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Re: NET WORTH FOR ONE'S AGE
Old 01-26-2005, 05:03 PM   #21
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Re: NET WORTH FOR ONE'S AGE

My wife and I are 43 and our net worth is about 910K not counting our home equity. C-girl - you are amazing. Our networth was about 60K when we were your age . We have been saving our tails off since then to make up for our lack of discipline in our younger years.
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Re: NET WORTH FOR ONE'S AGE
Old 01-26-2005, 05:43 PM   #22
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Re: NET WORTH FOR ONE'S AGE

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My wife and I are 43 and our net worth is about 910K not counting our home equity. *C-girl - you are amazing. *Our networth was about 60K when we were your age * . *We have been saving our tails off since then to make up for our lack of discipline in our younger years.
You're pretty amazing yourself! To go from $60K to $910K in only 11 years? Wow
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Re: NET WORTH FOR ONE'S AGE
Old 01-26-2005, 07:40 PM   #23
 
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Re: NET WORTH FOR ONE'S AGE

I've found "net worth" to be a somewhat meaningless statistic because there does not seem to be any standardized methodology for calculating it. For example, many include in their "assets" tax-deferred investments at their value before adjusting for taxes. In my opinion, this over-inflates one's real net worth. Others include every item of personal property, including the clothes on their back -- even though much of it has no real marketable value. I wish there was a standard methodology so that we could avoid comparing "apples and oranges."
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Re: NET WORTH FOR ONE'S AGE
Old 01-26-2005, 11:27 PM   #24
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Re: NET WORTH FOR ONE'S AGE

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For example, many include in their "assets" tax-deferred investments at their value before adjusting for taxes. *In my opinion, this over-inflates one's real net worth.
I don't think I agree with this. I'd rather have tax-deferred accounts. If I'm 10-20 years from needing to access any of those funds, those assets can compound without the drag of taxes during all of those years. Furthermore, if I pull the funds out gradually, much will be left to compound for many more years. I'm guessing that when it all shakes out, my tax deferred money is probably worth more, all things considered.

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Others include every item of personal property, including the clothes on their back -- even though much of it has no real marketable value.
I agree. I don't "count" any of that stuff - just my house.
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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 05:17 AM   #25
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Re: NET WORTH FOR ONE'S AGE

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I've found "net worth" to be a somewhat meaningless statistic because there does not seem to be any standardized methodology for calculating it. *For example, many include in their "assets" tax-deferred investments at their value before adjusting for taxes. *In my opinion, this over-inflates one's real net worth. *Others include every item of personal property, including the clothes on their back -- even though much of it has no real marketable value. *I wish there was a standard methodology so that we could avoid comparing "apples and oranges."
There is a standard methodology. Net Worth = Total Assets - Total Liabilities

Of course you have to include your tax-deferred investments in this calculation in the assets part of the formula. The mistake everyone makes is that they do not include the "deferred taxes payable" in the liability part of the formula. Why? Because it's too hard to figure out for most people and it may not be the tax you would end up paying anyway when you do retire.

Deferred taxes is an important calculation that should be done at least once before retirement to minimize your taxes on withdrawals from your investments. For example, it would make no sense to cash out a taxable IRA this year and put yourself in the 15% tax bracket when with proper planning you could have cashed out half of that IRA and half of a Roth IRA and pay no taxes.
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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 05:26 AM   #26
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Re: NET WORTH FOR ONE'S AGE

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I agree. I don't "count" any of that stuff - just my house.
Even though including your house or even the pencil on your desk is not incorrect as far as the net worth formula goes, my own personal formula for determining net worth for purposes of ER only includes assets that I would use to derive income. So unless you plan on selling your house and not buying another, doing a reverse mortgage, converting it to rental property, or something like that, I would not include the house in my ER net worth formula.

So I guess to "standardize" the net worth formula, I would say only include assets that you expect to produce a cash outflow to you in the future. If it's a pencil on your desk that you expect to sell at a yard sale for 5 cents, then include that pencil in your net worth.
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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 05:43 AM   #27
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Re: NET WORTH FOR ONE'S AGE

I too only consider assets that are likely to derive income. In my case it includes where we live because it is a 4-plex where we occupy one apartment. I also include raw land we own because even though it does not generate current income, it is for investment purposes.

