Suppose you had signed a promissory note for, say, $300,000 to be paid in 15 equal yearly installments beginning on your 60th birthday, a day that remains some years in the future at the time of making the note. You are now on the hook to pay $20,000 p.a. in real money for a real series of real years.
If there is a cash lump sum buy-out clause that can be executed at any reasonable time, then I would count it as an asset. If there is not, then I wouldn’t. The difference, as iris lily already pointed out, is that SS or a typical pension is tied to you or your spouse being alive. The funds for a future promissory note would be deducted from your assets when settling your estate. The unpaid pension would not be.
I would address it is as its own category: I have a net worth of $X plus a pension of $Y/year beginning at age 60. That’s the way I’ve seen most people describe it.
Calculating a note you have
made as an asset is an interesting inversion of accounting principles.
I can sense a path to immense wealth here... but you go first.
Go ahead and make a note to me for $10,000, please list it as an asset on your balance sheet and I'll agree to call it a liability on my part. Just pay me $5000 (cash only please)as an accommodation, I'll tear up the note and then
we will both be ahead $5000.Yipee!edit:
Look, I know that comment is snarky, but it really does matter whether you account for assets as assets and liabilities as liabilities
and account for both. Calling one the other or ignoring one category and not the other is the kind of sheer amateur accounting that seems to thrive on these boards.
You go on to say that without an early redemption clause any instrument consisting of future receipts (or payments, in the contra-case I propose) ought not be accounted for as an asset (or liability, I suppose.) Zero coupon bonds fit exactly that description. Would you say they have no present value? If so, no one would buy them prior to maturity, nor know how they should be priced if they were so inclined to buy against all reason and good sense.
You also say that receipts contingent on living to receive them are not subject to valuation in the present. You might not live to receive them.
Bonds, debentures, notes, stock dividends, appreciation above basis, etc. are all contingent on the issuer, whether it be a sovereign government or other institution, surviving to make the anticipated payment. That is never guaranteed. Governments are deposed, nations crumble, banks fail, corporations leave the debt and equity holders high and dry.
Those, you might
live not to receive. Aren't contingencies like that an insurmountable obstacle to assigning a value for drawing a net worth balance in the present?
If assets and liabilities have any correspondence (and let me br clear: I am sure they do) you don't get to count some of them on one side, disregard others on the other side and call it a balance.
