Annual "Watcha Worth" Poll

[jdw_fire]

Counting the equity in RE and the future value of a pension in the value of one's worth is misleading. Equity only has value when liquidated and the pension requires you live to receive it.

I disagree with these statements. If you are using net worth in the classic sense then both RE and a pension (or an SPIA for that matter) have value which needs to be accounted for. If you are using the argument

So counting your eggs before they hatch might be entertaining but don't plan on doing a SWR from them ...

You absolutely should use them when doing SWR calculations. It should be obvious that the pension should be input into FIRECalc to help determine a SWR, but the house equity also plays a role as housing is a lifestyle decision. All assets can be used to support the generation of income to support you in retirement. If you choose a lifestyle that requires a house that consumes the income from half of your assets does it matter (from the stand point of being able to retire) if you own the house or are renting it?

 

[Calgary_Girl]

Net worth just crossed $1.25 million the beginning of March (whoo hoo!).

Unfortunately, no company pensions here

 

[SteveR]

I disagree with these statements. If you are using net worth in the classic sense then both RE and a pension (or an SPIA for that matter) have value which needs to be accounted for. If you are using the argument You absolutely should use them when doing SWR calculations. It should be obvious that the pension should be input into FIRECalc to help determine a SWR, but the house equity also plays a role as housing is a lifestyle decision. All assets can be used to support the generation of income to support you in retirement. If you choose a lifestyle that requires a house that consumes the income from half of your assets does it matter (from the stand point of being able to retire) if you own the house or are renting it?

One of the great things about public forums is the ability to share your own opinion. You are welcome to disagree with any opinions I express on this board. If you want to calculate your NW including your house equity and your pension's future value go right ahead. I don't choose to do so since I can't count on living forever and my pension will stop when I die. My house equity is not like a savings account. I don't plan on doing a reverse mortgage or a home equity loan. When we downsize part of the equity will be reinvested in another house or a condo; what ever is left will be invested. At this point I will count the increase in investment or cash reservers this generates in my NW but not the equity in my new house. It is a personal choice and one I choose to use in my NW tracking.

As for SWR calculations, I choose to use only the assets that I plan on liquidating in my SWR calculation. While my meager pension is use in FIRE calc. it is not included in my list of assets for SWR withdraw purposes; just like my home equity is not in this figure. If you choose to use your home equity and pension in your asset column then that is your choice but I doubt many others here would agree with doing that. Life is about choices. You pick yours...I will pick mine.

 

[Cut-Throat]

One of the great things about public forums is the ability to share your own opinion. You are welcome to disagree with any opinions I express on this board. If you want to calculate your NW including your house equity and your pension's future value go right ahead. I don't choose to do so since I can't count on living forever and my pension will stop when I die. My house equity is not like a savings account. I don't plan on doing a reverse mortgage or a home equity loan. When we downsize part of the equity will be reinvested in another house or a condo; what ever is left will be invested. At this point I will count the increase in investment or cash reservers this generates in my NW but not the equity in my new house. It is a personal choice and one I choose to use in my NW tracking.

As for SWR calculations, I choose to use only the assets that I plan on liquidating in my SWR calculation. While my meager pension is use in FIRE calc. it is not included in my list of assets for SWR withdraw purposes; just like my home equity is not in this figure. If you choose to use your home equity and pension in your asset column then that is your choice but I doubt many others here would agree with doing that. Life is about choices. You pick yours...I will pick mine.

Well, the poll included Home Equity, as I think it should. It is part of Net Worth. You might not use a reverse mortgage or downsize but someone else might.

I think to compare Apples to Apples to have to include Home Equity or Pensions

 

[HFWR]

You're both right!

Strictly speaking, your "net worth" is assets minus liabilities. Thus, home equity is an asset, the mortgage balance is a liability.

On the other hand, like SteveR, I don't count is it as part of my "retirement kitty".

 

[Cut-Throat]

On the other hand, like SteveR, I don't count is it as part of my "retirement kitty".

I don't count it as part of the kitty either - I was just pointing out that the Poll of this thread did!

 

[Spanky]

A suggestion to all poll-makers: When the choices are numerical ranges, make the ranges smaller at the bottom and bigger at the top. One simple way to do this is to double the value each time.

E.g. a poll could have had the following choices:

0-125k
125k-250k
250k-500k
500k-1m
1m-2m
2m-4m
4m-8m
8m-16m
16m+

and that way you wouldn't have so many answering "more than the survey range".

