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The House
Old 06-10-2017, 10:13 AM   #1
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The House

Bored... Super hot for the next four days, so my plans to be at our lake place, (limited A/C) are on hold. Time to resurrect my age-old question here...

Nest Egg, Net Worth, Assets, Savings, Capital etc. ........

Why, oh why, do most people add... "not counting my house"... Why wouldn't the value of the home be counted in as Net Worth, or Assets?

ie. "My Net Worth is $1.5M and my house is $350K"

So net worth can count rental properties, but not the house one lives in?

"We have to live somewhere!".... Yeah, but if it's in a nursing home, is the house still excluded from Net Worth?

When you're calculating your "success rate" does that include the value of the house? Do you count those two cars that are in the garage? And how about the $2000 wedding ring or the $3000 worth of computers, phones and other electronics?

Not trying to be snoopy, but when trying to understand the reasoning in some of the threads, (especially where Californians are involved) I see numbers like savings of $1.7 million but no mention of including the value of that $750K house.

Best explanation that I usually get is "Well, you have to have some place to live." Almost sounds like the expression "Going down with the ship!"

(sigh)... gonna be a long weekend, but at least it'll be cool.
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Old 06-10-2017, 10:27 AM   #2
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I see a few different totals. Our "nest egg" is our investments/savings. Our Assets or net worth total includes the house, jewelry, etc as they could be sold for spendable money if needed.
My "success rate" on firecalc is only from investments, pension and SS.

My budget total includes cost of housing.

Different than others, but thats what I do that makes sense to me.
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Old 06-10-2017, 10:32 AM   #3
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I don't have any reason to calculate Net Worth. My withdrawal rate depends on my investment portfolio, only. I wouldn't withdraw more if I lived in a more expensive house.

Besides, I think that most people are terribly inaccurate in guessing what their homes are worth. For example: I bought my house in 2015. Due to a real estate boom and a new local establishment that is in great demand, asking prices for houses in my neighborhood have skyrocketed. This year asking prices for houses of equal or lesser quality and size, are never under 1.5 times as much as the asking price was on my house. Should I multiply the value of my home by 1.5? 1.7? Who knows? I have noticed a few selling prices but not enough to use for an estimate.

Also I put a lot of money into grading, re-landscaping, concrete work, and so on. Should I add that? I doubt I would get 100% of the cost of that work back if I sold my home today. Barring the unforeseen, we have no intention of ever selling or moving so it's all "pie in the sky" money.

When we have net worth polls here, I do my best to estimate. But other than that, I have zero practical use for net worth that I can think of.


Edited to add, after reading Pacergal's post: as for me, I don't really have a budget but keep track of spending to the penny. In the "house" category I include insurance, property taxes, maintenance, and upgrades, but no rent or mortgage since I paid for my house in cash.
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Old 06-10-2017, 10:46 AM   #4
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Quote:
Originally Posted by pacergal View Post
I see a few different totals. Our "nest egg" is our investments/savings. Our Assets or net worth total includes the house, jewelry, etc as they could be sold for spendable money if needed.
My "success rate" on firecalc is only from investments, pension and SS.

My budget total includes cost of housing.

Different than others, but thats what I do that makes sense to me.

+1 on this...

And it is one of the questions that come up when people ask 'how much do you have?'.....

I cannot eat (or easily convert to food) my house or cars or other stuff that I own (well, without taking a hit on value or getting rid of something I want)..... so when it comes to how much I have to live on it is only liquid assets....
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Old 06-10-2017, 11:19 AM   #5
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Originally Posted by Texas Proud View Post
+1 on this...

And it is one of the questions that come up when people ask 'how much do you have?'.....

I cannot eat (or easily convert to food) my house or cars or other stuff that I own (well, without taking a hit on value or getting rid of something I want)..... so when it comes to how much I have to live on it is only liquid assets....
+1, except I don't count consider Retirement funds liquid, since I'd take a hit on cashing it out. I prefer the term investable assets.
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Old 06-10-2017, 11:29 AM   #6
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I think my original post may seem sarcastic, but it wasn't intended that way.

