Is there any thread or poll where we stand

[aja8888]

Like we're ever going to agree on what "retire" means....

I'm pretty sure we have defined what "work" is. "Retire" is the direct opposite.

As far as net worth, when you have ZERO net worth, anything you can turn into cash in a reasonable period of time is an asset and part of net worth.

 

[Badger]

But in my opinion you've come up with a standard definition of net worth that really doesn't have a very practical meaning other than to be able to compare things. Now we know how many oranges we each have, but I also have a lot of apples, and I happen to like apples better than oranges, so I don't really care that you have a couple more oranges than me.

I might have some pears to go along with the apples and oranges.

Cheers!

 

[2017ish]

Pensions are taxed as ordinary income and capitol gains and qualified dividends are favored. SS is taxed at 85% of ordinary income.

That makes investments worth more than pensions.

Sometimes true, but not always. Our investments are almost all in tax deferred accounts. Big haircut when getting out or converting. (Hmmm. No payroll taxes on that--is that true of pensions too?)

 

[ERD50]

Pensions are taxed as ordinary income and capitol gains and qualified dividends are favored. SS is taxed at 85% of ordinary income.

That makes investments worth more than pensions.

As has been discussed before, capital gains are taxed differently from ordinary income, but that isn't always 'favored' treatment, in fact it often is a negative for people with capital gains.

The problem is, inflation and time are not considered. Example:

I invested $10,000 20 years ago, the investment grows to $15,000. I pay 15% on the $5,000 of gain, $750.

Someone else invested $10,000 2 years ago, the investment grows to $15,000. They pay 15% on the $5,000 of gain, $750.

So even though I actually lost money to inflation, I still pay taxes on it. The same amount as someone who didn't lose anywhere near as much to inflation.

If it was 15% adjusted for inflation, then we could say 'favored'. Until then, we should say 'different'.

-ERD50

 

[Which Roger]

As has been discussed before, capital gains are taxed differently from ordinary income, but that isn't always 'favored' treatment, in fact it often is a negative for people with capital gains.

Also, in some states, pensions and other retirement income are not subject to state tax, but capital gains and dividends are taxed as ordinary income.

 

[exnavynuke]

Pensions are taxed as ordinary income and capitol gains and qualified dividends are favored. SS is taxed at 85% of ordinary income.

That makes investments worth more than pensions.

I get monthly checks that aren't taxed at all... that's pretty "favorable" imo

 

[gerntz]

I think people knew what net worth is, but they were trying to make the point that only investable assets are meaningful for the purpose of generating cash flow to maintain the existing lifestyle, and also to support the other "cash draining" assets.

Most all assets are investable. It's a matter of choice to have some that you don't invest. That someone chooses to own a $1M house outright & another chooses to rent doesn't mean the first's $1M isn't investable & many would consider that $1M as invested. The house does generate a cash flow, it just may not show up for another 20 years.

 

[W2R]

Oh, I get it! This is a definitions thread. OK, here are my definitions of all these tricky phrases and terms. YMMV:

My definition of being retired is not working.

Working is having to do something for money when you'd really rather be doing something else.

My definition of investment portfolio is my investments at Vanguard, the TSP, and so on.

My definition of net worth is my investment portfolio plus the value of all my tangible stuff that I could sell to get money, like my car and house. If I owned a rental house, then its value would be part of my net worth.

My definition of an income stream is money coming in regularly that isn't part of my net worth. Examples would be my pension and SS and dividends from my portfolio. If I rented a rental house, then the rent income would be an income stream and not part of my net worth.

Like I said, YMMV!

 

[bradaz2488]

I rarely get any useful information from the "net worth" or "spending" polls. It's too hard to compare yourself to others without knowing all the variables to their RE plan. Not sure you can have a useful poll on these subjects unless all variables are constant.

 

[Rustic23]

From the OP's post it appears what he is looking for is comparing how he is doing to others on the board.

The problem with using net worth is, we are all different.

Examples: All have a net worth of 2 million

A. Has 1.9 mill in the bank and 100,000 is personal property, with no debt. His income in retirement is generated by the 1.9 mill is is $80,000 a year.

B. Has 0 in the bank and no debt and 100,000 personal property. He has $80,000 a year of cola'd income from gov. and tripple A rated companies.

C. Has 1 mill in the bank, 1 mill in assets, 1 mill in debt, but gets $40,000 in cola'd pension, and $40,000 from invested 1 mill.

So,
A has a net worth of $2 mill., and a secure retirement of $80K
B has a net worth of $100K and a secure retirement of $80K
C. has a net worth of $1 mill. a secure retirement of $80K

However, without more information we still cant say A is better off. You see A has a very young new wife and his expenses are well over $80k a year, B is a bachelor and and has expenses of $20k a year, and C has expenses of $80K a year.

So while A has the highest net worth, B the lowest, and C in the middle, if you were to compare their financial situation, B with a $0 net worth, is the best off. But this may not even be true, as we did not know that B is about to get married, and have an instant family of five, with three kids to send to college!

Bottom line, I know where I am. I am better off than some of my friends and neighbors, and worse off than others. I am 98% sure my retirement is secure, and I will not out live my income. (I really think it is 100%, but hyper inflation, war, some sort of natural disaster etc. might change things. These are out of my control and I just don't really worry about them)

I think I could go on for a long time changing what A, B, and C have, or facing, but you should get the point. Maybe a better number would be "How confident are you in your financial future". For me that number is 98%.

 

[nvestysly]

From the OP's post it appears what he is looking for is comparing how he is doing to others on the board.

The problem with using net worth is, we are all different.