The last three ranges may not be that useful. It might be more relevant for sites that focus on benchmarks on success, money ......... fortune or another other egotistic forums.

 

[Spanky]

Calculation of pension can be tricky since it is based inflation rate, cost of capital, and the numbers of period one can live to collect it.

 

[Enuff2Eat]

how could any count or measure their networth while the housing and stock market continue to change at a very fast pace? i guess i am 3-4% poorer than last month.


enuff

 

[mountaintosea]

Wow everybody is so serious here! Personally I like the poll as I feel richer than I normally do. Yes I live in California but not all real estate is sky high. My little cabin just isn't worth that much. Most of my NW is from the pension and what I have saved and put in stocks etc. However if someone asked me outside this forum what is my NW, I would not include my real estate nor my pension. But since that was Rich's question I answer the way he asks. I think there will always be controversy. The ones who have saved and invested, well, will not want to be included with the ones with pensions and god forbid California real estate! They feel they deserve a higher rating! Plus let's face it pensions give us government employees and some rare corporate employees leverage. OTOH I know a lot of retirees who have sold their homes in California and bought elsewhere with money left over to pour into whatever fund or savings account. So maybe it should count. Then what's the concern about what the heirs get? What about the people who plan to spend it all? Does that mean that their funds don't count because it will not be left to anyone (if they can help it)? Ok I'll stop rambling. Good poll. By the number of posts I can tell everybody loves it. 8)

 

[Gumby]

It strikes me that one way to view home equity is to consider only the excess over the equivalent rental. If you didn't have the house, you would have rental payments, which would reduce your effective net worth by the amount needed to support that payment. Thus, for example, if you would expect to rent your current house for $2000 per month, you would need a nest egg of $600k (using a 4% SWR) to generate the income to pay that rent. If your home equity is above $600k, add the difference to your net worth. If it is less, subtract the difference. If you think you would sell and rent, plug in your new rental amount.

Just my $0.02.

 

[W2R]

It strikes me that one way to view home equity is to consider only the excess over the equivalent rental. If you didn't have the house, you would have rental payments, which would reduce your effective net worth by the amount needed to support that payment. Thus, for example, if you would expect to rent your current house for $2000 per month, you would need a nest egg of $600k (using a 4% SWR) to generate the income to pay that rent. If your home equity is above $600k, add the difference to your net worth. If it is less, subtract the difference. If you think you would sell and rent, plug in your new rental amount.

Just my $0.02.

That would really increase my net worth, and would push me up into the next category. But then, real estate prices are not rising proportionally with rent here in New Orleans, due to the big rise in cost of insurance. Mostly insurance is unavailable on the open market if you don't already have a policy, so almost all new homeowners are having to get the state sponsored insurance. The latter is over twice as high as the exorbitant rates of private insurance companies, by law.

 

[haha]

It strikes me that one way to view home equity is to consider only the excess over the equivalent rental. If you didn't have the house, you would have rental payments, which would reduce your effective net worth by the amount needed to support that payment. Thus, for example, if you would expect to rent your current house for $2000 per month, you would need a nest egg of $600k (using a 4% SWR) to generate the income to pay that rent. If your home equity is above $600k, add the difference to your net worth. If it is less, subtract the difference. If you think you would sell and rent, plug in your new rental amount.

Just my $0.02.

Please, please, don't let me kill again!

ha

 

[HelpMeRhonda]

The last three ranges may not be that useful. It might be more relevant for sites that focus on benchmarks on success, money ......... fortune or another other egotistic forums.

Where did that comment come from

This entire thread is for egos of all ranges of NW.

 

[free4now]

I say housing equity is part of net worth. After all, we're talking about early retirement here, i.e. people who have 30 or more years to live out their lives. The idea that they are just going to die in the home they retire in is not realistic for the majority of people.

Statistics show that people change homes every 5-7 years. Whenever people sell a home, the home equity shows up... it is turned into cash even if just for a day or so to wend it's way through escrow to buy another home.

 

[tiredofwork]

You're both right!

Strictly speaking, your "net worth" is assets minus liabilities. Thus, home equity is an asset, the mortgage balance is a liability.

On the other hand, like SteveR, I don't count is it as part of my "retirement kitty".

