# defining individual net worth **URL:** \ **Category:** Factual Questions\ **Created:** [September 30, 2017, 8:08pm UTC](https://boards.straightdope.com/t/defining-individual-net-worth/797672 "2017-09-30T20:08:47Z")\ **Posts on this page:** 12\ **Page:** 3
**Author:** ![Kimera757](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kimera757/32/3765_2.png) [@Kimera757](https://boards.straightdope.com/u/Kimera757)\ **Post date:** [October 4, 2017, 12:52am UTC](https://boards.straightdope.com/t/defining-individual-net-worth/797672/41 "2017-10-04T00:52:26Z")
> [@Dinsdale](#): > > I probably missed something (and HATED the accy classes I took in college), but why is a retiree’s expected receipt of SS benefits an asset any more than my expected receipt of next week’s check? If a customer bought a product from you on credit, you record what they owe you as an account receivable. You “know” you’ll get the payment (unless they refuse to pay, hopefully a rare situation) so it’s an asset even before you receive the payment. If you get paid, you’re just debiting cash (increasing an asset) and crediting accounts receivable (reducing that asset). If you get a rent bill, and you have two weeks to pay it, you record it as an expense immediately, even though you aren’t going to pay it today. > [@](#): > > Net worth is pretty simple for most folk: what do you own, and what do you owe? A BIG problem can be valuing assets like a house, or personalty. Accounting is generally taught for businesses, not individuals (at least in first year). > [@Ravenman](#): > > I am not a CPA, and I don’t buy for a second that Social Security benefits count as a personal asset, but I would suggest that Social Security is much more like an insurance program than an investment (life insurance, IRA, or otherwise). An insurance program could count as an asset though (put it under your prepaid insurance account), even though the payout isn’t guaranteed. (If you prepay building insurance, you might get nothing out of it, or a big chunk of a building’s cost if it burns down.) On the same hand you don’t know what your Social Security payout will be, you can only estimate (based on your income records and actuarial tables)… but you could say the same thing about an annuity. You just can’t sell Social Security. > [@](#): > > So if Social Security were to be considered an asset, then Medicare and any gap insurance ought to be considered assets too… which is clearly silly. As a Canadian, my knowledge of Medicare is too weak to really understand that ☹ ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [October 4, 2017, 5:27pm UTC](https://boards.straightdope.com/t/defining-individual-net-worth/797672/42 "2017-10-04T17:27:44Z")
> [@Ravenman](#): > > I am not a CPA, and I don’t buy for a second that Social Security benefits count as a personal asset, but I would suggest that Social Security is much more like an insurance program than an investment (life insurance, IRA, or otherwise). > > People pay premiums that go into a pool, and when someone in the pool meets certain criteria, they can draw out. So if Social Security were to be considered an asset, then Medicare and any gap insurance ought to be considered assets too… which is clearly silly. Social Security is a mix of insurance and investment. Once you get to the point where you’re getting regular payments, it’s a lot like a pension or annuity, which is more like an investment than it is insurance. Imagine two people, both at age 67 (or whatever). One of them has worked his whole life and expects to get, say, $30k a year from Social Security. The other hasn’t, and won’t. They have the same amount in the bank and own no other assets. It seems even sillier not to consider that the one with SS has a higher net worth and is in a stronger financial position than the other. You can buy an annuity that pays out pretty similarly to SS. Should we really consider that an asset, but not SS, because one is contracted with a private company and the other is provided for by federal law? ---
**Author:** ![Ravenman](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ravenman/32/2929_2.png) [@Ravenman](https://boards.straightdope.com/u/Ravenman)\ **Post date:** [October 4, 2017, 6:59pm UTC](https://boards.straightdope.com/t/defining-individual-net-worth/797672/43 "2017-10-04T18:59:39Z")
> [@iamthewalrus\_3](#): > > You can buy an annuity that pays out pretty similarly to SS. Should we really consider that an asset, but not SS, because one is contracted with a private company and the other is provided for by federal law? I’m not an accountant, but I’d say that makes sense to me. If you buy an annuity, you’re swapping on asset (the money in your checking account or whatever) for another (the annuity) that is clearly owned by you. And you can [dump it](https://www.jgwentworth.com/en/structured-settlements/annuity-purchasing/how-to-sell-your-annuity) for another asset if you wish. For Social Security, you have a tax that you’re obligated to pay and that goes toward a system that you have no ownership of, and cannot sell or transfer, that