Well sure, I'd count it in net worth, but I'm just wondering why count it in your AA. You can't rebalance with it, it's small enough apparently to not affect much. I just don't see the merits of counting a pension in your AA as part of the bond component, unless it's making up a substantial amount of your living expenses, meaning you want to go more aggressive with your AA.
A small percentage of net worth isn't necessarily a small percentage of the bond bucket. With a $500k net worth and an 80%/20% bond split, for example, a pension valued at $10k in the bond bucket is the difference between $100k in a bond index, and $90k in a bond index. So, 2% of net worth, but 10% of the bond bucket. So, not so insignificant, but also:
However far the stock market drops, he has enough liquid bonds to rebalance. Even with stocks at infinitessimally low prices, he'd sell $80k of his bond index funds to buy stocks, keeping $10k in the bond index, and $10k in the pension (i.e. $80k/$20k stocks bonds). He can even sustain a further 62.5% stock market crash after that!
That's fine, but none of it is a reason to count it.
Why not, in your scenario (500k net worth and an 80%/20% bond split, for example, a pension valued at $10k counting, so 90k in bonds) say instead you have a 490k portfolio and (with 90k bonds) your AA is 92/18?
I'm just not seeing the compelling reason to count the pension as part of that AA, it's a completely separate item. It'll reduce your living expenses, but once you're at that point you should set your AA to what makes you comfortable to cover the rest.
I mean, I don't care. Do whatever makes you happy. :)
I'm just asking because I'm genuinely curious why you do it that way.
Do you count S.S. as part of your bond allocation? If not, why not?
Maybe because you don't think it's stable or will be there, though the same could potentially be said of your pension, but assuming you do realize that S.S. will be there, why wouldn't you count that as well?
When you can articulate why you don't count S.S. as part of your bond portfolio, you'll see why I wouldn't count a pension.