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Old 07-10-2021, 10:10 AM   #81
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Here's the short answer on if annuity/pension stream should be included in net worth.... do whatever makes you feel good.
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Old 07-10-2021, 10:21 AM   #82
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I view my pension as both income and peace of mind.

I donít know what the term is but I selected the slightly lower paying option that the pension continues to pay my wife if I die first.

And my youngest daughter is disabled. She is deaf and although fully capable of self-support (sheís an intensive care nurse), she qualifies for my survivor benefit of $3k a month plus healthcare for life after both wife and I pass. Donít think she will ever need this benefit, but itís there just in case.
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Old 07-10-2021, 10:26 AM   #83
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Thanks all... let me respond to a few posts.
Hawkeye... it comes down to how secure you believe the pension to be. We are both in state retirement... not a 100% guarantee but close.

finnski1
^+1 the number son immediateannuities.com don't even come close. In fact they are so far off that it makes me think something is off?
I was wondering that too. How can a 32.5K/yr pension only be worth a 118K lump sum?
It is funny .... mandatory contributions are matched by our employers, but that stays in the account... So half the money they ever collect is forever there....

Sunset...In a theoretical sense there is no such thing as FI. We are of the line of SR...
Self Reliance... should the worst case occur we hope to manage to survive.

Wizard... focus more on having a viable income plan and less on maintaining your net worth.

I agree... dying worth $2M and not living before hand is stupid... We want to leave a safety net behind us, not a cushy bed to just lay around in.
The pension is income and each month it becomes part of your net worth (maybe just for a while, though).

My opinion is that one reason your state is offering you such a low lump sum is that they would rather keep you on the monthly payout and push this responsibility onto future politicians. OTH if you take such a low payout they win also.

It really gets one thinking about the state's financial stability into the future. But that won't affect you, and you should be ok with monthly payouts for a long time if not forever.
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Old 07-10-2021, 10:32 AM   #84
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Here's the short answer on if annuity/pension stream should be included in net worth.... do whatever makes you feel good.
Problem is: mushing numbers together in a big pile to "feel good" isn't a really good way to organize your financial planning for retirement, whether approaching it or already in it.

Instead, we need to separate things:
1) non financial assets (house, cars)
2) financial assets (401k, Roth, savings...)
3) income stream entitlements (SS, pension, income annuities)

During the planning process, the income stream items won't be known, but you can still have estimates...
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Old 07-10-2021, 10:57 AM   #85
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+1 makes me wonder if the OP misinterpreted something.
As they said in The Princess Bride: "I don't think that word means what you think it does"
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Old 07-10-2021, 11:13 AM   #86
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Yeah - pension heritability depends totally on the pension terms. Some can get passed on 100% to spouse; some require you to take a big deduction if you want to bequeath anything.

Haven't heard of any pension that kids can inherit; again, it all depends on the terms of that pension plan.

I havenít read the entire thread yet so maybe someone else has mentioned this but I can leave my pension to my children. I can decide what percentage of the pension to leave them and then my current pension is reduced accordingly.
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Old 07-10-2021, 11:32 AM   #87
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^^^ Interesting, but I think that option is pretty rare.
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Old 07-10-2021, 11:38 AM   #88
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My understanding of the definition of NW is "Assets minus Liabilities".
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I was responding to the part of your post that said that NW is assets minus liabilities.... and agree with that definition.
Let me see if I have this straight .... Today, my NW is calculated by adding up my total assets and then subtracting my total liabilities.... The way I look at my liabilities are "payments" I will be making to someone or some entity over a period of time in the future. Ex, I owe 250k on my house that I will pay off monthly for the next 20 or 30 years. So I can't count that 250k (plus interest) since I owe that in the future to someone. Makes sense to me....

Hum, makes me wonder how my mortgage company counts that 250k I owe them in the future on their ledgers. (Rhetorical question).

However, when the government "owes" me monthly SS payments (their liability to me) or a company "owes" me a monthly pension (their liability to me), why can't I count those in my NW calculations? (another rhetorical question) I get the current vs future NW issues...
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Old 07-10-2021, 11:38 AM   #89
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The pension is income and each month it becomes part of your net worth (maybe just for a while, though).

My opinion is that one reason your state is offering you such a low lump sum is that they would rather keep you on the monthly payout and push this responsibility onto future politicians. OTH if you take such a low payout they win also.

It really gets one thinking about the state's financial stability into the future. But that won't affect you, and you should be ok with monthly payouts for a long time if not forever.
Florida is one of the few state pension programs that offers either a pension or an investment (401k style ) program. Enrollees choose which one they want.

The state in question does not have a choice option. It is a defined benefit program. The lump sum referred to is just a return of your own money back to you should you turn down the pension. Many states are exploring the option of changing from a defined benefit program to a 401k style investment one, as it is far cheaper.
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Old 07-10-2021, 11:43 AM   #90
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Let me see if I have this straight .... Today, my NW is calculated by adding up my total assets and then subtracting my total liabilities.... The way I look at my liabilities are "payments" I will be making to someone or some entity over a period of time in the future. Ex, I owe 250k on my house that I will pay off monthly for the next 20 or 30 years. So I can't count that 250k (plus interest) since I owe that in the future to someone. Makes sense to me....
No, net worth has nothing to do w/ the future. It is your assets - liabilities today.
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Old 07-10-2021, 11:48 AM   #91
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Let me see if I have this straight .... Today, my NW is calculated by adding up my total assets and then subtracting my total liabilities.... The way I look at my liabilities are "payments" I will be making to someone or some entity over a period of time in the future. Ex, I owe 250k on my house that I will pay off monthly for the next 20 or 30 years. So I can't count that 250k (plus interest) since I owe that in the future to someone. Makes sense to me....