will quite probably (but not certainly) benefit you at some point. Might as well say that the taxes I pay that go to some important service (like maybe the fire department’s ambulance that will someday carry me to the hospital after I crack a hip) are an asset. That does not make sense to me. and also… > [@](#): > > The other hasn’t, and won’t. They have the same amount in the bank and own no other assets. It seems even sillier not to consider that the one with SS has a higher net worth and is in a stronger financial position than the other. One has more income, not wealth, than the other. Income isn’t by itself net worth. If you have a million dollar a year salary, and you spend it all on hookers and blow; you may end up having less wealth than someone on a good income that buys a house, invests, etc. But I’m not an accountant, as I said. ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [October 4, 2017, 9:05pm UTC](https://boards.straightdope.com/t/defining-individual-net-worth/797672/44 "2017-10-04T21:05:12Z")
> [@iamthewalrus\_3](#): > > Those arguing that Social Security isn’t an asset because it can’t be sold or transferred are incorrect. Assets do not have to be transferrable. This may true for the technical definition of asset, because it’s an entitlement so you have already “earned” it (so it’s a receivable), but is not an argument for including it as an asset in your net worth. It’s useful for projecting your income needs into the future, but not valuing your current wealth. One way to consider the practical value of calculating net worth is that is what your estate would be worth if you died today. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [October 4, 2017, 9:26pm UTC](https://boards.straightdope.com/t/defining-individual-net-worth/797672/45 "2017-10-04T21:26:21Z")
> [@Ravenman](#): > > One has more income, not wealth, than the other. Income isn’t by itself net worth. If you have a million dollar a year salary, and you spend it all on hookers and blow; you may end up having less wealth than someone on a good income that buys a house, invests, etc. This is not a relevant distinction in this case. Yes, someone with a high income who spends all their money doesn’t have much wealth. But someone who has a predictable stream of future income has wealth equal to the present discounted value of that income stream. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [October 4, 2017, 9:29pm UTC](https://boards.straightdope.com/t/defining-individual-net-worth/797672/46 "2017-10-04T21:29:58Z")
> [@CookingWithGas](#): > > One way to consider the practical value of calculating net worth is that is what your estate would be worth if you died today. Yeah, it definitely depends on what you’re calculating things for. If you’re doing estate planning, then you shouldn’t count SS, since it won’t factor in your estate. But if you’re doing _retirement_ planning, or if you’re comparing net worth to someone who doesn’t have SS, but does have other assets, then you sort of maybe should. ---
**Author:** ![rbroome](https://avatars.discourse-cdn.com/v4/letter/r/838e76/32.png) [@rbroome](https://boards.straightdope.com/u/rbroome)\ **Post date:** [October 4, 2017, 10:28pm UTC](https://boards.straightdope.com/t/defining-individual-net-worth/797672/47 "2017-10-04T22:28:10Z")
Thanks for all the replies! First, the reason I asked the original question is simply curiosity. I am currently retired and am interested in comparing my financial situation with others using published statistics. Why? Mostly just bragging rights/feeling sorry for myself. I am so solidly in the middle of everything I do I am never going to be considered rich or poor. Which is fine with me. But I would like to know how I rate compared to other populations. Retirement planning-yes. Estate planning-no. At least that isn’t the point of the question. As this thread grew, it became clear what I really wanted to understand is the difference between an “asset” and an “income”. I have some of both. Both are important for paying bills and planning my future. But they are not the same. The general discussions in the press has always been about people’s net worth. Have people saved enough for retirement. You hear the scary stats about how little people have saved and what is going to happen in the future… From this thread I have learned that a person’s net worth isn’t that important for planning the future. It is the estimated income stream that matters. No one ever talks about that. Perhaps folks don’t have many assets saved up because they are counting on a steady income stream from SS or some source. Not saying they are, but it could be a sensible explanation for the low savings in the US. On the flip side, net worth is all that matters for estate planning. The millionaire who spends it all has less net worth than the wage-slave who quietly saves every month. So I should first be thinking about income streams. Then estate. So, does anyone know data sources on personal income streams in the US? ---
