
Figuring pension into Net Worth
Does anyone have any experience in this? My husband has 2 pensions. Both will be about the same upon retirement, but how do I figure that value into our Net Worth?
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I take my pension into account when figuring out my networth as to encourage myself it keep saving for it. I just have a tracking account with my current pension in it. When I want to look more at current events I just hide it as an account considered in net worth with one button tick. If you're not including it in your calculations it's harder to see the impact its making on your salary in later years, or if its not doing enough. True is not as liquid as a house but I would still regard it as an asset.
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I use it for my net worth.
My job has a website that calculates the cash out value for the age I am now and for the age I choose to retire. I use the one for my age in YNAB because it is essentially an account in which I can pull that money somewhat easily if need be.
Once I get to retirement age and start pulling it (monthly - not cash out) I will switch it to income since it's essentially a paycheck coming in until I die.
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DB pension should be included into Net Worth calculation. PERIOD.
However, at what divisor DB pension should be applied is subjective matter. I work at the University Hospital which offers HOOPP (Health care of Ontario Pension Plan) DB pension plan - available only for health care employees. Pension payment raises every year based on COLA (Cost of Living Adjustment), so I have less headache to calculate the present value of future pension when I retire.
Financial Samurai suggested return divisor should be 2.55% instead of common 4%. The reason why he did, I think, because DB pension is as secure/safe as gov't bond which doesn't suffer market volatile as much as private company stocks do. This 2.55% divisor increase the actual value of DB pension than 4%. I think it makes sense if you really think about it. If DB pension pays $1,400/month for lifetime, the value of pension would be $650K @ 2.55% (instead of [email protected]%)