Hum, I wonder how my mortgage company counts that 250k I owe them in the future on their ledgers. (Rhetorical question).

However, when the government "owes" me monthly SS payments (their liability to me) or a company "owes" me a monthly pension (their liability to me), why can't I count those in my NW calculations? (another rhetorical question)
Good question actually.
Similar situation for a lottery winner: take $1M lump today or take a partial amount each year for 25 years.

Problem is, some of those contracts are fixed, some depend on your date of death.
Die in year 3 of your lottery payout and they continue paying your estate for 22 more years.
Die in year 3 of taking SS and it stops cold.

So it's the old counting chickens before they're hatched theorem...
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Old 07-10-2021, 11:50 AM   #92
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So funny people get so worked up about this. I think it depends if you have an accounting degree or something. We have a pension and it is definitely worth something to me and it makes me feel more financially secure (independent). Agree not part of official net worth but I do not care.
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Old 07-10-2021, 11:51 AM   #93
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Good question actually.
Similar situation for a lottery winner: take $1M lump today or take a partial amount each year for 25 years.

Problem is, some of those contracts are fixed, some depend on your date of death.
Die in year 3 of your lottery payout and they continue paying your estate for 22 more years.
Die in year 3 of taking SS and it stops cold.

So it's the old counting chickens before they're hatched theorem...
Agree... Especially counting your chickens before they are hatched.
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Old 07-10-2021, 11:51 AM   #94
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No, net worth has nothing to do w/ the future. It is your assets - liabilities today.
Yes, with the clarification that certain future obligations not dependent on you being alive are included also, with proper present value math...
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Old 07-10-2021, 11:53 AM   #95
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No, net worth has nothing to do w/ the future. It is your assets - liabilities today.

And that's why I said, "I get the current vs future NW issues.." Just questions to stir the pot, or I should say to stimulate discussion for those who care to participate and share their POV's . Who knows, someone may have something to say that will change my POV....
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Old 07-10-2021, 12:03 PM   #96
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Let me see if I have this straight .... Today, my NW is calculated by adding up my total assets and then subtracting my total liabilities.... The way I look at my liabilities are "payments" I will be making to someone or some entity over a period of time in the future. Ex, I owe 250k on my house that I will pay off monthly for the next 20 or 30 years. So I can't count that 250k (plus interest) since I owe that in the future to someone. Makes sense to me....

Hum, makes me wonder how my mortgage company counts that 250k I owe them in the future on their ledgers. (Rhetorical question).

However, when the government "owes" me monthly SS payments (their liability to me) or a company "owes" me a monthly pension (their liability to me), why can't I count those in my NW calculations? (another rhetorical question) I get the current vs future NW issues...
The mortgage company has an asset for the loan since you (or your estate if die) have a contractual obligation to make defined loan payments... and if you don't then they can go after the collateral.

On the last part, I already explained that.... go back and read posts 67 and 76. You can't count it as an asset until you are legally entitled to receive the pension benefit... meaning you are still alive on the x day of the month (usually the 1st day of the month I think).

It's inherently conservative.
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Old 07-10-2021, 12:08 PM   #97
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The mortgage company has an asset for the loan since you (or your estate if die) have a contractual obligation to make defined loan payments... and if you don't then they can go after the collateral.
Sure, fully agree on the "repossession" factor...


BTW, have you ever watched the movie "Margin Call", which is what drove me to my mortgage company accounting question?
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Old 07-10-2021, 12:11 PM   #98
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So funny people get so worked up about this. I think it depends if you have an accounting degree or something. We have a pension and it is definitely worth something to me and it makes me feel more financially secure (independent). Agree not part of official net worth but I do not care.
I think some have had success in the past by measuring as a project manager must do. Others have more of a guess-timate approach. Maybe it's science vs. art?

If the devil is in the details maybe there comes a time to stop looing at so much detail. Just enjoy life.

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Old 07-10-2021, 12:14 PM   #99
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DH pension is not calculated as part of his/our net worth. We definitely know we are blessed to have it and the 30 times annual income # is an eye popping feel good number.

No lump sum offered but they did have an option to guarantee every dollar of the 420k he contributed if he died early. He didn’t chose that option.

A net worth number is just a number no matter how you calculate it, but can you afford to retire and live the way you want? That’s a totally different question.
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Old 07-10-2021, 12:19 PM   #100
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One thing you can post up about with a fat pension and SS is your WR.

The magical WR that everyone wants at 4% or lower. With pension and SS covering all expenses you can have a negative WR. With all but one dollar covered and only a half mill portfolio you can say you have 500,000 times expenses invested.

So, not a component of NW, but generates really impressive numbers WRT withdrawal rates eh?
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