Net Worth - A wider view

[USGrant1962]

Equity killed a lot of people too in the last recession.

It wasn't equity that did that, it was leverage.

 

[nash031]

For straight net worth, I include home equity in the calculation...

However, I do not include home equity for the purposes of calculating cash flow to support my basic retirement spend because I'm not intending to generate cash flow from it (via rental, loans, etc).

I'm considering our home equity as a kind of insurance policy if we need additional dollars to move into a retirement home. Kind of overkill but that's how we want to do it.

Agree. We're selling one house to buy another, but pulling ~$130K in equity out of the sale of the house and applying the rest as downpayment on the new place. Thus, of course home equity is part of your net worth, it's just less liquid since you probably can't realize it for a month or more... but it's there.

It'll be interesting for my NW/invested asset spreadsheet where the NW will probably dip a little bit from real estate transaction costs, but invested assets will go up by ~10% from the addition of extracted home equity.

I've referenced the Financial Samurai's "above average person" numbers on many occasions because we all want to see where we shake out compared to our peers. All of the "average American" statistics paint a bad picture. To wit, one of my friends retired from the Navy, and by any stretch he is better off than the "average American", but no where near what he needs to be to support his lifestyle. He even said how he was way ahead of the game compared to the average person, but in reality he'll work until he's 65 to support his expenses. It's just that the average person shouldn't be the benchmark for someone with an MBA, a pension, and country club tastes.

 

[COcheesehead]

Agree. We're selling one house to buy another, but pulling ~$130K in equity out of the sale of the house and applying the rest as downpayment on the new place. Thus, of course home equity is part of your net worth, it's just less liquid since you probably can't realize it for a month or more... but it's there.

It'll be interesting for my NW/invested asset spreadsheet where the NW will probably dip a little bit from real estate transaction costs, but invested assets will go up by ~10% from the addition of extracted home equity.

I've referenced the Financial Samurai's "above average person" numbers on many occasions because we all want to see where we shake out compared to our peers. All of the "average American" statistics paint a bad picture. To wit, one of my friends retired from the Navy, and by any stretch he is better off than the "average American", but no where near what he needs to be to support his lifestyle. He even said how he was way ahead of the game compared to the average person, but in reality he'll work until he's 65 to support his expenses. It's just that the average person shouldn't be the benchmark for someone with an MBA, a pension, and country club tastes.

You think the folks on here that think of themselves as "above average" have country club tastes? We recycle dryer sheets.

 

[nash031]

You think the folks on here that think of themselves as "above average" have country club tastes? We recycle dryer sheets.

Not here! Most on this forum qualify as Sam's definition of "above average", and just about all of us are "above average" in terms of net worth/invested assets. The MBA/pension/country club was my specific friend who's a bit deluded about his overall financial situation relative to his tastes. He's got RobbieB tastes without RobbieB assets!

 

[daylatedollarshort]

I track both investable assets and net worth. I consider everything in my net worth including the lump sum value of pensions and Social Security and home equity. We have to live some place but we could live in a less expensive house if we chose to do so.

 

[cyber888]

I guess it's good that I'm a little above the "minimum" of the Above Average, but can't afford a country club lifestyle LOL.
A lot of folks here are probably more than Above Average.

For some folks, the Financial Samurai's numbers might look high, but I think this guy lives in the San Francisco area. To retire in that area, you would need so much more than 'above average'. I could never afford to live in CA with the minimum Above Average numbers .. but I'm fine in the South.

 

[marko]

I track both investable assets and net worth. I consider everything in my net worth including the lump sum value of pensions and Social Security and home equity. We have to live some place but we could live in a less expensive house if we chose to do so.

I don't include SS, pension or trust fund income.

I would include what the gov't would count if I were to (in theory) apply for Medicaid; that to me is the true consideration of net worth. House, cars, boat and investable assets.

In short, what would be counted should we ever come to (gasp!) means testing.

 

[razztazz]

I don't include SS, pension or trust fund income.

I would include what the gov't would count if I were to (in theory) apply for Medicaid; that to me is the true consideration of net worth. House, cars, boat and investable assets.

In short, what would be counted should we ever come to (gasp!) means testing.

Pensions aren't counted in means testing for Medicaid? Or am I misreading ?

 

[foxfirev5]

Pensions aren't counted in means testing for Medicaid? Or am I misreading ?

Or Trust Fund regarding Medicaid. Please give us some details. Thanks

 

[marko]

Pensions aren't counted in means testing for Medicaid? Or am I misreading ?

Actually, I have no idea and have no plan to finding out personally.

I was opining in the context of net worth and not counting income per se but only hard assets including cash, investments and property.

I don't see how one could include SS, pension or trust fund income as a 'net worth' any more than you'd include your work-time income.

If I was working and making $40K a year, had no other money, is my NW $1MM?

One can count their NW any way they want but I don't include income.

 

[pb4uski]

.... The MBA/pension/country club was my specific friend who's a bit deluded about his overall financial situation relative to his tastes. He's got RobbieB tastes without RobbieB assets!

Hard to blow your dough when you have no dough! You can fake it for a while but the piper eventually comes a calling.

 

[RetireBy90]

Reading the posts shows me that NW is not a precise measure that can be used if we don’t compute it the same way. Good reasons to include property and good reasons not to. I guess it depends on what you are trying to measure.