Back when I represented people filing bankruptcy, one task you had to do was list all (and I mean all) your assets and place a value on those assets. You would expect a debtor to want to understate the value. Instead, the psychology almost always was to overstate. People tended to think of value for their stuff as the replacement cost. I would say "think rummage sale" when determining value.

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IRe: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 06:10 AM   #28
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Quote:
I don't think I agree with this. I'd rather have tax-deferred accounts. If I'm 10-20 years from needing to access any of those funds, those assets can compound without the drag of taxes during all of those years. Furthermore, if I pull the funds out gradually, much will be left to compound for many more years. I'm guessing that when it all shakes out, my tax deferred money is probably worth more, all things considered.

I agree. I don't "count" any of that stuff - just my house.
Hi Bob: I agree, and at your age, even more so.
About 2 years ago, as you probably know, the formula for drawing down was increased to 26 years, versus 16 years previously. (RMD).
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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 08:20 AM   #29
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Re: NET WORTH FOR ONE'S AGE

Try this calculator:

http://www.hughchou.org/calc/wealth2.cgi
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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 08:36 AM   #30
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Re: NET WORTH FOR ONE'S AGE

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I've found "net worth" to be a somewhat meaningless statistic because there does not seem to be any standardized methodology for calculating it. For example, many include in their "assets" tax-deferred investments at their value before adjusting for taxes. In my opinion, this over-inflates one's real net worth.
I agree about the lack of standard. That's what I was trying to say in the other net worth thread.

Sure, assests minus liabilities, but on a survey or census how can you be confident the respondents use a consistent method and consider all assets and liability? Does that big screen HDTV I bought increase my net worth by retail, what I paid for it, current resale value, future resale value or zero? (For my purposes I count it as zero, but if I'm comparing net worth to others of my age we all need to use the same method.) A have 40 quarters of SS taxes paid, so I'm "vested" in my SS benefit...how do I add that to my net worth? I have a vested corporate DB pension; what's that worth? I have life insurance, worth....? Unused vacation? Unused sick days? Lottery tickets? Cashback credit card? $90 store gift card due in the mail?

Great point about tax-deferred accounts tax liability. I've been neglecting to take that into account even while whining about people adding personal property to net worth. But like Bob Smith and retire@40 alluded to there's a period of tax-deferred compounding and uncertainty to what the real tax rate will be at withdrawal.

Added: You people can sure make me feel poor.
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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 09:12 AM   #31
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Re: NET WORTH FOR ONE'S AGE

As in most things, judgment is required and the judgments one makes depend on the ends in view.

I would rather have a $1.5 Million house in Pacific Palisades and $1million in invested assets, than $1.2 million in invested assets and a $100,000 home in Jackson, MS.

Why? Because I could sell the house, move to Jackson or someplace similarly cheap and even after costs still be well ahead on the deal.

Of course the culture shock might kill me.

Mikey

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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 10:25 AM   #32
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Re: NET WORTH FOR ONE'S AGE

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As in most things, judgment is required and the judgments one makes depend on the ends in view.

I would rather have a $1.5 Million house in Pacific Palisades and $1million in invested assets, than $1.2 million in invested assets and a $100,000 home in Jackson, MS.

Why? Because I could sell the house, move to Jackson or someplace similarly cheap and even after costs still be well ahead on the deal.

Of course the culture shock might kill me.

Mikey
Mikey: After reading a lot of your posts, (West Coast boy that you are), I think after about 3 mos. in Jackson Miss., you'd come to the conclusion that the $100,000 house you purchased there was overpriced
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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 11:10 AM   #33
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Re: NET WORTH FOR ONE'S AGE

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Mikey: *After reading a lot of your posts, (West Coast boy that you are), I think after about 3 mos. in Jackson Miss., you'd come to the conclusion that the $100,000 house you purchased there was overpriced
LOL !

Jarhead, you are surely right. I guess I was just trying to make a point, and maybe not a very good one after all!

Mikey
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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 11:46 AM   #34
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Re: NET WORTH FOR ONE'S AGE

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So I guess to "standardize" the net worth formula, I would say only include assets that you expect to produce a cash outflow to you in the future. If it's a pencil on your desk that you expect to sell at a yard sale for 5 cents, then include that pencil in your net worth.
Hi retire@40. The post that started this thread posed a simple question: What is a reasonable net worth for one's age? I have always viewed net worth to be current assets minus current liabilities. My home won't produce a cash outflow in the future, but I wouldn't exclude it from net worth (see Mikey's example of a home in the Palisades).

