Net worth Poll

[smjsl]

That means on the date the contract was accepted/executed, the total current "value" was the monthly payment x 12 months x the number of years in the term. In our case, it was a value that was a multiple of our original premium so yes, our total estate gross net worth increased with our purchase (amazing, isn't it?) rather than decreased.

If you believe this, I don't see why SS is any different. I understand you place a significant emphasis on whether more money will be received are you pass away, but I don't think that makes the value of SS drop from your formula down to $0.

Also, for your estate taxes and other purposes, SS may not count as part of your net worth, but it seems to me it should count as far as your "real" net worth as far as it's "income generating capacity" goes.

Finally, your formula of 12*payment*<years> is not correct because it assumes $1 today has same value as $1 20 years from now (that's why people refer to NPV to discount for future $'s).

As far as your comment "since SPIA is much less secure than SS stream", I can't agree (of course).

You have to remember that based upon conditions of the contract your SPIA (or other annuity) income is protected under state law under limits depending on where you live.

These protections are worse that SS protections in a number of ways. (E.g. if one were to move coverages may no longer apply; or in case of inflation adjusted SPIAs, the return from the protection will not be very valuable - i.e. getting your principal back is not that useful if inflation is high and you lost your inflation protected stream; or what happens in case of massive failures where funds run out; etc.)

 

[jdw_fire]

Yes, the NPV of your SS at the year you can start it would be 25x your annual benefit, but to get what it is worth now would also require you discount it by something like 7% per year to get NPV for this year. For instance, I have 35 years to 67 (fully vested), so if I were to collect $18k/year then the NPV of the money in the year I could start collection would be $450,000. But the value of the future income stream today would be reduced by a factor of 1.07^35, or about 10.67, which means the NPV of my SS is probably around $42,000, which seems ballpark correct to me, but would be over $81,000 with a 5% discount rate. Not critical stuff, but worth considering, since without SS (which I don't generally plan on getting) I'd have to replace that income some other way, or it will replace income that I've already accounted for and allow me to not draw down my savings by the equivalent amount per month.

i agree, the value of an earned income stream needs to be discounted if it isnt already flowing. in my post i was coming from the perspective that the pension/SS/SPIA had already started paying.

 

[NW-Bound]

... I didn't include my house at all because a house is only worth what somebody is willing to give you for it...

But the same thing is true of stocks, bonds, gold, and whatever have you.

I believe the ex Fed chairman, Alan Greenspan, made another speech sometimes after his famous "irrational exuberance" speech, in which he referred to stock prices as "ethereal".

Dust in the wind, all they are is dust in the wind.
Same old song, just a drop of water in an endless sea
All we do, crumbles to the ground, though we refuse to see- Dust in the Wind - Kansas​

YouTube - Kansas - Dust In The Wind


PS. It is interesting that people's perception differ on the relative values of assets. The builder of my home, with whom we became friends, said that he mostly invested in real estate and land rather than equities, because the former was something he could see, touch, and measure, and not just some numbers on a computer. I guess he had his points too.

 

[MasterBlaster]

I believe the ex Fed chairman, Alan Greenspan, made another speech sometimes after his famous "irrational exuberance" speech, in which he referred to stock prices as "ethereal"

Stock prices can indeed float around as it being determined from the "ether"

However, I would like to think that - in the long run - stock prices have some rational relationship to their earnings both current and to be.

 

[GregLee]

I think the big problem with this discussion is why do you want to figure out your net worth...

So as to answer the question of the poll.

 

[NW-Bound]

... earnings both current and to be

which can go "poof" under competition, technological changes, or just an earthquake or tsunami.

 

[Moemg]

Real estate is always included in net worth . It can be borrowed against so it does have a value even in a slow market . Otherwise our real estate investors will be in sad shape .
To Calculate and Track Your Net Worth | Money Blue Book

 

[rescueme]

Are you ignoring the diminishing real value of the SPIA payments as inflation eats away at the things each payment will buy ?

Of course there is a trade-off in any decision of this type, depending on your accepted level of risk (e.g. inflation) vs. the long term plan in even buying an SPIA.