**Author:** ![rbroome](https://avatars.discourse-cdn.com/v4/letter/r/838e76/32.png) [@rbroome](https://boards.straightdope.com/u/rbroome)\ **Post date:** [October 4, 2017, 10:31pm UTC](https://boards.straightdope.com/t/defining-individual-net-worth/797672/48 "2017-10-04T22:31:17Z")
> [@iamthewalrus\_3](#): > > This is not a relevant distinction in this case. > > Yes, someone with a high income who spends all their money doesn’t have much wealth. > > But someone who has a predictable stream of future income has wealth equal to the present discounted value of that income stream. So… how does one calculate the present discounted value of a future income stream? It seems like this is the key question here. Thanks for the replies. ---
**Author:** ![Ravenman](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ravenman/32/2929_2.png) [@Ravenman](https://boards.straightdope.com/u/Ravenman)\ **Post date:** [October 4, 2017, 11:17pm UTC](https://boards.straightdope.com/t/defining-individual-net-worth/797672/49 "2017-10-04T23:17:02Z")
> [@iamthewalrus\_3](#): > > Yes, someone with a high income who spends all their money doesn’t have much wealth. > > But someone who has a predictable stream of future income has wealth equal to the present discounted value of that income stream. I see how that applies to an annuity, which can be bought by someone on favorable terms. Who buys future Social Security payments for a lump sum? ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [October 4, 2017, 11:18pm UTC](https://boards.straightdope.com/t/defining-individual-net-worth/797672/50 "2017-10-04T23:18:06Z")
> [@rbroome](#): > > So… how does one calculate the present discounted value of a future income stream? > It seems like this is the key question here. [Present value of an annuity calculator](https://financialmentor.com/calculator/present-value-of-annuity-calculator). It’s a little more complicated, since you get cost of living increases with SS, but that’s a not-terrible ballpark to start in. In the case of Social Security, since it’s not a guaranteed number of payments, but until your death, you could find some actuarial tables and integrate over them, or just figure out what your life expectancy is and use that. This is all sort of back of the envelope stuff anyway. ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [October 4, 2017, 11:54pm UTC](https://boards.straightdope.com/t/defining-individual-net-worth/797672/51 "2017-10-04T23:54:09Z")
> [@rbroome](#): > > So… how does one calculate the present discounted value of a future income stream?.. The short answer is - by discounting the cash flows to the present at the appropriate interest rate and adding them up. In the case of social security or an annuity that last until death, there is an actuarial input of your life expectancy. If you really want to know what your social security security income stream is “worth” as an asset, the easiest way is probably to shop around for the replacement cost, i.e. the price at which you could buy an annuity with exactly the same payments. Of course, there’s some political risk involved with social security too (i.e. entitlements might be cut), that’s pretty hard to quantify. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [October 5, 2017, 12:16am UTC](https://boards.straightdope.com/t/defining-individual-net-worth/797672/52 "2017-10-05T00:16:00Z")
> [@rbroome](#): > > From this thread I have learned that a person’s net worth isn’t that important for planning the future. It is the estimated income stream that matters. No one ever talks about that. Perhaps folks don’t have many assets saved up because they are counting on a steady income stream from SS or some source. Not saying they are, but it could be a sensible explanation for the low savings in the US. That is most of what we talk about with our financial planner. And when people worry about low interest rates hurting the retired, it is what they talk about also. I think the problem is that income streams depend a lot of asset allocation and tolerance of risk. There is a big difference between a million bucks in CDs and a million bucks in a dividend fund. I think our savings rate got a lot better. I think the problem with the amount of savings is due to income inequality and unemployment during downturns. A big reason I’m comfortable in retirement is that I never got laid off, and therefore never had to dip into savings to live. Not everyone was so lucky. > [@](#): > > On the flip side, net worth is all that matters for estate planning. The millionaire who spends it all has less net worth than the wage-slave who quietly saves every month. There is an interesting, if old, book called “The Millionaire Next Door” on exactly this subject. There is a lot in it to disagree with, but one point was that people who lived in affluent neighborhoods (for the schools, say) felt pressure to keep up with the neighbors in terms of new cars and fancy homes, while people who lived in more middle class neighborhoods with the same salary save more because they didn’t feel this pressure. [Previous page](https://boards.straightdope.com/t/defining-individual-net-worth/797672.md?page=2)