Personal Finance (Not Investing) • How to count a pension in net worth calculations

I'm in the camp that says there's not much reason to consider the pension in the NW calculation. In fact, we seem to devote an enormous amount of effort doing the exact opposite - converting a portfolio value into an income stream.

The one time I did find the calculation useful was when considering an offer to leave my current job (with pension) for another without a pension*. I calculated the present value of my pension at full retirement age using an annuity calculator. This showed me that if I stayed at my job and continued to build service credits, my pension would be worth about $300k more in current dollars. I was able to compare that $300k to the expected increase in salary and benefits, and it showed pretty clearly that I should keep my current job.

*The new job actually did have a pension plan, but I wasn't planning to work long enough that it would ever vest.

I think this is a great distinction. In my opinion the pension is definitely an asset in a scenario where you are already receiving payments. It can also be an asset if you will work until you can get the pension. I understand the skepticism about including it when you are earlier in a career and have a good probability moving. Personally, I receive pensions (not SS), they are indexed to CPI, and my wife will receive 50% of those if I die before her.

So my calculations are pretty easy and I feel confident and justified in including them in my NW as the cost of an equivalent annuity. I get if people don't, but to me it doesn't make sense to exclude such a large portion of my financial picture from this metric. I have other hard to sell, illiquid assets that have uncertain payoffs and are harder to value. I don't stress about including them in this calculation.

That said, if I had 15-25 years until I could access these pensions then I would be very hesitant to include them in my current calculations. So I get that.

Statistics: Posted by Jmyers0365 — Sat Jul 13, 2024 8:58 am — Replies 167 — Views 26833

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