Actually, home equity should be calculated as follows:

Market value of home, less liquidation costs (the asset) - mortgage balance (the liability)

 

[laurence]

The 248 respondents to this poll have a total net worth of approximately:

$360 Million Dollars -and this is a conservative estimate since I took the minimum amount for each category, and who knows how many 10Mil NW types are being counted as only a couple+. This is greater than the GDP of:

Timor-Leste $349 M
Vanuatu 341
Guinea-Bissau 301
Solomon Islands 286
Dominica 279
Tonga 244
Micronesia, Fed. Sts. 232
Palau 145
Marshall Islands 144
Kiribati 76
São Tomé and Principe 57

And if the NW's were more in the middle of those ranges rather than the absolute bottom, we'd pass up or be with the likes of Burundi, Gayana, Liberia and Antigua. When you think only a small portion of this board's membership responded, the implications are even more amazing. It's kind of amazing to see this little slice of just how rich America is, when a handful of them can get together and rival whole other countries. Glad I'm here!

Oh FYI, Bill Gates NW once rivaled the UAE's GDP, but now it's less than Kuwait's. Bummer.

....and yes I know I'm comparing balance sheet apples to revenue stream oranges, still think it's an interesting nugget.

 

[Rich_by_the_Bay]

And if the NW's were more in the middle of those ranges rather than the absolute bottom, we'd pass up or be with the likes of Burundi, Gayana, Liberia and Antigua. When you think only a small portion of this board's membership responded, the implications are even more amazing. It's kind of amazing to see this little slice of just how rich America is, when a handful of them can get together and rival whole other countries. Glad I'm here! ....and yes I know I'm comparing balance sheet apples to revenue stream oranges, still think it's an interesting nugget.

How much does it cost to form a country? Where do you apply? Laurence, you can be treasurer. Margaret, atty general. Jarhead for defense. Nords and REWahoo can share intelligence and homeland security. That leaves pres, VP, and chief of state.

I'll watch.

 

[dmpi]

Actually, home equity should be calculated as follows:

Market value of home, less liquidation costs (the asset) - mortgage balance (the liability)

Owning a house is both an asset and liability. The assets are represented by the equity in your home. The liability is more subtle. If you are used to living in an expensive house, then you will tend to continue doing so, which will require future monthly cost. It's no different than if you have a disease that requires drugs that cost 2K/month.

 

[Donzo]

I counted about 50% of my home equity in my "watcha" estimate. I plan on using about half to build a smaller home (RV pod) on an adjoining 6 acres I own after the kids are launched.
What is interesting (nice) about CA real estate is that 50% is more than I paid 7 years ago.

 

[SteveR]

You're both right!

Strictly speaking, your "net worth" is assets minus liabilities. Thus, home equity is an asset, the mortgage balance is a liability.

I agree with the accepted definition of Net Worth.


I would like to futher elaborate on the comments about inclusion of pension and home equity in the SWR calculation.

Perhaps there is some confusion between FIREcalc and SWR. FIREcalc is a tool to determine the amount of income required in retirement based on user input of expenses, pensions, Social Security, future sources of cash (i.e., sale of car, boat, stamp collection, inheritance, sale of realestate, etc.) portfolio allocations, etc, and uses these data to determine how much income is left to be funded from the individual's portfolio. Once this is determined, the SWR calculation is made and the results expressed.

The whole concept of SWR is based on matching future income needs to expected expenses using investment sources in a pre-defined allocation stategy to create an income stream that will off-set inflation while allowing a distribution of income of a defined percentage of the investment portfolio value over a defined period of time with a given percentage of probability of success based on prior market (stock and bond) history.

The calculations to determine a Safe Withdrawl Rate from someones investment portfolio uses only the investements within that portfolio and does not include either home equity or pensions as investments for use in the calculation unless these have been liquidated and invested in other financial instruments and included in the portfolio as investments

While FIREcalc clearly uses pension and other sources of expected income including future liquidation of asssets (home equity); the SWR calculator uses only portfolio data to derive the needed additional income sourced from the investment portfolio.

Just my $0.02

 

[kumquat]

FWIW, I included our home's value in the poll, but excluding it wouldn't have changed the answer.

 

[jdw_fire]

Perhaps there is some confusion between FIREcalc and SWR.

On your part also.

FIREcalc is a tool to determine the amount of income required in retirement based on user input of expenses, pensions, Social Security, future sources of cash (i.e., sale of car, boat, stamp collection, inheritance, sale of realestate, etc.) portfolio allocations, etc, and uses these data to determine how much income is left to be funded from the individual's portfolio. Once this is determined, the SWR calculation is made and the results expressed.

