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Do you include pensions in net worth?

Determining your net worth is an important part of financial planning. Net worth is a measure of your financial health at a given point in time. It’s calculated by subtracting your liabilities (debt) from your assets. This gives you a snapshot of your current financial situation.

What is Net Worth?

Your net worth is the value of everything you own minus everything you owe. Here’s the formula:

Net Worth = Assets – Liabilities

Assets are anything of value that you own, such as:

  • Cash
  • Investment accounts
  • Real estate
  • Cars
  • Businesses
  • Personal possessions

Liabilities are your debts or financial obligations, including:

  • Mortgages
  • Credit card balances
  • Car loans
  • Student loans
  • Medical debt
  • Personal loans

To calculate your net worth, you’ll need to total the current value of all your assets and subtract the total value of all your liabilities. Tracking your net worth over time can give you a big picture perspective of your financial progress.

Should Pensions Be Included in Net Worth?

When calculating net worth, a common question is whether or not to include the value of retirement accounts like 401(k)s and pensions.

The short answer is yes, pensions should be included in your net worth calculation. Here’s why:

  • A pension has monetary value – It represents future income you have earned and are entitled to receive in retirement.
  • It’s an asset you own – You have vested rights to your pension benefits through your years of employment.
  • It impacts your overall financial picture – Excluding substantial assets like pensions underestimates your true net worth.

While pensions differ from other assets in that you can’t access the funds until retirement, they still represent promised benefits with calculable value.

How to Calculate the Value of Pensions

Figuring out the precise value of pension benefits can be challenging. Here are some tips:

  • Get your most recent pension statement – This will provide key details like your estimated monthly benefit amount.
  • Determine the present value – Use online calculators to estimate what your future pension payments are worth today.
  • Factor in your life expectancy – The value of your pension depends on how long you’ll collect benefits.
  • Use conservative estimates – It’s better to underestimate rather than overestimate pension values.

There are several variables that affect pension valuations, including future cost-of-living adjustments to your benefit, how long you’ll receive payments, and more. Working with a financial advisor can help ensure your pension asset calculation aligns with your overall financial plan.

Examples of Pension Value in Net Worth

Here are some examples to illustrate how pension value can be incorporated into net worth calculations:

Example 1: Simple Pension Estimate

  • John, 65 years old, has a pension that will pay $2,000 per month starting at retirement.
  • Using a conservative online pension calculator, he estimates his pension is worth approximately $200,000.
  • He includes this $200,000 pension value in his overall net worth calculation.

Example 2: Government Pension Estimate

  • Jane, 60 years old, has worked for the federal government for 35 years.
  • Based on her annual pension statements, she expects to receive $60,000 per year in retirement.
  • Using a life expectancy of age 85, she estimates her pension over 25 years is worth approximately $750,000.
  • She includes this $750,000 in her net worth.

Example 3: Using Multiple Factors

  • Mark, 58 years old, has a state government pension.
  • His latest pension statement shows he has earned $2,500 monthly so far.
  • Assuming a 2% annual COLA, 3% return, and life expectancy of 90, an advisor estimates his pension value at $1.2 million.
  • Mark includes the $1.2 million in his overall net worth number.

These examples demonstrate how pensions, even intangible future income streams, have calculable present value and should be incorporated into net worth assessments.

The Importance of Including Pensions in Net Worth

Here are some key reasons why including pensions provides a more complete picture of net worth:

  • Shows your full financial picture – Pensions are often one of your largest assets, so excluding them undercounts your true net worth.
  • Allows better financial planning – Understanding your net pension assets helps plan better for retirement.
  • Puts income streams in perspective – Weighting pensions alongside other assets provides context for retirement cash flow.
  • Tracks pension growth over time – Updating pension valuations annually shows how this asset grows.
  • Gives you more options – A higher net worth provides access to financial options you may not otherwise have.

In summary, pensions have significant value and including them provides a more accurate, real-world view of your financial situation.

Limitations of Valuing Pensions

While including pensions in net worth calculations is recommended, there are some limitations to keep in mind:

  • Estimates depend heavily on assumptions – Small changes in projected returns or life expectancy can greatly impact valuations.
  • Benefits are not accessible like cash – Pension assets can’t be tapped like a savings account until retirement.
  • Future changes may reduce value – Plan changes, job loss, etc. could decrease expected pension income.
  • Guarantees can be unpredictable – Not all pension plans are rock solid if the fund has solvency issues.
  • Tax implications are uncertain – Future taxes on pension income are hard to predict.

The key is to use prudent estimates, and remember pension assets are for retirement, not current spending. As with any assets, pension values should be monitored and updated annually.

Frequently Asked Questions

Are all types of retirement accounts included in net worth?

In general, yes. The value of defined benefit pensions as well as defined contribution accounts like 401(k)s, IRAs, and annuities should be incorporated into your net worth. This provides the most complete financial picture.

How accurate do pension valuations need to be?

Pension valuations do not need to be down to the penny accurate for net worth purposes. Reasonable estimates based on the best available data are sufficient. Having an approximate value is better than excluding pensions entirely.

Can I include Social Security benefits in my net worth?

Experts are mixed on whether to include the value of future Social Security payments in net worth calculations. Some argue these benefits are not a legal asset. However, obtaining estimates of your future Social Security income can still provide useful context on your financial resources.

Should I get my pension valued professionally?

For very substantial pension assets, it may be worthwhile to get a professional valuation. Pension analysts can provide objective estimates and help identify risks. For most people doing their own net worth calculations, free online pension calculators are likely sufficient.

Does a higher net worth change my financial planning?

Yes, knowing you have larger pension assets can impact your financial plans for retirement and estate planning. Factoring pensions into net worth provides a more accurate picture of both your current finances and future retirement income streams.


Incorporating the value of defined benefit pensions provides a more complete and realistic view of net worth. While pension assets differ from liquid assets like cash, they still represent future income streams with significant monetary value. With prudent estimates and an understanding of their limitations, counting pensions in net worth can help with financial planning and unlock additional options. For most people, pensions make up a considerable portion of their overall assets.