Author Topic: How to calculate value of pension in net worth?  (Read 4194 times)

benjenn

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How to calculate value of pension in net worth?
« on: March 19, 2015, 01:31:49 PM »
So... DH has a monthly Air Force pension that will last the rest of his life.  How do we calculate that when figuring our net worth?  Someone suggested every $100 received per month is worth $18,000 for the total value of the pension.  But that is based on 15 years life expectancy (15 years x 12 months x $100).  We expect to live WAY longer than that.

If I figured his pension was the same we would be withdrawing from investments (4%), then I would multiply his annual income by 25 to come to that total... which is drastically different from the first equation.

So... which is it, if either?  Or how would you calculate the value of a pension when figuring net worth?

arebelspy

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Re: How to calculate value of pension in net worth?
« Reply #1 on: March 19, 2015, 01:36:27 PM »
Neither.  Your method 1, as you note, underestimates it.

Your method 2 overestimates it (because the 25x rule, at the end, should typically leave you with a lump sum for inheritance, charity, whatever, of money than you started.  A pension leaves you with $0.)

Other potential answers previously discussed:

http://forum.mrmoneymustache.com/investor-alley/accounting-question-pension-as-an-asset/
http://forum.mrmoneymustache.com/welcome-to-the-forum/value-of-a-pension/

MOD NOTE: Locking thread to reduce clutter and keep related conversations together.  Post in either of those if you have followup questions.
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