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Old 10-16-2009, 02:36 AM   #41
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I like to calculate our net worth on income producing assets. I don't include any of our real estate which includes our home, a condo in another city and some farm land (which actually produces a bit of income).

If you add all three, they might be 15% of our "paper" investments. 70% would scare the sh*t out of me, unless I was living in a $100 million property in the south of France.
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Old 10-16-2009, 05:29 AM   #42
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For us it is probably 40% of nw, but we also have a DB pension, the full value of which won't be known until we're both dead. And if we had to we could downsize considerably, covert half of the value of the house into cash, and still own a home outright.

Location is everything. One could own a modest home in a high-dollar area and trade that for six of the same in WV or PA. When we were looking at homes in WV we were stunned at the differences in price from the DC area. And the WV panhandle is still not the cheapest place in the country to live.
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Old 10-16-2009, 11:07 AM   #43
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We're with the 20-25% gang.
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Old 10-16-2009, 03:33 PM   #44
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The issue is not that most of us don't have enough house, but rather MOST OTHER people don't have enough investments. If you own a $70,000 house and $30,000 in stocks, then you've hit the 70% they mention...and sadly I think this is where many Americans are.
I think Dave's point demonstrates how we (most members of this board) "get it" when it comes to retirement. The article referenced suggests using home equity for retirement needs while the bulk of us don't even consider HE in our net worth calcs. If we consider HE at all, it's more typically our "back up" to our back ups.

I recall a friend saying she was almost ready to retire. She had her home paid off and $60K in the bank. I must have looked shocked 'cause she quickly asked me if I "...didn't think that was enough". After a cough and stammer, I suggested that she would probably need to use her home equity to live on with her "plan". Full disclosure - her husband did expect a small pension and they would receive some SS.

FWIW I moved into one of my retirement assets (a condo formerly used as a rental) so my own calculated NW actually went down, since I don't count HE in NW calc. Even then, HE is less than 25% of all assets.
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Old 10-17-2009, 09:41 AM   #45
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My home is about 10 percent NW.
Cabin 10 percent NW.
Rental Properties about 13 percent NW.

That is about my comfort level when it comes to balancing my NW: 30 percent Real Estate.
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Old 10-17-2009, 10:27 AM   #46
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Wow. Does this mean all you California people who live in $1 million dollar houses but have net worth only 15% in housing are sitting on $5 million dollar portfolios.

I'm not seeing a lot of usefulness in this calculation. Unless someone plans to spend down their house somehow or sell it in retirement, they will only be living on their portfolio (and pensions, etc). I generally do not include my house in my net worth calculations except as a footnote to know that if I get desperate enough to downsize I could get at some of the equity. Otherwise, I plan to live there.

Does anyone know why the original article thought this was an interesting calculation?
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Old 10-17-2009, 10:34 AM   #47
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Wow. Does this mean all you California people who live in $1 million dollar houses but have net worth only 15% in housing are sitting on $5 million dollar portfolios.
Originally I thought that too, but after reading some posts I am thinking that many Californians probably have mortgaged a substantial percentage of the value of their homes and then the value of their homes dropped.

So, a Californian might have a $1 million dollar home, but with only $150,000 equity.

Add that to an $850,000 portfolio for a net worth of $1 million, and the home would represent 15% of net worth.
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Old 10-17-2009, 10:35 AM   #48
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I took the article as meaning the majority of the population have a disproportionate (dangerous) percentage of their NW in their homes. Not a good thing as the past few years have seen a depreciation in home values. I think the article is more frightening for those who fall into the 70 percent category while living in Las Vegas and Florida. Just my thought.

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Wow. Does this mean all you California people who live in $1 million dollar houses but have net worth only 15% in housing are sitting on $5 million dollar portfolios.

I'm not seeing a lot of usefulness in this calculation. Unless someone plans to spend down their house somehow or sell it in retirement, they will only be living on their portfolio (and pensions, etc). I generally do not include my house in my net worth calculations except as a footnote to know that if I get desperate enough to downsize I could get at some of the equity. Otherwise, I plan to live there.

Does anyone know why the original article thought this was an interesting calculation?
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Old 10-17-2009, 10:59 AM   #49
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I recall speaking to a local educator who was bemoaning her inability to retire because she had no 403b, IRA or other savings, but could tell me all about the fab places in Europe that she had visited in the last 15 years or so. She was also concerned that her pension would not pay for as much of the mortgage on her new home as she had thought it would when it was purchased a few years ago.

Since she was not paying for SS, she will not be eligible for SS benefits.

I could not bring myself to tell her that you can only spend a dollar once and many folks choose to save it, invest it, then spend it at a later date along with the growth that it has generated while others spend it now and hope for the best in the future.
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Old 11-21-2009, 07:36 AM   #50
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We are at 11% of total NW - if my guesstimate about current market value is correct? In awhile - we will sell and move to another state. I expect that we will look for something in the same price range.
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Old 11-21-2009, 08:40 AM   #51
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Paid off California house, worth 50% to 55% of our financial assets, but we have pensions that cover regular living expenses. s
Seems to be working well in our first year that we are both retired.
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Old 11-21-2009, 08:56 AM   #52
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In NJ, home equity is 45-50% of our net worth. I didn't figure in transfer taxes and commission.

