guys and girls I need a quick confirmation on this one. Does retirement pension payment count as human capital?
cheers mate, thanks alot for the quick reply, I just have no idea where to find this on text
I was just looking through it again, and now I am unsure. You might reference this old thread. http://www.analystforum.com/phorums/read.php?13,1104298
I’m pretty sure pension income counts as human capital as it is the result of your working career. It’s not a financial asset as when you die it disapears (unless survivorship policies for spouces, etc.) the same way your future income would if you were younger.
Agree with you on this. I look at sources of income as human or financial. If it doesn’t come out of your portfolio it cannot be financial and so has to be human. It can only come out of your portfolio if you invest in something, including cash. Of course bequest/inheritance/gift etc. is financial windfall capital and not human capital and it is treated as such in IPS
Yes, it does. From CFAI text, the numerator in the formula for HC is the sum of: earnings for year t adjusted for inflation before retirement and after retirement, adjusted for Social Security and pension payments (Level III Volume 2 Behavioral Finance, Individual Investors, and Institutional Investors , 4th Edition. Pearson Learning Solutions p. 323). And some notes form the text: “As we enter the retirement stage of our lives, our human capital may be almost depleted. It may not be totally gone because we still may have Social Security and defined-benefit pension plans that provide yearly income for the rest of our lives, but our wage-earning power is now very small and does not usually represent the major part of our wealth…” (Level III Volume 2 Behavioral Finance, Individual Investors, and Institutional Investors , 4th Edition. Pearson Learning Solutions p. 310).
hmmm, CFAI is just ambiguous regarding this, on 2009 it does not count pension income as human capital, but when I refer to 2011 practices pension income is being consider as human capital. thanks guys for clearing this up.
great points, thanks.