It's more to the point of my own thinking about early retirement, and looking ahead to the safety of the "end days".

While we dearly love the home we're in today, we've moved many, many times so that we don't necessarily see this as the place we'll die in, and DO calculate the value as part of our net worth. It is included in the number we look at as "spend down" money. If assisted living is to be part of our future, then the moneys will come from the net worth, including what would be the sale of the house.

I'm inclined to think that if I had not included the house value in my retirement calculations, It's likely that I would have kept working for at least two more years.

The other part of this, that reinforces my thinking, is our experience living here in a villa (regular single home) in our CCRC. We regularly see people who have been living in the villas, who move to the CCRC apartments, or to assisted living... and... talking to their kids, realize that they are funding the change with the proceeds from the house.

I suppose it's easier to look back at this, than to look forward, but a few hundred thousand dollars to be earned with three or four more years of work is equal to the amount that the house will bring, when it's sold. Those extra four years of early retirement meant much more to us then, than having a bigger safety cushion, now.

This is just a personal opinion, and not meant as advice.
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Old 06-10-2017, 11:44 AM   #7
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Originally Posted by W2R View Post
I wouldn't withdraw more if I lived in a more expensive house. .
You might. Taxes, maintenance, utilities etc.

In answer to OP, I don't know why people include/exclude their house. There's your NET worth and then there's your invested/cash assets.
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Old 06-10-2017, 11:46 AM   #8
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It's part of your net worth but not part of retirement money. It's an expense in my book.
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Old 06-10-2017, 12:12 PM   #9
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My crazy viewpoint would be, why not then include clothes, cars tools etc. Which actually is fine. But I either can't live off of them or would not want to. Kind of odd but I think of WORTH in two ways... My financial worth and my net worth. My financial worth is what I need when alive. My net worth is what my kids need when I'm dead.
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Old 06-10-2017, 12:42 PM   #10
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I agree with the OP that my house is my LTC insurance or safety net when and if I have to go into assisted living, a nursing home, or a CCRC. If I did not have that equity or if it was only a $100-125K home in a very low COL area, I might be concerned whether my nest egg and pension were sufficient. But it is not a high priced California home either. If they are willing to leave the coast, Californians have many more options for retirement relocation and using that equity for living expenses than the rest of us.
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Old 06-10-2017, 12:53 PM   #11
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As I build my house, I have not included it in my net worth. It is just an expense (a mighty big annual expense!) When I am finished I will include the assessed valuation as part of the net worth. It will add to my net worth and will look nice in net worth reports, but I have no intention of selling the place to finance later housing needs.

Between this thread and the SS pole thread, I think I will reevaluate my charitable giving plans to make sure I keep enough in assets around for all these possibilities. This is not an easy exercise because the tax deferred money I keep will be taxed at 25% dinging the charities by that amount.
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Old 06-10-2017, 01:26 PM   #12
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Houses, cars, boats, etc - all personal assets are part of net worth. PITA to calculate net worth, and IMO it doesn't really matter at my stage of life. I'm only interested in our portfolio - what generates income. Someday the other stuff might and I'll deal with it then. But I can see where people who are ready to dispose of houses would add their house value into their number.
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Old 06-10-2017, 01:41 PM   #13
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As with some others I look at my home equity as the "if everything went to hell and I need to sell everything in an emergency fund". Living in SoCal one can have very substantial amount of equity tied into your home. I do all my retirement funding calculations without the home equity but definitely would consider as part of my net worth. Pulling up stakes here and selling would provide a lot of flexibility in where I could re-locate at a much reduced cost of living.
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Old 06-10-2017, 01:55 PM   #14
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I'm sure most old-timers know already, but you can run FIRECalc assuming you will sell your house and add it to your portfolio. Look under the "Portfolio Changes" tab. Don't forget to put a corresponding entry under "Other Income/spending" for the same year, which would be the net amount taking into account rent or whatever you will then be paying minus property taxes, insurance and maintenance that you won't be paying anymore. Everything is input in current dollars.
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Old 06-10-2017, 05:06 PM   #15
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I always think in terms of money available to fund my FIRE experience. Since I need a house, then my house isn't really a part of my retirement funds (I look at most of my possessions similarly - cars, clothes, furniture, etc.). NOW, this has led to some interesting contradictions. When I ERd, but before I moved to Paradise, I counted my house on the mainland as "just my house" so not a part of my retirement funds. My paid-off place in HI was at that time a part of my portfolio as I could have sold it or traded it. When I moved, the situation was reversed - The old place was now an "investment" and the HI place was just my "house." That was a very sudden drop in my funds-available-for-retirement. SO, imoldernu, I see your point. Still, it's just my way of looking at the situation. I suppose I look at my house now as a back-up (in case DW and I need to go to a LTC facility or ITSHTF in some other way.) But even though our house has "made us a bunch of money" in that it has appreciated, it's not money I can spend easily.