Unlike the majority of folks, we opted for an SPIA at an early age rather than a later one (70's, 80's, or beyond) and considered, but was not put off by the inflation risk which we were well aware of since we lived through the 80's. At that time, CD and note/mortgage rates were around the 20% rate (and I still have my "WIN" button).

However, the rationale behind this decision was based upon the following. First of all, I needed a consistent source of income, rather than just my investment portfolio which is subject to investment risk, retiring at the age of 59. The SPIA would take the place of a defined benefit (e.g. pension) for me. Since my former company had a pension plan many years ago (but eliminated), I was well aware of some of the provisions, such as the SS offset that occured at your age 62 A lot of folks required them to take SS at that time since the reduced pension was not enough to meet their needs. BTW, for the union folks that still worked there, the pension was retained and it followed the same criteria as the former white-collar pension program. I was creating a "pension", but a bit better than the one I would have had if the option would have still been available when I retired.

Neither DW/me do not want to take SS at age 62 (and take a 30% "haircut"), I wanted to wait to take SS at age 70 (primarily for the benefit of DW, assuming I would die first) and the income would allow my DW to delay her SS till FRA age of 66 and also allow me to put in a 50% spousal claim against DW's SS from age 66-69 (we are the same age).

Also, since we're fortunate to have "healthy" TIRA balances it was a way to reduce possible "excess RMD's" in the future. That are withdrawals required that are beyond just your required income, based upon current tax laws. An SPIA (life) funded with TIRA funds is considered as meeting RMD’s for the amount of money used to purchase the policy.

Since we are really talking about a critical span of age 59 to age 66 (when DW's SS and my claim against her started), we wanted to maximize monthly payments. As you know, if you have an inflation adjusted SPIA, it reduces the amount of the monthly payment based upon your options selected. Our goal was to maximize our income, delay SS, and take advantage of SS spousal options.

As far as loss of purchasing power in the future? Sure, it's a fact that it will happen. However, the SPIA allows us current income while "trading up" to a superior lifetime inflation adjusted product in the future (e.g. SS).

We took the risk. As you know, over the last four years reported inflation has been very low. More importantly, our "personal rate of inflation" based upon actual spending of the same products over the same period has confirmed a very low rate. BTW, DW (who was to retire at the same time as me, but was not "emotionally ready") has not received an increase in over five years. You can say that we're already used to living without any adjustments.

This is a bit different than the traditional way that folks look at an SPIA, but then again we're "unique" in the manner we plan our future.

The SPIA payments will certainly be "worth less" in the future, but by that time they will be just icing on the cake to our future SS payments, for the rest of our lives.

Sorry to take the thread off track (again), but just to answer the question asked.

 

[MasterBlaster]

RecueMe:

Perhaps I wasn't so clear.

I wasn't questioning your SPIA decision. I agree that a portion of everyone's portfolio could be used for such to establish a certain baseline standard of living.

What I was questioning was the N X payments as the present value of a SPIA.

 

[Nords]

I did that.

Well, good to know. In a couple decades there'll be two of us...

 

[SecondCor521]

It helps, when asking questions, to be clear on the terms of the question before asking:

Believe it or not, there are accountants out there who have rules and definitions for how to calculate net worth. And yes, they at least agree that there are multiple ways of defining/calculating it, which usually depend on what you are using the number for.

Personally I calculate it two different ways: one way is what I consider a plain vanilla net worth, and use for general progress tracking. The other way is my FIRE net worth, which is essentially what I think I could take 4% of. The former includes my house and excludes the NPV of my child support payments, the latter includes precisely the opposite.

2Cor521

 

[youbet]

So as to answer the question of the poll.

Oh....... I just picked a category that was behind the others at the time. Kind of a "cheer for the underdog" mentality. Were we supposed to use our actual net worth?

 

[Westernskies]

Oh....... I just picked a category that was behind the others at the time. Kind of a "cheer for the underdog" mentality. Were we supposed to use our actual net worth?

Not me; I opted for the herd mentality, though I gotta tell you, that $10 million and up choice was mighty tempting...

