Net worth change since 1-1-2012, the real question !

[ziggy29]

I forgot to add in the $300 I keep in my firesafe for emergencies!

But wait - that didn't appreciate in 2012....

As opposed to the money in savings, which appreciated 0.000023%? (Thanks Ben!)

 

[audreyh1]

Sould net worth and YTD returns include deferred tax liabilities? This is a great question, right up there with "pay off the mortgage" and has the potential to keep us busy for years.

Perhaps a subject for endless debate, but I don't believe that net worth calculations normally include possible future expenses.

Since my annual withdrawal value or budget already includes the taxes I have to pay each year because I sold some assets, it doesn't make a difference to me. In other words, my annual budget already includes taxes I am likely to pay, so I can safely compare it to my liquid assets at their pre-tax value.

 

[REWahoo]

LOL! Our RV tire replacement buy was high enough, that a Goodyear rep took our call personally, and made sure the tire shop got the tires after their distributor told us they weren't yet available. She told my husband after she got back to us (after arranging the deal) that it was a nice sale for the tire shop. And we got tires with all same date codes less than a month old - sweet!

Hmmmm - but I haven't been depreciating my RV tires!

Tire replacement cost was one of the reasons we sold our Class A. Hard for a [-]cheap[/-] frugal guy like me to stomach the $3,000+ cost to replace them every five years or so.

Nice that you were able to get tires still warm from the mfg. plant....

 

[NW-Bound]

Perhaps a subject for endless debate, but I don't believe that net worth calculations normally include possible future expenses.

Wouldn't that be like running FIRECalc with expenses set to 0?

Oh boy, those squiggly lines went off scale! NICE!

PS. About those "warm" RV tires, I am sure they smelled really good when they were new, but the aroma faded quite quickly though.

 

[MichaelB]

Perhaps a subject for endless debate, but I don't believe that net worth calculations normally include possible future expenses.

Since my annual withdrawal value or budget already includes the taxes I have to pay each year because I sold some assets, it doesn't make a difference to me. In other words, my annual budget already includes taxes I am likely to pay, so I can safely compare it to my liquid assets at their pre-tax value.

Net worth is a balance sheet calculation while budget is an "income and expense" or P&L. If net worth is assets minus liabilities, deferred tax on income and unrealized capital gain is very much a liability.

 

[mpeirce]

I know I will be whipped, but do you subtract taxes from tIRA's and 401k's balances ? You don't really own that money, and how do decided what tax rate to use.

That's a tricky one since you don't really know what your tax rate will be when you tap those funds (if you ever do). It might be worth taking a guess at the rate and subtracting that out if you have a large chunk of your assets in tax deferred accounts. Another option is to just view those taxes as an expense and built it into your retirement budget. You still probably have to guess on the rates though.

I personally still have a significant amount of appreciated company stock that I'm selling over time. On my spreadsheet, I subtract 19% (federal 15% + state 4%) from the gains I have in it to account for the taxes. This is mostly a hold over from the last couple of years before I retired when I was still holding company options and ESPP shares - the taxes on those where significant.

Of course if we died tomorrow the kids get a big step up in basis, but I'm not taking that into consideration for MY planning.

 

[KingB]

As opposed to the money in savings, which appreciated 0.000023%? (Thanks Ben!)

Is that before or after tax?

 

[audreyh1]

Net worth is a balance sheet calculation while budget is an "income and expense" or P&L. If net worth is assets minus liabilities, deferred tax on income and unrealized capital gain is very much a liability.

But you don't know what the taxes on that unrealized cap gain or tax deferred income is going to be, and it might be zero depending on any year's given tax bracket indexed to inflation, and especially if your heirs get their hands on it.

But seriously, to each his own as we all have different situations, tax-wise. And in terms of a year-to-year % net worth gain calculation should be a wash, assuming you use the same tax reduction multiplier for both years.

 

[JoeWras]

But you don't know what the taxes on that unrealized cap gain or tax deferred income is going to be, and it might be zero depending on any year's given tax bracket indexed to inflation, and especially if your heirs get their hands on it.

Yes, true.

That's why I choose 45% (think 36% fed, 9% state) as a worst case scenario.

It is just a "comfort number" for me. "What if I had to sell it all today, what would happen?"

But I also track the actual assets without this liability when plugging into equations for future growth (like firecalc) since I have the ability to put that money to work now. Likewise, I include a yearly tax estimate in my expenses in firecalc that is not as severe as 45%.

 

[MichaelB]

But you don't know what the taxes on that unrealized cap gain or tax deferred income is going to be, and it might be zero depending on any year's given tax bracket indexed to inflation, and especially if your heirs get their hands on it.

You don't know the future taxes may be but you do know current rates and calculate your current tax liability. Same for the heirs.

For YTY calculations it's not really a wash. Tax deferred portfolios are subject to ordinary rates when funds are withdrawn, which adjust to inflation. Taxable portfolios may be subject to capital gains rates, which do not take into consideration inflation.

 

[audreyh1]

You don't know the future taxes may be but you do know current rates and calculate your current tax liability. Same for the heirs.

And you know exactly how much of each account/asset you are going to withdraw each year and which year and can calculate back to today's dollars?

My heirs will owe essentially nothing.

 

[skyvue]

Whether to discount amounts in the 401k in your Net Worth calculation was a question I thought of while trying to sleep at 4:00 am this morning!

I have employee stock options I can cash in once they are vested. I "discounted" them at 65% to account for the real value I have realized when exercising them in the past.

However, most of my money is in my 401k. I did not discount that because I find it impossible to estimate! Actually, that is a lie. I don't discount those funds because it would drop my Net Worth below a magical number I crossed late last year!

