's not get into technical details, shall we?
Then the first 10 years would be recognized as an asset since the benefits are not life contingent, but the remaining benefits would not be recognized as an asset because it is a contingent asset.
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Old 07-10-2021, 06:03 AM   #55
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Right. FI and 'wealth' are often two different things.

FI can come through your own wealth of course (stocks, dividends, rents etc), but FI can also come from SS, pensions, sale of assets, family trust funds and so on.
As I mentioned in post #15, FI (income) and NW (wealth) are often two different things.
Income you spend.
Wealth is usually passed on to heirs.

One could have a huge NW via a land holding for example but no income generated from it.
One can have a heavy FI with no NW via a pension.
Most of us here are somewhere in the middle with decent income generated from investments, rents, pensions.

My mom has a great state pension--high income--but (through estate planning) has virtually zero net worth. When she passes the income stops.
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Old 07-10-2021, 06:04 AM   #56
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Is it income or net worth?
Unless it is cashed out, it is income. For planning purposes, simply subtract it from your expenses.
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Old 07-10-2021, 06:14 AM   #57
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OP Here.... Thanks everyone...
I must admit I'm a dim bulb in the FI chandelier... working on fixing that with y'alls help.
I'm retiring Jan 1st @ 58 and defiantly taking the pension, with 100% survivor benefits for the DW. If we both pass before the $118K is paid back, the balance goes to my estate. So Its still NW to that point. I have the option to roll my 401K into my pension for more money... The 401K is defiantly NW I would be giving up and would take over 23 years just to break even... so I'll be saying no to that.
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Old 07-10-2021, 06:17 AM   #58
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For those who consider pension part of your net worth, do you consider SS benefit part of your NW as well? It's basically the same thing, right? Only exception may be a pension/annuity that has a minimum guaranteed payout.
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Old 07-10-2021, 06:32 AM   #59
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For those who consider pension part of your net worth, do you consider SS benefit part of your NW as well? It's basically the same thing, right?
From my POV, yes and yes.
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Old 07-10-2021, 07:03 AM   #60
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Actually, a pension doesn't belong in your NW. At least not in the opinion of the Financial Accounting Standards Board and the American Institute of CPAs.
So (in this generalized scenario) two workers who have worked at the same MegaCrop for 30 years, make the same salaries and both have an accumulated NW of $500,000 each, which includes a house, car, cash and no debt. The day before they retire (at 65) they are each worth $500,000. The company offers a pension, either a lump sum or annuity. Worker #1 takes the lump sum of 1m and rolls it into an IRA... He/she is now a millionaire (not considering taxes yet) and has a NW of 1.5m. Worker #2 takes the annuity at ~60k a year for life. So he/she is still worth $500k if he/she can't count the annuity... Doesn't seem right to me.

At this point, it would seen reasonable to me to consider the annuity payout as NW. Assuming the annuity provider is "safe/guaranteed" and normal life spans in the calculations. Same with SS. But that's me, YMMV.


(I think I've posted this scenario here before, I know I have on other forums.)
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