Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 05-14-2013, 05:38 PM   #41
Full time employment: Posting here.
 
Join Date: Apr 2006
Posts: 925
This is strictly academic for me personally since I do not own a home, anticipate a pension other than SS or have any kind of annuity. But, I tend to think the method of calculating this number (which I hesitate to call net worth since a good argument can be made this is not the technically correct term for some of the proposals is this thread) should vary depending upon the intended use.
  • To calculate a SWR, I would probably only consider invested assets such as stocks, bonds, cash, etc. At least, this is my current plan.
  • For the feel good (bragging rights) number, I would probably consider all assets: Invested assets + estimated current home value + current cost to purchase an annuity similar to any currently owned annuity or vested pension.
  • In a jurisdiction taxing wealth, I would leave out as much as I could legally get by with for obvious reasons. Included assets would be at the lowest valuation method legally allowed.
__________________

__________________
If there's one thing in my life that's missing; It's the time I spend alone
Sailing on the cool and bright clear waters; There's lots of those friendly people
Showin me ways to go; And I never want to lose your inspiration
CoolChange is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-14-2013, 05:54 PM   #42
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
braumeister's Avatar
 
Join Date: Feb 2010
Location: Northern Kentucky
Posts: 8,597
Quote:
Originally Posted by Amethyst View Post
Naturally, I include home equity in an "estate value" calculation, but that's mainly of interest to heirs. I'm really much more interested in how much money we have at our disposal while still alive.
But it (sort of) is at your disposal now. Without it, your housing cost would be higher, so you would need more spending ability. That's how I see it, anyway.
__________________

__________________
braumeister is offline   Reply With Quote
Old 05-14-2013, 06:16 PM   #43
Full time employment: Posting here.
GalaxyBoy's Avatar
 
Join Date: Jul 2009
Location: The Beautiful Blue Ridge Mountains
Posts: 848
I always considered net worth to be whatever cash could be raised if I liquidated absolutely everything, cashing in all assets and selling everything I owned for the best price I could get, and was left naked in the street standing beside a big pile of hundred dollar bills.

Of course, if I sold my clothes before my telescope gear I'm not sure how that would affect the price I got.
__________________
GalaxyBoy is online now   Reply With Quote
Old 05-14-2013, 06:18 PM   #44
Thinks s/he gets paid by the post
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 3,832
Quote:
Originally Posted by Apex1 View Post
I do not think Net Worth is just a "bragging rights" number. Networth, Assets, Liabilities, Income, Expenditures ....... they form the complete financial health/picture. No different than valuation of a business. Why should it be different for an individual?
It should be the same IMHO. That's why I said to use Excel's =PV on the future income streams (or I agree that getting a quote on a similar stream would work). I like the post about accrual accounting. But can get quite involved if you try to net out future tax liability, for instance. There's a Reason why there are tons of footnotes in any financial report, and a Reason why those are some of the most interesting things to read!
__________________
sengsational is offline   Reply With Quote
Old 05-14-2013, 06:30 PM   #45
Recycles dryer sheets
 
Join Date: Jan 2013
Posts: 79
I do not think Net Worth is just a "bragging rights" number. Networth, Assets, Liabilities, Income, Expenditures ....... they form the complete financial health/picture. No different than valuation of a business. Why should it be different for an individual?
__________________
Apex1 is offline   Reply With Quote
Old 05-14-2013, 06:42 PM   #46
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Amethyst's Avatar
 
Join Date: Dec 2008
Posts: 5,879
I think you just pointed out the inutility of "bragging rights..." It doesn't seem safe to brag, somehow...too easy to tempt those who would like to take it all away!

Amethyst

Quote:
Originally Posted by CoolChange View Post
  • For the feel good (bragging rights) number, I would probably consider all assets...
  • In a jurisdiction taxing wealth... Included assets would be at the lowest valuation method legally allowed.
__________________
If you understood everything I say, you'd be me ~ Miles Davis
'There is only one success to be able to spend your life in your own way. Christopher Morley.
Amethyst is offline   Reply With Quote
Old 05-14-2013, 06:46 PM   #47
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,178
Quote:
Originally Posted by Z3Dreamer View Post
Gaming the system is important. Some jurisdictions grant relief from property tax if your income is below a certain amount and your assets are below some amount. I remember 20 years ago the income limit was about $25,000 and the assets were $75,000. All income was included. Assets not included: house, two cars, future pension, IRA, 401k. Lets say that in 20 years that limit has doubled. If you put that $1M in an annuity and draw out a minimal amount, you may qualify. As I said, gaming the system is important.
Not if you make sub-optimal investments to game the system. The fees on a $1M annuity probably eclipse any property tax savings, and putting nearly all of your eggs in an annuity basket is a risky proposition. Don't let the tail wag the dog.
__________________
RunningBum is offline   Reply With Quote
Old 05-14-2013, 07:27 PM   #48
Full time employment: Posting here.
 
Join Date: Oct 2012
Location: Reno
Posts: 556
For obgyn's purpose, I would value the pension either as an income stream (that reduces the required income from the investment pile) or include some present value of it, probably at a reduced rate assuming the pension could be reduced in the future.
I'm assuming the purpose of the networth calculation is to evaluate the ability to retire in terms of an income stream which would be the withdrawal rate of investments/cash + pension + social security.
Two people who have the same investment assets but one has a pension of 40k/year don't have comparable net worth. In my mind; you can do with your mind what you wish. In this sense, a pension is an asset just like an annuity.
I use Quicken which includes net worth in terms of home equity; we intend to downsize by 1/3, but I don't treat that as gospel, just a rough measuring stick.
Perhaps we need another semantic terms besides net worth--assets with income stream potential?
__________________
RobLJ is offline   Reply With Quote
Old 05-14-2013, 07:45 PM   #49
Full time employment: Posting here.
 
Join Date: Apr 2006
Posts: 925
Quote:
Originally Posted by Amethyst View Post
I think you just pointed out the inutility of "bragging rights..." It doesn't seem safe to brag, somehow...too easy to tempt those who would like to take it all away!

Amethyst
I used the term bragging rights tongue in cheek. In all seriousness, rather than bragging, what I might personally use this method for is trying to convince a bank loan officer to give me good terms on a mortgage or an immigration officer to grant me permanent residency
__________________
If there's one thing in my life that's missing; It's the time I spend alone
Sailing on the cool and bright clear waters; There's lots of those friendly people
Showin me ways to go; And I never want to lose your inspiration
CoolChange is offline   Reply With Quote
Old 05-14-2013, 09:22 PM   #50
Recycles dryer sheets
 
Join Date: Mar 2008
Posts: 404
I don't see a correlation, other than for discussion.

Example: I live entirely on a $3k a month military pension, plus a modest 4 figure amount in a checking account for emergencies. My only option to live beyond that $3k, is to go back to work. I have a lady friend who ER'ed from a law practice, who lives on her investments. Her budget and lifestyle is similar to mine. The difference is, she can write a check for a new BMW, I cannot. So even though our income is similar, she has access to a boat load of money as needed or desired.

Hypothetical comparisons of income streams derived from pensions and SS, to their net worth value makes no sense, because pension and SS recipients can't access a lump sum.
__________________
ACC USN-(Ret)
BLS53 is offline   Reply With Quote
Old 05-15-2013, 01:08 AM   #51
Full time employment: Posting here.
 
Join Date: Oct 2012
Location: Reno
Posts: 556
Quote:
Originally Posted by BLS53 View Post
I don't see a correlation, other than for discussion.


Hypothetical comparisons of income streams derived from pensions and SS, to their net worth value makes no sense, because pension and SS recipients can't access a lump sum.
If you're talking about only income, yes.
Note that obg is more like the friend in your example, in reverse, since he/she has--apparently--both significant pension income and significant investable assets. So reducing his/her networth to just investable assets is a little ludicrous, if the point is to compare to someone with only the same level of investments but no pension. Or half the SS income, for that matter. If not, then we're arguing semantics. So then "total assets" might be a better term than net worth, if one insists on ignoring pension and social security in net worth. That makes net worth a largely useless figure, I think, unless one only has investable assets.
__________________
RobLJ is offline   Reply With Quote
Old 05-15-2013, 01:35 AM   #52
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
My daddy can beat your daddy!
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is online now   Reply With Quote
Old 05-15-2013, 06:31 AM   #53
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,420
Quote:
Originally Posted by obgyn65 View Post
I am one of these people who find it difficult to calculate exactly what my net worth is. Questions still remain open regarding the inclusion of annuities, SS, pensions, etc. I have not seen any consistent way of calculating my net worth yet....
There are actually accounting standards for personal financial statements but it is a fairly narrow area of practice that doesn't get a lot of attention. Some annuities would be included as assets in determining net worth and others would not. IIRC annuities that are not life contingent would typically be valued at account value but payout annuities that are not life contingent would be valued at fair value (what one would need to pay today to buy the same benefits or the pv of contractual benefits discounted at a market interest rate).

Interestingly, life contingent payments would not be included so SS and life-contingent annuity and pension benefits would not be included in net worth.

For whatever reason, the accounting standards setters chose to draw the line at life contingency. I suspect they drew the line there due to measurement difficulties in that there can be a relatively wide range of values for life contingent payments.

So while the above would be the official answer if you wanted a personal balance sheet compiled by a licensed accountant, for your own purposes you can do whatever your want of course.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 08-04-2013, 07:25 AM   #54
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,403
I missed this thread when it ran.

I pulled my diary, and it said on 5/13-5/14 I was in Armadillo Amarillo, on the way to New Orleans in my last RV trip. Actually, I was camping in nearby Palo Duro State Park, thanks to a mention of it here on this forum as a place to visit. But I digress...

The reason I revived this thread is to respond to the following post.

Quote:
Originally Posted by bbbamI View Post
I look at it this way...

If I have 3 eggs in my basket and owe 1 egg...my net worth is 2.
If I have 3 eggs in my basket and am promised 12 eggs...my net worth is 3.
If I have 3 eggs in my basket and owe no eggs...my net worth is 3.

'Course one of those eggs could get cracked...
So, what if I cracked an egg? Does my net worth decrease to 2?

No, M'Lady! I would pull out a pan, and turn it into a sunny side up.

So, is my networth not still 3?

Ummm... Some can argue that due to the added value, that fried egg is now worth one or two cartons of dozen eggs. Don't you have to pay that much when you order it at the nearby coffee shop? Whatever it is, my net worth just got a huge boost, all by adding a bit of butter and some heat.

Now, suppose I put the plate down, sprinkled some Maggi sauce on it, ground some pepper on top (I often substituted that with a few drops of Tabasco sauce, depending on my mood), then proceeded to consume it with a slice of toast.

So, you said "Ah hah, NWB's net worth is now down to 2".

Well, it would be 1.

You see, when I ate fried eggs, whether sunny side up or scrambled, I had to have two. So, I would have cracked a 2nd one to add to the pan.

Conclusion: Simple theoretical things can turn complicated in real life. And we all live in real life.

But NWB on this forum may just be a typing robot in real life, for what you know.
__________________
NW-Bound is offline   Reply With Quote
Old 08-04-2013, 07:29 AM   #55
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,420
You obviously have too much time on your hands and need to find a hobby.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 08-04-2013, 07:37 AM   #56
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,445
Quote:
Originally Posted by pb4uski View Post
You obviously have too much time on your hands and need to find a hobby.
+1
One option is breakfast cook at a local diner...
__________________
MichaelB is offline   Reply With Quote
Old 08-04-2013, 08:09 AM   #57
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,403
Quote:
Originally Posted by pb4uski View Post
You obviously have too much time on your hands and need to find a hobby.
Quote:
Originally Posted by MichaelB View Post
+1
One option is breakfast cook at a local diner...
Doesn't this count as a hobby?

And what are ya'll doin', surfin' the forum and readin' my exchange with the lady?

Actually, if I were not still recovering from this major surgery (which I have yet to tell the details), I would be on the road in my RV, camping in places where there's no WIFI. And I still have to go in for another surgery in a few weeks, so you still see me around for a while yet. Probably can't travel for the rest of the year.
__________________
NW-Bound is offline   Reply With Quote
Old 08-04-2013, 10:49 AM   #58
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,855
Quote:
Originally Posted by NW-Bound View Post
Doesn't this count as a hobby?

And what are ya'll doin', surfin' the forum and readin' my exchange with the lady?

Actually, if I were not still recovering from this major surgery (which I have yet to tell the details), I would be on the road in my RV, camping in places where there's no WIFI. And I still have to go in for another surgery in a few weeks, so you still see me around for a while yet. Probably can't travel for the rest of the year.
It's too hot to go camping right now anyway. Might as well enjoy the pleasures of our somewhat cantankerous but usually entertaining forum, instead.

I love fried eggs!
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 08-04-2013, 11:45 AM   #59
Thinks s/he gets paid by the post
Katsmeow's Avatar
 
Join Date: Jul 2009
Posts: 3,396
Quote:
Originally Posted by Amethyst View Post
Naturally, I include home equity in an "estate value" calculation, but that's mainly of interest to heirs. I'm really much more interested in how much money we have at our disposal while still alive. It is certainly a "positive" to have plenty of home equity to use as loan collateral, should a loan be needed. Accountants and business people: What is the name for this potential loan generation value?
It is an asset. You could sell it or borrow against it.

And, it most certainly is part of your net worth and a significant part of it.

It is not, however, part of your investment portfolio.

In my own case I don't count home equity as part of my investment portfolio in determining a withdrawal rate.

I do each month or keep a running total of net worth just to see the overall picture.

For net worth I include all cash, all investment portfolios, equity in house and cars. Technically I should include the market value of all other assets (furniture, clothes, appliances, etc.) but I figure those are small enough in value that it isn't worth the effort to do.

I don't deduct the taxes that will be paid on future withdrawals from tax deferred accounts (I consider those part of expenses) or the costs to sell the house (but mentally I figure those to be about 10% of the future sale price of the house).
__________________
Katsmeow is online now   Reply With Quote
Old 08-04-2013, 12:22 PM   #60
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
bbbamI's Avatar
 
Join Date: Dec 2006
Location: Dallas 'burb
Posts: 9,039
Ahhh..NWB yer a hoot!

Your theories have brought about new revelations to my frazzled brain...

Could my eggs not be chicken eggs but ostrich eggs or even owl eggs. (thus the hoot remark)

If the cracked egg was rotten, would my net worth not be 2?

If the cracked egg produced a chick, would my net worth still be 2?

Of course there would be a new set of dilemmas if a chick came forth. Do I want a pet at this stage of the game...would code enforcement tell me I can't keep it...would it be lonely and all I could do was hope another egg would crack and yield a sibling for company?

If another egg cracked and it produced an alligator, would I accidentally crush the last remaining egg while running away from the alligator?

Hoo wee...this is too much like w*rk...
__________________

__________________
There's no need to complicate, our time is short..
bbbamI is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 08:59 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.