# When calculating net-worth, how to discount money in an RRSP?

Suppose that I have the following account balances:

``````Personal Banking Account  \$10,000
TFSA                      \$40,000
RRSP                      \$60,000
``````

I would like to calculate my net-worth.

The nuance to this problem is that, the money that is in the RRSP will be taxed when it is removed. How should I estimate how much of that money is mine?

Right now I know that my networth is somewhere between \$80k (discounting 50% of RRSP) and \$110k (discounting none of the RRSP).

Things to consider:

• I am not sure how much I will make in retirement
• I am not sure how much my RRSP will grow or how much I will contribute to it

I could just discount the money in my RRSP by an arbitrary number like 20% but if there is a better (but still easy) way to do this, I would be interested.

It depends on what you mean by "net worth". If you mean "how much money would I have now if I liquidated everything", then yes you'd take the after-tax (and penalty, if applicable) value of your retirement plans, since that's what you'd get in a liquidation.

But, it would also be a mistake use your current tax rate to discount your retirement savings if you won't need it for a while. If you don't take it all out at once, then you may be in a lower tax bracket when you actually withdraw it. Plus, if you save enough, you might be able to live on the income/growth alone, so you may never touch the amount that's in there now.

So the "right" answer depends on the context, but whenever I think about "net worth" I generally just look at the pre-tax value since I'm many years from retirement and many things tax-wise could change between now and then.

• I totally agree with your first two paragraphs, but your 3rd paragraph seems to have an incorrect conclusion. `I generally just look at the pre-tax value` <- this seems too optimistic for me. There is close to zero chance that you will pay zero tax on your RRSP withdrawals (right?). The government owns some part of the money in your RRSP, so counting that you own the whole thing, is misleading at best. Jun 16, 2020 at 15:24
• Sure, but using your current tax rate is not correct either - and there are ways (at least in the US) to "cash in" your retirement plans without paying tax, but it probably means giving a lot of it to charities. Does that mean that you don't "own" it? That's why I say it's contextual. If I look at it from a retirement income planning context then yes, I'd need to take taxes into account. But from a pure "what do I own" point of view, you could ignore taxes. Jun 16, 2020 at 15:45
• Maybe I'm biased in the fact that I don't like the idea of the government "owning" part of my retirement because of taxes. I get to choose when to cash out and pay the tax - they can't forcibly collect tax (at least not yet :) ). Jun 16, 2020 at 15:46
• +1. If you're going to calculate the liquidation value, you'd also have to account for the fact that you likely owe capital gains tax on some part of your non-retirement account balances (and hopefully this will be a larger part of those accounts as time goes on). For most purposes, I'd agree and just do straight addition of the account balances understanding that the tax man will take a decent chunk of whatever that number is. Jun 16, 2020 at 15:53
• @DStanley You only mostly get to choose since your RRSP becomes a RRIF when you turn 71 and you are forced to withdraw a % amount every year after that. Jun 17, 2020 at 20:00