But in all seriousness, I am hoping to withdraw the bulk of those funds with very careful tax strategies to try to minimize the tax I pay on those funds. Currently thinking a 72t will initially make sense to pull "some" out before it is actually needed so I don't spend all the money outside the 401k, then have to rely on 401 withdrawals totally.

 

[FUEGO]

I just go by what the county assessor office says unless there is strong evidence that it is wrong. You also could also you a source like zillow.com or
trulia.com. These aren't perfect but they aren't bad. I just ran zillow on the 5 properties I ran they all were reasonable estimates.

I don't include transaction cost although you could certainly make the case that for real estate it makes a material differences.

I use zillow in general. Then take 95% of the value zillow gives, to account for a realtor commission. Except this go round of updating the quarterly net worth statement, I didn't follow zillow exactly since they said my house dropped 15% since last quarter but my (nearly identical) neighbor's house stayed the same. So I bumped my value down by a few thousand just in case but not all the way down to what zillow says.

It's an estimate, and we estimate things all the time. Not sure why house prices would be inestimable.

 

[FUEGO]

All you scorekeepers need to be sure you include the loose change under your sofa seat cushions...

Loose change? I have heard about this thing called "cash" that people of a certain era used, and the history books indicate change would be given back at the completion of a transaction, but I didn't know cash was still used today.

 

[FIREd]

All you scorekeepers need to be sure you include the loose change under your sofa seat cushions...

But I do kind sir. Money is money. DW will never walk by a penny on the street without picking it. That's how we roll here (how we roll the coins of course).

 

[Meadbh]

But I do kind sir. Money is money. DW will never walk by a penny on the street without picking it. That's how we roll here (how we roll the coins of course).

Which reminds me, I need to collect all my pennies and take them to the bank before they become obsolete......

Phasing out the penny

 

[imoldernu]

Calculating net worth can be more involved than just counting cash value.

This situation could be a case in point.
With no other ongoing source of income than SS... Married... House paid for... Limited net worth.

If... one spouse should go into a nursing home @$85,000/yr., six years could cost a half million dollars, which would have to come from savings.

When the cash assets are depleted, Medicaid takes over nursing home costs.
The healthy spouse lives in the house. When the nursing home patient dies, the surviving spouse still has the value of the house.

Obvious to most perhaps, but in the matter of longevity planning, this could be a major factor in considering the consist of net worth. In effect, an insured investment.

 

[PatrickA5]

Net worth is a balance sheet calculation while budget is an "income and expense" or P&L. If net worth is assets minus liabilities, deferred tax on income and unrealized capital gain is very much a liability.

I've never seen deferred taxes or unrealized capital gains as a liability on a "personal" net worth statement. Obviously, they are nice to know and some sort of calculation should be used when budgeting for the future. As mentioned above, it's quite possible you can have distributions of tax deferred accounts that end up being non-taxable. It would be really hard to figure out what the liabllity would be.

Having said that, a business balance sheet is going to have a deferred taxes as a liability, so from a strictly GAAP standpoint, you're correct. I just don't think you'd probably include it on a personal net worth statement. But, based on reading this thread, there are about a zillion ways to calculate net worth!

 

[Sesq]

Which reminds me, I need to collect all my pennies and take them to the bank before they become obsolete......

Phasing out the penny

Negative. Hoard the copper ones, so you can capture the 3X melt value when the penny is phased out and the melt ban is lifted. Kidding, I turned in over 12,000 pennies last year, at least half were copper ones.

 

[jollystomper]

Our net worth was up 15.5% - we leave our home equity out of the calculation since we don't want to have to depend on that, it is too unpredictable.

For us the growth is roughly equivalent to 6 years of our planned withdrawal from savings once I retire, so that definitely has me thinking to move the date in closer.

 

[foxfirev5]

For the first time in 30 years I have not calculated my net worth with the new year. When I was younger I counted EVERYTHING I possibly could. In 1982 I still came out about $80.00 in the hole.
As of yesterday I actually hit "The Number" for the first time. The number for liquid assets where I would FIRE no matter what. No mortgage and no need to count the houses. We'll see how that holds for awhile.

 

[tdv2]

NW up 23.8% saving like crazy and huge dividend from company stock. Portfolio value up by around 12% ex contributions.

 

[Calgary_Girl]

Only 8.4% but we did build a new house in 2012 that drained some of our cash. Oh well, our NW still hit an all-time high

 

[palomalou]

Up 14%, but that includes significant new savings. We are at about 40% stocks, aiming for 50% AA. Much of our money from prior to 5 years ago or so are in VERY conservative investments. I did it all totally backwards

 

[Closet_Gamer]

I know I will be whipped, but do you subtract taxes from tIRA's and 401k's balances ? You don't really own that money, and how do decided what tax rate to use.

My 7 year FIRE'd anniversary was yesterday, Ms G had to remind me.

I don't include my paid off ranch, and I didn't subtract taxes on deferred accounts, 9.2%.

I do. A few years ago I built what I call my "hard core" balance sheet...if its wrong, its conservative...

My rules:
1) Apply future taxes as a liability to all tax deferred accounts. I use my current marginal tax rate.

2) Carry the present value of my children's future college education as a liability against the college savings. I mark this liability to the market cost of college each year so the liability grows with time as the savings do. (eye opening when you're dragging a net-negative on your balance sheet as you build college savings...)

3) Any unvested or vested-but-unexercised stock options are not on the balance sheet. They're carried in a seperate schedule.

4) Mark the cars to market annually using KBB

5) Mark the house to market annually using trulia/zillow

I also broke the balance sheet into short-term/liquid vs. long-term/illiquid...helps me keep an eye on how things are balanced.

I've been doing this for three years. I love how it keeps us from getting too happy about 401K and college savings assets...

My $0.02