FIRECalc is not a "tool to determine the amount of income required in retirement", that job is left to the user and is best done using expected expenses. FIRECalc is a tool that determines the likelyhood (based on historical data) that a particular pattern of withdraws (i.e. cash flow) can be maintained for a given period of time from a particular set of assets thus it is a withdraw rate (WR) tool. As with any SWR tool, the person using FIRECalc needs to decide what likelyhood is safe thus adding the S to WR tool. Therefore FIRECalc is a SWR tool as much as any tool can be. FIRECalc is just more flexible it the type of assets it allows and the timing of their appearance in the asset base than the SWR tools you refer to.

The whole concept of SWR is based on matching future income needs to expected expenses using investment sources in a pre-defined allocation stategy to create an income stream that will off-set inflation while allowing a distribution of income of a defined percentage of the investment portfolio value over a defined period of time with a given percentage of probability of success based on prior market (stock and bond) history.

No, the concept of SWR is determining what WR is likely sustainable for a given time frame from a given asset base, exactly what FIRECalc does.

The calculations to determine a Safe Withdrawl Rate from someones investment portfolio uses only the investements within that portfolio and does not include either home equity or pensions as investments for use in the calculation unless these have been liquidated and invested in other financial instruments and included in the portfolio as investments

Then of what use is it? If you are not going to include pension/SS cash flows into your SWR calculations then over the course of your life your real (inflation adjusted) cash flow level will change (grow) as you get older and said cash flows kick in. FIRECalc uses the premise that the ERee wants a constant real cash flow level throughout his/her lifetime. And FIRECalc includes features that allow you to alter that if you want.

While FIREcalc clearly uses pension and other sources of expected income including future liquidation of asssets (home equity); the SWR calculator uses only portfolio data to derive the needed additional income sourced from the investment portfolio.

I think your idea of an SWR calculator is not of much use to a prospective retiree. Someone getting ready to pull the plug needs to consider all cash flows and get them to relate to each other in the most advantagous manner to produce the cash flow required to cover said retiree's expected expenses.

 

[SteveR]

...I think your idea of an SWR calculator is not of much use to a prospective retiree. Someone getting ready to pull the plug needs to consider all cash flows and get them to relate to each other in the most advantagous manner to produce the cash flow required to cover said retiree's expected expenses.

I never said FIRECalc does not consider all sources of inccome, on the contrary, what I said was "FIREcalc is a tool to determine the amount of income required in retirement based on user input of expenses, pensions, Social Security, future sources of cash (i.e., sale of car, boat, stamp collection, inheritance, sale of realestate, etc.) portfolio allocations, etc, and uses these data to determine how much income is left to be funded from the individual's portfolio. " This seems clear to me that FIREcalc uses a persons whole income potential from all sources. The statement included user input for expenses as part of the input for the FIRECalc tool. I fail to see how this does not address the uniqueness of each person's situation of expenses, income streams, investement portfolios and other potential sources of income in the determination of what would be the additional income stream needed by the individual that would need to come from their portfolio via the use of the SWR calculation.

It is understood that a person needs to know their expenses to determine their income needs. I never indicated it was not a key element in FIRECalc; it was clearly stated.

My SWR point was to show that the use of SWR; a tool within FIRECalc, uses portfolio investments and their allocation to determine the WR that is "safe" for the individual based on what they can withdraw from an investment portfolio with a defined asset allocation.


I would refer prospective retirees to the following studies and links to draw their own conclusions. http://www.retireearlyhomepage.com/restud1.html

Trinity Study and other studies discussion:
http://www.retireearlyhomepage.com/assetal.html

Have a nice day.

 

[jdw_fire]

I never said FIRECalc does not consider all sources of inccome

I didn't say you did. The quote of mine you responded to was directed to your definition of an SWR calculator, not FIRECalc.

My SWR point was to show that the use of SWR; a tool within FIRECalc, uses portfolio investments and their allocation to determine the WR that is "safe" for the individual based on what they can withdraw from an investment portfolio with a defined asset allocation.

And my point about your SWR point is that figuring SWR as you do above (without reguard to cash flows not related to your "investment portfolio") is

not of much use to a prospective retiree. Someone getting ready to pull the plug needs to consider all cash flows and get them to relate to each other in the most advantagous manner to produce the cash flow required to cover said retiree's expected expenses

not just the SWR that an "investment portfolio" can produce in isolation.