When it comes to core and excess capital(Reading 16), is future pension income classified as as an implied asset? If not, is it classified as an explicit asset?
correct me when i’m wrong, but “implied asset” i use pretty interchangeably with human capital. social security and future pension earnings since they’re derived directly from the person’s labor ARE considered human capital. this is one of the reasons why human capital doesn’t = 0 at retirement and can still have a positive value.
Human capital = lifetime earning capacity = PV(earned income+ Social security and employer-related pension payments)
implied asset == PV(earned income)?
Human capital = lifetime earning capacity = PV(FUTURE earned income+ Social security and employer-related pension payments)
elca and bannisja , according to the guideline answer for the 2009 exam, you’re incorrect “The present value of the Tracys future employment income is zero. Their implied assets dropped to zero upon retirement and remain at zero.”
they are not …they worded it awkwardly but i believe they meant the pv of future income…upon retirement grammy is human capital falls to zero however her financial assets shjould be at its highest
Yes the formula above appears correct - “PV of earned income plus social security plus retirement benefits” - my only pause here is that I could swear I saw a suggested answer once that suggested on the day of your retirement all your wealth was in financial assets and you no longer had “implicit” or human capital. But this is exactly the kind of nuance not always well defined in the curriculum that CFA used to thin the herd - frankly from a prospective basis I an see calling pensions and soc sec human capital perhaps before retirement but at retirement to me the character more closely matches a financial asset (but be forewarned this I am sure is not CFAs stance).