Examples: All have a net worth of 2 million

A. Has 1.9 mill in the bank and 100,000 is personal property, with no debt. His income in retirement is generated by the 1.9 mill is is $80,000 a year.

B. Has 0 in the bank and no debt and 100,000 personal property. He has $80,000 a year of cola'd income from gov. and tripple A rated companies.

C. Has 1 mill in the bank, 1 mill in assets, 1 mill in debt, but gets $40,000 in cola'd pension, and $40,000 from invested 1 mill.

So,
A has a net worth of $2 mill., and a secure retirement of $80K
B has a net worth of $100K and a secure retirement of $80K
C. has a net worth of $1 mill. a secure retirement of $80K

However, without more information we still cant say A is better off. You see A has a very young new wife and his expenses are well over $80k a year, B is a bachelor and and has expenses of $20k a year, and C has expenses of $80K a year.

So while A has the highest net worth, B the lowest, and C in the middle, if you were to compare their financial situation, B with a $0 net worth, is the best off. But this may not even be true, as we did not know that B is about to get married, and have an instant family of five, with three kids to send to college!

Bottom line, I know where I am. I am better off than some of my friends and neighbors, and worse off than others. I am 98% sure my retirement is secure, and I will not out live my income. (I really think it is 100%, but hyper inflation, war, some sort of natural disaster etc. might change things. These are out of my control and I just don't really worry about them)

I think I could go on for a long time changing what A, B, and C have, or facing, but you should get the point. Maybe a better number would be "How confident are you in your financial future". For me that number is 98%.

When I saw this thread I was thinking of creating a similar post but you've done an excellent job describing how different net worth and income can be as well has how expenses enter into the picture. Comes down to... everybody's situation is different - if your situation works for you that's all that matters.

We all seem to like polls so I say the OP should start a new one - complete with a definition of net worth, annual income, annual expenses, etc. Hey, what a minute... maybe I'm going to start my own poll!

 

[braumeister]

The problem with using net worth is, we are all different.

…

Nicely done.
I would make your post required reading before the next such poll is created.

 

[bradaz2488]

As stated by a lot of people on this thread, the problem is getting everyone on a level playing field to have a “useful” comparison. If we accept that FireCalc is the “Holy Gail” of RE tools then I think we can use the following boundary conditions to at least have a better comparison across peoples ER plans. If we assume a 3% inflation rate and a 60/40 AA then FireCalc tells us for a 95% success rate you need 30X of expenses for a 40 year RE plan and 34X for 100% success rate. What makes this complicated is if you assume you will get income from SS and/or pension(s) as well as income from investment properties. If you can add the total value (non-inflation dollars) of these fund to your current investment portfolios this seems like it would put everyone on a more “even” playing field. Let say Joe FIRE is 55 years old and plans to retire Jan 1st 2017.

Plans to live to 95 years old (40 year ER plan)
Current expenses = $100K (includes taxes, healthcare and big ticket items)
Investment portfolio + cash = $1M
Investment properties = 50K/year * 40 = $2M (assumes he does not sell properties)
SS @ 65 = $23.3K/year *30 = $700K
Pension @65 = 10K/year * 30 = $300K
Total Investment portfolio = $1M + $2M + $700K + $300K = $4.0M
Portfolio-to-Expense ratio = $4M/100K = 40X

So based on FireCalc he can spend $117K/year (34X) for 100% success rate or $135K/year (30X) for 95% success rate. For us we have a 44 year ER plan and our current Portfolio-to-Expense ratio is 38X. Firecalc tells me I need 31X for 95% success rate and 35X for 100%. So if I believe FireCalc I should be spending more. However I do not because future healthcare costs scare the crap out of me. The idea is that the Portfolio-to-Expense ratio vs. #years in ER plan should put everyone on a “more” level playing field. Not perfect, but I think it is really the only way to compare to other people ER plans. Still does not lend itself to a useful Poll since the ratio # is depended on # of ER years. ... Let the bullets fly.. Be kind J...

 

[Clone]

I think we should conduct a poll to determine if we should have another poll!

There have been some very good posts regarding the definitions.

The comparison of an individual's financial situation to other people is very situational and personal. Witness the great debates about when to take SS. Would you rather have a large non-COLA pension, a smaller COLA'd pension, a lump sum in a tax-advantaged investment account, a pile of gold, or a bunch of rental units which generate income but require tending? And, do you really need a cell phone and cable television?

 

[street]

If someone would like to start a poll with a defined way of doing it that would be great by me. I wouldn't feel qualified to set the rules but I would participate in a poll but not a spread sheet type form as a post.

Someone said it really doesn't matter and that is a true statement! For me it is something to look and see really where I rank among others that have worked hard to get where they are at today. Nothing more nothing less.

 

[RobbieB]

Net worth is net worth. Assets minus liabilities.

Income is income. All monies coming in from all sources.

Expenses are expenses. All monies going out.

These are not hard concepts.

 

[Meadbh]

Net worth is net worth. Assets minus liabilities.

Income is income. All monies coming in from all sources.

Expenses are expenses. All monies going out.

These are not hard concepts.

Thank you, RobbieB. Mods, please frame this and hang it up somewhere everyone will see it repeatedly. Maybe in the bathroom.

 

[street]

Net worth is net worth. Assets minus liabilities.

Income is income. All monies coming in from all sources.

Expenses are expenses. All monies going out.

These are not hard concepts.

I guess that is the way I see it also. Even if everyone is different each has a bottom line what their NW is. Everyone has different % of gains each year because each portfolio is different but still has a bottom line of what they gained for the year. Just my 2 cents and people do tell me to shut up sometimes. Lol