Valuing Stock Options and Rental Property

[Jim in Phoenix]

I work at a company with a stock options program and have quite a few; how should I reflect their current value, how would the tool show increases/decreases in value until I retire in 5 years?

I also own 2 SFR rentals, same question- current value and chnages for the next 5 years?

Thank you!

- Jim

[jimr]

Hi Jim

Thanks for posting. Your questions are tough ones because the things you're trying to value are inherently tricky. Stock options are notorious for wild fluctuations and today's real estate market makes guessing at the future value of your rental properties really tough too.

Basically, the planner is completely dumb when it comes to trying to automatically project future values of different asset types. It basically just uses the inflation rate and the portfolio return that you enter to model your income, expenses, and investment portfolio over the life of your plan. Modeling changes in values of other assets is really beyond what it can handle.

I'd suggest thinking about this problem more from a "what-if" standpoint and playing it from there. The planner can't guess at values for these things, but you can. Try to run a few cases with different valuation assumptions and see how the plan turns out. You can use the additional inputs window to create one-time additions to "Taxable Savings" in the year you retire to represent the cash you'll get if you sell these assets.

Of course, that assumes you plan on selling the assets when you retire. If you want to continue being a landlord after you retire, you may want to model the real estate from a cash-flow standpoint and include any net income you expect from it during retirement. You could model 10 or so years of income, then have the income stop and sell the asset 10 years after retirement.

Maybe you could start with a run where the assets are liquidated at today's market price when you retire (basically, they just keep up with inflation). Then try one where the assets are discounted by 25-50% to be pessimistic. Finally, do another one where the assets appreciate by a bunch. That might shed some light on how the final value (at retirement) of those assets might impact your overall plan.

Hope that helps some. Please don't hesitate to post again if you have more questions.

Jim