I don't count household stuff though, primarily because 1) the garage sale value wouldn't amount to much, and 2) I probably wouldn't be able to sell a lot of my household stuff without running a perpetual garage sale. There's really no efficient way to unload small household possessions. Whenever we have had a garage sale we always end up with piles of stuff unsold. I have never tried to sell a pencil, but I would imagine you'd have a tough time doing it.

If you're looking to determine income producing assets for ER, that's a whole other matter - but it isn't net worth.
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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 12:29 PM   #35
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Re: NET WORTH FOR ONE'S AGE

>>I would rather have a $1.5 Million house in Pacific Palisades and $1million in invested assets, than $1.2 million in invested assets and a $100,000 home in Jackson, MS.


Here in Massachusetts the property taxes on a $1.5M house are going to run you about $2000/month (varys by town). So you are going to have to make 2.5% return off that $1Million just to pay them...that leaves you about $15,000 (assuming a 4% SWR) to live on...
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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 12:55 PM   #36
 
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Re: NET WORTH FOR ONE'S AGE

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You're pretty amazing yourself! *To go from $60K to $910K in only 11 years? *Wow *
Actually, he went from $60K to $910K in NINE (9) years. Even more amazing! How'd you guys do it?

And C-Girl....how'd you guys reach your net worth so quickly? Any tips you can pass on?
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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 12:59 PM   #37
 
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Re: NET WORTH FOR ONE'S AGE

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What is a reasonable net worth for one's age? *

For example I know of someone who is single at 40 with a mill, a career couple worth $400,000 at ages 31, *or an executive couple 49 and 42 worth $1.9 mill. *Are each of these people typical, above average, or below? *

What are people on this threat worth and at what age? Net worth is the question, not income, or investment scenarios.

This would be interesting to set the stage for those who need to reach some goals or relax and chill about approaching ER.
Seems to me that not many want to answer this question......
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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 01:30 PM   #38
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Re: NET WORTH FOR ONE'S AGE

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The post that started this thread posed a simple question: What is a reasonable net worth for one's age? I have always viewed net worth to be current assets minus current liabilities. My home won't produce a cash outflow in the future, but I wouldn't exclude it from net worth.
Why current assets and liabilities and not total assets and liabilities? I would view a home more as a long-term asset.

You are 100% correct in not excluding your home from net worth, but unless you are going to tap into that asset, it doesn't matter whether your house is worth $100K or $900K. It would just be a sunk cost that has no future monetary benefit to you. In this case, including the FMV your house in your net worth is meaningless.

I always envisioned net worth from an ER point of view to mean net worth you can amortize over time to pay for living expenses. So, as another example, my wedding ring may be worth a lot of money, but since I will never sell it, I don't include it in the net worth calculations I use to determine how much I will need to apply the 4% SWR.
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Re: NET WORTH FOR ONE'S AGE
Old 01-27-2005, 01:55 PM   #39
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Re: NET WORTH FOR ONE'S AGE

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You are 100% correct in not excluding your home from net worth, but unless you are going to tap into that asset, it doesn't matter whether your house is worth $100K or $900K. *It would just be a sunk cost that has no future monetary benefit to you. *In this case, including the FMV your house in your net worth is meaningless.
Yeah, I think we're saying the same thing. Include the house in net worth as it is typically understood, but don't include it in ER related income producing assets. I do it that way too.
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Accounting math
Old 01-27-2005, 02:39 PM   #40
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Accounting math

If you're offended by this because you're an accountant, then you need to consider the image that the occupation has projected over the last 5-10 years.

If you've heard this one before, then kindly skip to the next post.

If this is new to you, then here's a definition of net worth:

Three accountants are in the waiting room for their interview. The first one enters the interviewer's office.
I: "How much is two plus two?"
A1: "Four."
I: "Thanks, we'll call you. NEXT!!"
Second accountant enters. Same question.
A2: "Well, that depends. Sometimes it's three, sometimes it's five, but usually it's four."
I: "Thanks, we'll call you. NEXT!!"
Third accountant enters. Same question.
A3: "Well gosh, how much do you want it to be?"

IMO, the most objective appraisal of net worth is whatever valuation the IRS manages to wring out of your estate.
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