 

[Cato]

Good grief, man! You almost made me drop my Waterford Crystal decanter and spew my 1926 Maccalan Fine and Rare Scotch all over the free-range kangaroo leather interior of the new Rolls. Good thing my trusty chauffeur had stopped to borrow some Grey Poupon for my von Essen Platinum Club sandwich...

I am truly devastated and dumbstruck that somebody would pick Waterford over Stuart - must be the colonial influence .

 

[rescueme]

What I was questioning was the N X payments as the present value of a SPIA.

Well, I don't present value discount any income stream (such as SS or my DW's two pensions) so I also don't for the SPIA.

I treat it more like a traditional savings account with a 0% interest rate - which BTW is close to the actual rate, today.

It's a different "animal" since unlike SS or pensions, neither of which I consider in my NW, the OP's question. However, I do include the remaining payments in my current NW, since (like the noted savings account), it will have value after I'm gone, assuming I have not drawn down the total remaining value in the account.

If I had a savings account for retirement income, and I decided to take out "$X" each month for income, how would you discount and calculate PV in that case? An SPIA is the same. Also, both the savings account and the SPIA have "estate value", depending on the draw-down and your date of death. Again, a superior estate product as compared to SS or a pension (which is our primary goal).

However, if it is of interest to you on how to calculate the PV of an SPIA, here's an article discussing how you can do so:

http://www.moneychimp.com/articles/finworks/fmpayout.htm

Further discussion on SPIA's as related to computation of true return rates is discussed here:

http://www.bobsfinancialwebsite.com/NotesOnAnnuities.html

BTW, a good paper that I use as a reference, and written by the past president of TIAA-CREF Life:

http://www.bobsfinancialwebsite.com/pdfs/040802.pdf

 

[sheehs1]

I finally voted on this poll after trying to decide if SS benefits should be included..etc.

I did not use any SS future earnings since I have not started taking them....nor did I use any future income from family business (that functions like a pension - IF it is there). It is simply as of today...what is our net worth.

 

[HFWR]

Both with and without SS, I'm still in the same poll bracket. But I definitely include SS as part of my retirement income.

 

[NW-Bound]

It's true with me too. Inclusion of SS would not put me in a higher bracket.

But hey, I just remember something. If we talk per capita net worth, and since I am married, that would just about halve my number.

There, that's something for the single poll respondents to rejoice about.

 

[sheehs1]

Same here. SS benefits would not change the poll level for me either.

However, the K1 from the family business might. But that is sort of like the stock market..."past performance is not a predictor of future performance"...particularly since we are coming close to the end of the 2nd generation. So...I didn't include it.
(don't count your chickens before they hatch)

 

[Major Tom]

This is a simple "me too" post. If I multiply my expected future SS benefits by 25 and add them to my net worth I'll still be in the same poll bracket also.

I enjoy knowing that I can count on at least something from the government in my later years.

 

[W2R]

(don't count your chickens before they hatch)

Good, sage advice, it seems to me.

 

[W2R]

It's true with me too. Inclusion of SS would not put me in a higher bracket.

But hey, I just remember something. If we talk per capita net worth, and since I am married, that would just about halve my number.

There, that's something for the single poll respondents to rejoice about.

I'm not rejoicing! Honestly I have enough, and if I had twice that, I'd have enough too.

 

[haha]

It's true with me too. Inclusion of SS would not put me in a higher bracket.

But hey, I just remember something. If we talk per capita net worth, and since I am married, that would just about halve my number.

There, that's something for the single poll respondents to rejoice about.

Really, except single people usually have more interesting things to concern themselves with than where they may rank in someone's "net worth" poll.

Ha

 

[Westernskies]

Both with and without SS, I'm still in the same poll bracket. But I definitely include SS as part of my retirement income.

Good to hear your're not one of those "swing voters"

 

[sheehs1]

But hey, I just remember something. If we talk per capita net worth, and since I am married, that would just about halve my number.
.

Well...technically speaking ...I didn't include my other halfs net worth either. It would not have changed the bucket..although it would have raised us inside the bucket.

And probably unlike a lot of you here, we keep our finances somewhat separate except for sharing household expenses and joint endeavors.
Works for me and works for him.