A few weeks ago I saw a tweet that said that Tim Walz, the Democratic vice presidential candidate, had a net worth of around $330,000. I didn’t know much about Walz at the time, but I did know that he had a considerable amount of pension income. As a result, the $330,000 figure seemed low to me.
And it was. Forbes estimated that Walz has a net worth was closer to $1 million when valuing his pensions correctly. This got me thinking: what is the right way to value a pension? If you have a pension, you might often wonder: how much is my pension worth?
Well, you’ve come to the right place. Today I am going to walk you through how to value a pension so you can get an accurate gauge of its contribution to your net worth. But before we do that, let’s briefly review the kind of pensions that exist and how they typically work.
What Kind of Pensions Are There?
When it comes to pensions, the two most common structures are defined benefit and government pensions. Let’s review how each works.
Defined Benefit Pension: Defined benefit pensions are the most common kind of pension and make lifetime payouts based on your salary while employed. Payout: Typically, the payout is based on either your final salary an average of your salary over some period of time. For example, you might get 70% of your final year salary as a payout or 80% of your average for your final three years of employment. There are many different ways that payouts can be calculated, but keep in mind that there is a formula that your employer uses to do so. The payout will either be fixed or have cost of living adjustment (COLA) over time. Length: