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Old 06-14-2012, 08:55 AM   #41
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I didn't notice any statement in the article regarding inflation correction. If they didn't correct for inflation, then the situation at present is even worse than presented.

But then, I'm half asleep still... maybe I just didn't see the relevant statement about the methodology.
Excellent point. This type of conclusion always needs a methodology review, just to make sure there isn't an agenda. The Fed study is lengthy and needs a couple of hours, which I haven't been able to round up.
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Old 06-14-2012, 10:52 AM   #42
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Now that's some chart! Again, I think the drop from 2007 to 2010 is somewhat overstated because housing was evidently 3/4's of the decline in net worth, and 2007 home values weren't entirely real (clearly the height of the bubble).

What's more alarming to me is the change between 1983 and 2010, almost 30 years! Wowza!!!
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Old 06-14-2012, 01:51 PM   #43
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All this "is it net worth, or is it not" really doesn't matter at all to a retired person. What counts is amount of income, amount of income tax, reliability of income, and amount of living expenses, present and projected.

Ha
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Old 06-14-2012, 02:27 PM   #44
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Originally Posted by W2R View Post
I didn't notice any statement in the article regarding inflation correction. If they didn't correct for inflation, then the situation at present is even worse than presented.

But then, I'm half asleep still... maybe I just didn't see the relevant statement about the methodology.
The first chart in the fed paper (page 2 of the study) (linked in the OP) says the figures are inflation adjusted.

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Now that's some chart! Again, I think the drop from 2007 to 2010 is somewhat overstated because housing was evidently 3/4's of the decline in net worth, and 2007 home values weren't entirely real (clearly the height of the bubble).

What's more alarming to me is the change between 1983 and 2010, almost 30 years! Wowza!!!
The 2nd footnote on the first page of the fed report addresses the primary residence value and how it affects the net worth.

Quote:
If primary residences and the associated mortgage debt are excluded, the median of families’ net worth is
reduced from $126,400 to $42,300 in 2007 and from $77,300 to $29,800 in 2010. Although the adjusted wealth
measure declined proportionately by only a somewhat smaller amount than the unadjusted measure—29.7 percent—
the amount of the change is, obviously, much smaller; median adjusted wealth declined $12,600, while
the unadjusted measure fell $49,100.
So, if I'm reading that gobbligook correctly (probably not) - the net worth as a whole took a hit between 2007 and 2010 - even when you removed the house.

I can see that. A lot of bubble buyers didn't have equity (zero down, neg-am payments, etc) in 2007... so they didn't have equity to lose in the housing collapse (but did have a house to lose... in foreclosure.)

I'm only 2 pages in. It definitely is a challenging read.
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Old 06-14-2012, 03:11 PM   #45
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The 2nd footnote on the first page of the fed report addresses the primary residence value and how it affects the net worth.
Quote:
If primary residences and the associated mortgage debt are excluded, the median of families’ net worth is reduced from $126,400 to $42,300 in 2007 and from $77,300 to $29,800 in 2010. Although the adjusted wealth measure declined proportionately by only a somewhat smaller amount than the unadjusted measure—29.7 percent—the amount of the change is, obviously, much smaller; median adjusted wealth declined $12,600, while the unadjusted measure fell $49,100.
Thanks Rodi, that's helpful. Maybe it's just me, but there seems to be a broader message here...
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Old 06-14-2012, 05:18 PM   #46
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Thanks Rodi, that's helpful. Maybe it's just me, but there seems to be a broader message here...
Agreed. I think we're back to that issue of the savings rate of the typical American.
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Old 06-14-2012, 05:29 PM   #47
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Thank you. That makes it pretty clear
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Old 06-15-2012, 07:36 AM   #48
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I'm afraid that I will have to disagree slightly here.

While our home is not an asset that we regard as a means of financing our retirement, we have to recognise that things can happen and that the home is a store of value that can be tapped in an emergency. Put differently:

Plan A: live off our investments (not including the home)
Plan B: cut a few luxuries
Plan C: send the wife back to work
Plan D: ask kids for money
Plan E: sell house
Plan F: auction kidney and other surplus body parts
Plan Z: return to work
Well, speaking for our situation which may or may not be the same for other folks on this forum, our home/residence comes out to less than 5% of the value of our assets when added to our current retirement directed investments, per the value on Zillow (regardless if you agree with their estimate).

That means that we have to lose more than 95% of our retirement assets (which would include the estimated value of our home) before considering the sale of our home to cover expenses - which would be more if we had to rent the same size home as we now have.

If the markets would take a dive, or the world economy would wipe out value for everybody, I think we (as humans on this earth) would have many more problems than just trying to ensure our retirement income.

As far as the home/asset ratio goes, it does not include non-retirement investment accounts nor personal property - which we value at $0 for estate purposes.

BTW, the ratio of home value vs. retirement assets is very low in our case due to the "carryover" of a lifetime of LBYM. Just because you're retired doesn’t necessarily mean you give up the habits you've formed over decades. Could we afford a more expensive home? Sure. Do we need to? No.
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Old 06-15-2012, 07:46 AM   #49
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The comparison from 1983 is not legit. The source article said
Quote:
The Fed changed its methodology for the survey starting in 1989, so it doesn’t compare current numbers with pre-1989 ones. At the risk of comparing apples and oranges, I went ahead and did the calculations for two earlier surveys—in 1962 and in 1983. In 1962, median net worth (in 2010 dollars) was $54,200. In 1983, it was $88,000.
I wonder what the comparisons would look like if Social Security and pensions annuities were included.
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Old 06-15-2012, 08:28 AM   #50
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While I don't look at a house necessarily as an investment asset (unless I was a landlord), it may or may not affect your cash flow/budget/SWR vs living in card board box (or renting). That said, whether you consider your home as part of your net worth is really an individual viewpoint, since one needs to take into consideration their quality of life as well.
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Old 06-15-2012, 10:50 AM   #51
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While I don't look at a house necessarily as an investment asset (unless I was a landlord), it may or may not affect your cash flow/budget/SWR vs living in card board box (or renting).
(emphasis mine) Ah!! I see you have discovered my Plan C. That, food stamps, and a tin cup + cardboard sign.

As for how net worth is computed, I agree with those who say that depends on one's intended use for the numbers.
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Old 06-18-2012, 05:41 PM   #52
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Mom had a house for 36 years that was paid in full soon after buying it. She lived cheap but decided to move out and pay rent. She is collecting a mortgage until she is 112 so it became income. Her new rent is 1,500 a month including food, utilities, cell phone, housekeeping and laundry. The mortgage income pays a large part of her cost of living. She lives with my brother who even helps her balance her checkbook but having zero bill since she sold her car makes living easy. Without the old house paying her now she would be worried about money, now she can spend all she wants.
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