Honestly, deciding how to consider your house (asset or just house) is arbitrary but should be handled consistently. Just for fun, once in a while, I add the estimated value of the house into the NW calculation - it looks a lot better until I subtract it back out. As always, YMMV.
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Old 06-10-2017, 05:54 PM   #16
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As a Californian with an overpriced house I'm guilty of this... My house is a very large percentage of my net worth... but since I don't plan to sell it in the near term, I don't include it in my retirement plans....

That said it's our plan B for LTC... Since we're a couple - the spouse that is not going into LTC could sell and buy a smaller place (condo) and the remaining equity should pay for a few years of LTC.

But... since I don't plan on selling or tapping the equity through a mortgage or HELOC, or reverse mortgage... I don't include it in my 'nest egg', 'investible assets', retirement funds....

Cars, electronics, jewelry is down in the 'noise' level of my net worth... so not worth including. Although if I needed to sell my engagement ring to pay bills - I would...
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Old 06-10-2017, 06:19 PM   #17
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I include my house in my net worth. I do not include it in my withdrawal strategy. If my house i worth a million bucks, if we move, im budgeting to respend the million, if we down size then ill include the excess into the withdrawal strategy. I dont include cars, ,jewelry, furniture. When and if we move, we ill rebuy all new furniture like we did when we moved to our first new home. I dont have any Picasso's, i dont have a rolls Royce. My jewelry, if i had to rebuy it is under fifty thousand. If i pawn it i would probably get get 5k. Not enough to include it in my net worth.
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Old 06-10-2017, 08:11 PM   #18
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I spent 36 1/2 years making the money, and we should be okay for our present and future financial needs. Now, I'm into capital preservation and minimal taxation.

I no longer have any reason to even think about net worth, and future debt will probably never be required.

And after I spent almost all my working days on the telephone at work, I no longer speak very often on the telephone--to anyone. I dumped the cell phone, and feel like a bird out of a cage.

It's time in my life to have some simple years.
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Old 06-10-2017, 10:31 PM   #19
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I'm sure most old-timers know already, but you can run FIRECalc assuming you will sell your house and add it to your portfolio. Look under the "Portfolio Changes" tab. Don't forget to put a corresponding entry under "Other Income/spending" for the same year, which would be the net amount taking into account rent or whatever you will then be paying minus property taxes, insurance and maintenance that you won't be paying anymore. Everything is input in current dollars.
I've run firecalc in this manner as a contingency. For us, we/I count a portion of our house/land as "sort of" a contingent asset. We have 25 "zoned for development" acres; a part of our backup/belt/suspenders assets is the portion of the likely sales price of the land that exceeds our likely next-residence-purchase amount. (basically, about two years of our luxury retirement spending) Not anywhere near as real as our portfolios, but we know it is there, which allows us to be comfortable with a bit higher withdrawal in the early years....

Otherwise, I'm in the ignore it, because we "gotta live somewhere that DW deems acceptable" camp.
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Old 06-10-2017, 10:47 PM   #20
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Technically, assets minus liabilities=net worth. Right? So count the house.

BUT, in retirement, cash flow (income) is all that really matters. Also, right? The house is out. But rental properties are in (since you don't live in them and they produce income).

The old saw "house rich, income poor" illustrates this (although it most likely applies to a mortgage payment, but the effect on cash flow is the same if the money is tied up in the house and not liquid/spendable investments).
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