Net Worth Calculation - Severance

[SatyaNutella]

Hello, I’m wondering if I should include a guaranteed severance in my net worth calculations today? Specifically, I work in a job that guarantees severance pay if I were to get fired and I’m not planning on quitting For the foreseeable future. When calculating my net worth today, should I include that severance pay into my net worth?

 

[cathy63]

What's your reason for wanting to know your net worth? If you are calculating it in order to figure out whether you are FI and could therefore retire tomorrow, then no, you should not include it because you would not receive it if you did quit in order to retire. If you're calculating it just for fun, then sure, you can include it.

 

[chassis]

No. This assumes you are making the best possible good faith effort to perform your duties to your employer's expectations.

 

[SatyaNutella]

Thanks, yes of course. I work very hard and love my job. Never calculated my net worth and finally sat down with an Excel sheet to do that. Was just trying to figure out if this goes in the calculation or not. This is helpful. Thank you.

 

[street]

If I were doing my NW I wouldn't include it unless I had it in hand.

 

[teetee]

If I were doing my NW I wouldn't include it unless I had it in hand.

Same here. That is why I never include any social security (I have not reached the age yet) or future earnings in my net worth calculation. The net worth should be a snapshot ar the current moment.

 

[chassis]

Same here. That is why I never include any social security (I have not reached the age yet) or future earnings in my net worth calculation. The net worth should be a snapshot ar the current moment.

Interesting comment, I agree. Until recently I didn't show Social Security or a previous employer pension as net worth. However, I elected to take a lump sum distribution for the pension, and I will therefore show it as net worth because it will be added to an existing IRA balance. This means the present value of the pension is known with 100% certainty.

I show the future Social Security payments in my projected net worth. They are not part of my current net worth in December, 2020.

 

[JoPeter57]

You say you will get Sev Pay if fired. What about if you just quite or get laid-off? Anyway, if the Sev is substantial ($50k or more) I would include it as total net worth.

 

[copyright1997reloaded]

"Never trust the man". What is there one day might not be there the next.

Something my union father impressed on me as a young pup. Expressed differently when he found out I was going to work for mega-corp. More along the lines of "remember, the company is there for the company, not you".

That lesson has taught me well. While I worked my *ss off, I always remembered what I was there for.

 

[racy]

Personally, I would not include it. To me it's like the $20K life insurance policy on me from my former employer; I don't include it in my net worth.

 

[mrfeh]

No.

 

[pb4uski]

No, the severance benefit is a contingent asset and would not be recognized until you quit and they owe it to you, just like you don't include a life insurance death benefit as an asset

 

[Dash man]

I only include what I have at the moment I’m calculating the net worth. I get a pension, but don’t count that, and I won’t count social security. I look at net worth in the view of my beneficiaries if my wife and I died at the same time.

 

[jollystomper]

DO not include it, I agree with what the others have stated. When working I did not include the value of pension benefits, potential severance, health insurance purchase credits, etc. as they were on the whim of Megacorp. I knew too many folks expecting them who received a sad surprise.

In addition, you should look closely at those terms - they may be able to void the severance if you do get fired for certain reasons.

 

[Aerides]

Not only does it not go in your NW, it shouldn't belong in your financial planning. Companies change severance rules with every layoff.

One practice I made, every January, I printed off a copy of the policy that was on our internal website and stored a copy for that current year. Just in case. My MC didn't make many changes to it, which was fortunate for me, but there are plenty of companies that find reason not to comply with their own policies, or change them on the fly.

I was lucky, mine held, and I got the maximum. But never count your chickens.

 

[CRLLS]

In my mind, Net Worth is the equivalent dollars that would be split up by my heirs if I die today. Cash, investments, etc. and things of major value (only my home) are on the plus side. Outstanding Debts and obligations go on the minus side. Subtract the latter from the former and I get NW. I don't count insurance policies or present day value of SS or annuities etc.

FWIW, I have NEVER been asked for my "NW". Paycheck stubs or bank statements yes. "Net Worth", no. I could easily multiply the above answer by 3x and "call it" my NW. The number would still make no difference in anything. Don't get me wrong. I do check it occasionally for my own benchmark, but that is all it does for me.

 

[kjpliny]

No. Ownership of your company could change hands and your severance policy could change or vanish. Quitting or getting fired also usually doesn't pay out severance unless this is spelled out in an employment contract.

 

[DayDreaming]

I worked for a company with a great severance package. Based on my years of service I'd have gotten over 1 year's salary. But they found a way around it: my job was outsourced, I was forced to take a job with that outsourcing company so they could suck my brain dry (there really was no choice) with no severance from my initial employer. When the outsourcing company later layed me off, I got about 2 weeks severance.

 

[Blue531]

I wouldn't count it because it isn't yours yet. It isn't in one of your accounts available for you to control and in your name. To me, it's the same as having a $100,000 life insurance policy. Yeah, it raises your net worth--after you are dead, but the money is not in your hands now. Like counting money you might inherit. Cart before the horse.
Don't count your chickens before they are hatched sorta thing. Net worth equals the value of what you own minus what you owe.

 

[sengsational]

The term "Net Worth" has a specific meaning, so including that as part of the OP tends to bring out a well-worn "discussion" that hopefully won't be rehashed.


I think you want to model your financial future. The most accurate models take into consideration everything that can have a value assigned. Of course all models are wrong, and some of them are useful.


If you don't intend to quit and it's likely that they'll sack you, then your model would be more accurate to include it. If I were doing the analysis, I'd run it both ways. If the results of each would cause you to take different actions today, then you have some noodling to do.

 

[jkern]

Severance is not an asset, there's a good chance you will never see it. Anyways, NW is a number that is just for fun. It's not really useful for any financial planning.

 

[stepford]

I always enjoy these net worth threads. Net worth is something like a Rohrschach test for ER members - it's open to interpretation and says as much about the individual's philosophy and priorities as it does about the assets they own.

In the context of the OP's question I'd calculate two NW's: current and potential, the latter including severance. If you use NW for planning purposes I'd use both as bounding cases - something like worst and best case scenarios.

If like me, however, you use NW as nothing more than a warm security blanket that doesn't directly impact financial planning then you might as well include everything in it.

 

[ncbill]

I don't count the value of company policies in my net worth.

I don't even count the value of my home..currently under 10% of my total net worth...hopefully under 5% within the next several years.

 

[Ian S]

In March of this year when covid-19 was beginning to rage, DH's company changed their severance policy, in effect dramatically reducing it for long term employees such as him. He was furloughed in April and let go October 1 under the new severance rules. Didn't even get any consideration for unused vacation time! So, no, I wouldn't include severance value in a net worth calculation.

 

[USGrant1962]

The term "Net Worth" has a specific meaning, so including that as part of the OP tends to bring out a well-worn "discussion" that hopefully won't be rehashed.
....

I don't count the value of company policies in my net worth.

I don't even count the value of my home..currently under 10% of my total net worth...hopefully under 5% within the next several years.

And we're off...