When I was preparing to FIRE a friend convinced me to include our pension income. Went to price an anunity that would provide that income to get a figure. I don’t count that as part of NW today, but it did help when determining if we were ready financially to retire.

Good ideas posted, thanks

 

[pb4uski]

If you hire a CPA to prepare personal financial statements for you for a creditor, the value of home equity will be included in net worth. That said, I agree with ohters that when you assess your retirement readiness, you wold exclude home equity unless you plan to downsize or sell and rent.

SOP 82-1 Personal Financial Statements

 

[Fedup]

I still don’t have a clue of our net worth, I have a rough idea but don’t track them closely. I’ve been retiring nearly 3 years now.

 

[imoldernu]

An"Average Person" Doublecheck

While I've checked with FireCalc, I found numbers in Bankrate.com 's retirement calculator to be very close. Comforting.

 

[MissMolly]

Or Trust Fund regarding Medicaid. Please give us some details. Thanks

Income streams are counted in the income stream part of Medicaid but not the net assets part. There is more than one thing that Medicaid looks at when determining eligibility.

 

[Oz investor]

I don't agree with not counting primary residence but I understand and respect the decision not to count as it isn't considered an investment like other assets. However, any computation of NW such as for insurance needs will include it and also your personal belongings like cars, TVs, etc.



However, I don't understand not counting investment property. Real estate both primary and a rental account for about 40% of my NW although both have a mortgage on them. About 30% of NW if you deduct the mortgage balances. Regardless of the mortgages, I still have the full value of the property at risk and when the property value increases each year the mortgage doesn't increase with it. So, I count the full value of real estate in assets and then include mortgage in liabilities.





To me, I'm more likely to loose $value in my stock investments than the real estate. Think of Pan Am, GE, MCI, and these are only some of the stocks that have lost value. I would think stock and bond investments have more downside risk today than real estate.



Just my humble opinion.

and i respect your opinion ,

the investment property was inherited ( the former family home )
and the estimated value is quite debatable

is it a family home currently being rented ( plus the solar power credits ) a development property , only time is delaying it from being turned into 3 ( or 6 ) units .

so it it a $600k property or a $1.5mill property or $xxx a week income source ... i have chosen the conservative route and chosen nett income as it's value

and similar for the residential property bought in 1975 for $17,500 a current unimproved value of $700,000 and has massive development potential ( being an acreage block ) and is currently generating solar credits
.
but as mentioned before those prices are very likely to slide in the near future . ( Australia is in a property downturn and a tightening credit cycle while the government is having an attack of xenophobia )

so can i sell either property at even 50% of estimated value in the next 3 years ( if i chose to )

am yes i expect my stock holding to lose significant value as well ( in the next downturn ) but those stocks can be liquidated relatively quickly if needed .

the properties are sliding in ( estimated ) value now , but tomorrow is another day for the stocks ( which might yet move either way )


cheers


BTW my calculations are all about income ( to me ) i don't need to impress anyone , not even the credit card companies , if i can pay the bills as the arrive all will be fine

 

[foxfirev5]

Income streams are counted in the income stream part of Medicaid but not the net assets part. There is more than one thing that Medicaid looks at when determining eligibility.

Thanks. Nice to know for several reasons. In my case more important than the numerous Roth conversion and when do I take SS threads.

 

[daylatedollarshort]

I don't include SS, pension or trust fund income.

I would include what the gov't would count if I were to (in theory) apply for Medicaid; that to me is the true consideration of net worth. House, cars, boat and investable assets.

In short, what would be counted should we ever come to (gasp!) means testing.

I just track everything. I have a spreadsheet with subtotals by every asset category and know what the totals are with and without lump sum values of SS and pensions.

 

[HFWR]

Assets-liabilities [emoji41]

 

[pb4uski]

Yup... and assets includes the house and liabilities includes the mortgage so net worth includes home equity... elementary.... unless you are a blogger.

 

[COcheesehead]

Yup... and assets includes the house and liabilities includes the equity so net worth includes home equity... elementary.... unless you are a blogger.

You mean mortgage, not equity, right?

 

[Helena]

.

I consider my paid off house as an investment as well as my home. So I definitely consider it part of my net worth. Fortunately, my home investment has greatly increased in value the last few years. If or when I am ready to downsize and move into a senior apartment or condo, the sale of my current home investment will help fund it.

 

[audreyh1]

Of course if I include my house when I compute my net worth. But that is not the only number I need to look at.

If I look at how my investments are doing, I exclude my house as I don't expect to withdraw from it or spend part of it any time soon.

When I determined whether I had enough to retire, so that I could have a large enough withdrawal to live on, I did not include the house in that calculation. You have to live somewhere - either you have $$ tied up in a paid off house that you have to sell to extract, or you pay rent/mortgage, which increases your annual income needs.

 

[Helena]

Of course if I include my house when I compute my net worth. But that is not the only number I need to look at.

If I look at how my investments are doing, I exclude my house as I don't expect to withdraw from it or spend part of it any time soon.

When I determined whether I had enough to retire, so that I could have a large enough withdrawal to live on, I did not include the house in that calculation. You have to live somewhere - either you have $$ tied up in a paid off house that you have to sell to extract, or you pay rent/mortgage, which increases your annual income needs.

The downside of renting versus owning a paid off house... the extra income needed to pay rent is usually taxed.

.