I guess knowing how much you have tied up in R.E. is good to know. I think of home equity as something we will use towards the retirement home, and the balance of the sale will go in the bank to pay expenses for x number of years.
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Old 11-21-2009, 09:01 AM   #53
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I know my portfolio to the last dollar every day, but do not include the values of my houses. Only to respond to this thread, I just calculated their values to be 25% of my net worth, if I add them to the investment portfolio.

I do not count on selling either or both, and am just thinking that we might just spend all our liquid assets before croaking, then leave the houses to the kids.
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Old 11-21-2009, 02:58 PM   #54
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another perspective

My house represents about 60% of my net worth. I bought my first house in 1996 in an expensive suburb of San Francisco. I put down $7500 and financed the rest. I now live in my second home in the same community and have conservatively $800k in equity. I upgraded both properties and treated them as investments. I do consider my house as part of my overall portfolio. The truth is if you invested in a good area in the Bay Area more than 10 years ago real estate was a very good investment. The bonus is/was I've got to live in a beautiful house as well.
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Old 11-21-2009, 03:13 PM   #55
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I do consider my house as part of my overall portfolio.
Where do you plan to live in retirement?
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Old 11-21-2009, 04:00 PM   #56
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Mine is a little less than 15% if I include my home's value in my net worth. I think the author must be thinking of Californians.
As a former Californian I wonder if you mean % of assets rather than % of net worth. Most of my neighbors had a huge mortgage liability on their personal balance sheet and little net worth.
Now that you mention it, that sounds more realistic than my former statement. I can't imagine who the article must be referring to, then.
Perhaps people like me who bought into a now-expensive area (in my case Seattle) before it got that way, and as a result are sitting on a large amount of equity. I bought my first house in 1985 for a five digit price, sold it in 1997 for nearly three times what I paid, was able to put about 50% down on the townhouse I live in now, which has also slightly better than doubled since I bought it, even taking the recent downturn into account. Between appreciation and paying down the mortgage, it's now worth about three times what I owe on it, despite the refi I used to replace my car three years ago.

I don't know what the house comes out to as a fraction of my net worth. The mortgage is my only debt, and the equity in the house is a bit less than twice what I have in my retirement accounts, so where does that leave me—about 60% of net worth in my house? I must confess I don't exactly understand how net worth fits into the E-R picture. It doesn't include my pension (or does it), without which it would be impossible for me to retire at all, never mind early! And it does include houses, which are not liquid and which many people are not willing to tap to finance their living expenses in retirement, except as a last resort if they need to move into an assisted living or similar situation.

Personally, I do consider the equity in my current house as part of my retirement resources. At retirement I plan to sell this house, use half the equity to pay in full for a house in a less expensive area, and add the other half to my portfolio. But after that, I will be among those who consider any equity the house accumulates as a "last resort" category. My retirement budget doesn't have room in it for ongoing debt like a HELOC. For me, it'll be cash (or debit card ) on the barrelhead from E-R on out.

I have thought of taking advantage of current low real estate prices by cashing out some of my equity and buying a retirement house now, then selling this one in a few years when prices have (I hope) recovered somewhat. But I couldn't afford the higher mortgage payments and still max out my retirement savings too, so I guess that dog won't hunt. I'm not sure I would do it even if I could make the bigger payments...I don't think it passes the "sleep at night" test.
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Old 11-21-2009, 04:04 PM   #57
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I do believe that one's home should be considered part of one's portfolio. Yes, one has to live somewhere, but a home is an asset that can be sold or borrowed against to cover expenses. Realistically, if we all live to 100, how many of us will still be living in our own homes?

By selling my home after ER, I could put the proceeds into a safe investment which would cover rental costs on a self sustaining basis.

Obviously, the practical importance of this varies with where you live. If you have lived all your life in San Francisco, own your home, and are willing to move to a lower cost area in retirement, you are well set! If you are going in the opposite direction, not so much!

My own home is worth about 8% of my NW. The value of all the property I own (including residential, recreational and rental) is approximately 25% of my NW. The rental property is leveraged to the tune of 10% of NW, leaving me with a net property asset allocation of approximately 15% of NW.
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Old 11-21-2009, 04:31 PM   #58
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Mine's like 30%, but I live in NYC in a fully paid off home. I don't include it in my NW calculation, although I used to include my mortgage debt in the calculation back when I had some.
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Old 11-21-2009, 04:34 PM   #59
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Meadbh - you raise some good points. When I finally pull the trigger, I'll almost certainly move to a much cheaper area and net at least $1MM in the housing price differential. Still, that doesn't show up in my spreadsheets and will be considered found money when it materializes.
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Old 11-21-2009, 08:57 PM   #60
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I'm somewhat surprised by the number of folks who do not account for the value of their homes(s) in their financial records and/or calculations. My home is only 5% - 6% of my total net worth, but it's recorded and included in my calculations and planning. Like other assets, it has its own set of issues regarding costs of ownership, benefits of ownership, volatility in value, long term potential for appreciation/depreciation, and so on. I have other assets of significant value I would set aside from consideration in my planning before my home.
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