Random thoughts on net worth.

[old medic]

I'm really interested in sustainable living and urban homesteading, so for me those are fun hobbies as well as big money savers.

Don't fall for that... the big savings are far down the road.. you can buy and store, but being able to produce, process and store is a NW that there is no $ value for. There is a great feeling in eating stuff you know EVERYTHING about. We also give a lot of stuff out as gifts and trade....

 

[luckydude]

I tracked our NW almost religiously through my 30s and 40s. Part of it was FIRE planning, but part of it was also the very human tendency of score keeping and wondering how we would measure up vs. our peers socially and at work.

But in the last few years, as our NW has reached a level way beyond our wildest expectations and I've really settled into FIRE, NW has become more about estate planning (as in how to minimize future estate tax hit) than anything else. We have won the game in a landslide so score keeping no longer has any meaning. Now it's all about how to keep as much of our assets out of Uncle Sam's grubby hands as possible upon our demise and how to maximize the enjoyment of our remaining active years (hopefully another 20+).

Also, one thing that DW and I have come to realize in the last couple of years is that there can come a point when having too much money becomes a burden: in managing it, in estate planning and in figuring out to pass it down without destroying the ambition and self-reliance of our heirs. (Un)fortunately I am in line for another large family legacy that has complicated RE investments, and frankly I'm dreading the day when I have to figure out how to come up with the liquidity to pay estate tax on it and how to unwind it. I don't need it and would rather not deal with the hassles of claiming it.

 

[daylatedollarshort]

Don't fall for that... the big savings are far down the road.. you can buy and store, but being able to produce, process and store is a NW that there is no $ value for. There is a great feeling in eating stuff you know EVERYTHING about. We also give a lot of stuff out as gifts and trade....

I am not sure what you mean by don't fall for that? We've really lowered our budget and improved our lifestyle with our changes. Most of the changes we made didn't have anything to do with food, like cutting our electricity bill, getting some cool stuff at thrift shops / Freecycle type sites and renegoatiating the cable bill every year.

We have tried having an outdoor vegetable garden but we live near open space and multiple parks with a lot of wildness areas, and there is so much wildlife here it is a fool's game trying to grow anything outside. It just gets eaten up and attracts even more rodents.

 

[USGrant1962]

Interesting comments about "scorekeeping" and comparing to others. I've figured my net worth off an on over the years. And now with Personal Capital or similar aggregation tools can see it daily. I look at it for estate planning (haven't done anything particular in that space but who knows), for comfort in gifting, and for safety net such as selling a house for LTC.

But I've never had accurate insight into my coworkers' or neighbors' or family members' net worth. Sure, I can look up averages and percentiles, which tells one what they could have guessed based on age, education and occupation. What are people comparing to in this purported scorekeeping? Do people actually talk about their net worth over cocktails?

 

[RobbieB]

Nah, nobody talks about their net worth over cocktails.

They talk about their month in Europe and the next trip to Japan. Their boats, their cars, the schools their children are attending.

And the sad lack of qualified help.

 

[street]

I tracked our NW almost religiously through my 30s and 40s. Part of it was FIRE planning, but part of it was also the very human tendency of score keeping and wondering how we would measure up vs. our peers socially and at work.

But in the last few years, as our NW has reached a level way beyond our wildest expectations and I've really settled into FIRE, NW has become more about estate planning (as in how to minimize future estate tax hit) than anything else. We have won the game in a landslide so score keeping no longer has any meaning. Now it's all about how to keep as much of our assets out of Uncle Sam's grubby hands as possible upon our demise and how to maximize the enjoyment of our remaining active years (hopefully another 20+).

Also, one thing that DW and I have come to realize in the last couple of years is that there can come a point when having too much money becomes a burden: in managing it, in estate planning and in figuring out to pass it down without destroying the ambition and self-reliance of our heirs. (Un)fortunately I am in line for another large family legacy that has complicated RE investments, and frankly I'm dreading the day when I have to figure out how to come up with the liquidity to pay estate tax on it and how to unwind it. I don't need it and would rather not deal with the hassles of claiming it.

I see your point with the hassle with inheriting more and the avenue to go and how to or what is best thing to do.

I didn't have to worry about getting a windfall in life, but charity would be something I would look at if I had.

 

[SecondCor521]

(Un)fortunately I am in line for another large family legacy that has complicated RE investments, and frankly I'm dreading the day when I have to figure out how to come up with the liquidity to pay estate tax on it and how to unwind it. I don't need it and would rather not deal with the hassles of claiming it.

I bet you're familiar with partial disclaimers. (If not, they are one technique for addressing this problem.)

 

[RobbieB]

I tracked our NW almost religiously through my 30s and 40s. Part of it was FIRE planning, but part of it was also the very human tendency of score keeping and wondering how we would measure up vs. our peers socially and at work.

But in the last few years, as our NW has reached a level way beyond our wildest expectations and I've really settled into FIRE, NW has become more about estate planning (as in how to minimize future estate tax hit) than anything else. We have won the game in a landslide so score keeping no longer has any meaning. Now it's all about how to keep as much of our assets out of Uncle Sam's grubby hands as possible upon our demise and how to maximize the enjoyment of our remaining active years (hopefully another 20+).

Also, one thing that DW and I have come to realize in the last couple of years is that there can come a point when having too much money becomes a burden: in managing it, in estate planning and in figuring out to pass it down without destroying the ambition and self-reliance of our heirs. (Un)fortunately I am in line for another large family legacy that has complicated RE investments, and frankly I'm dreading the day when I have to figure out how to come up with the liquidity to pay estate tax on it and how to unwind it. I don't need it and would rather not deal with the hassles of claiming it.

Hard work dealing with all that dough you don't need eh? Why not pay a tax attorney to handle it for you?

 

[luckydude]

Interesting comments about "scorekeeping" and comparing to others. I've figured my net worth off an on over the years. And now with Personal Capital or similar aggregation tools can see it daily. I look at it for estate planning (haven't done anything particular in that space but who knows), for comfort in gifting, and for safety net such as selling a house for LTC.

But I've never had accurate insight into my coworkers' or neighbors' or family members' net worth. Sure, I can look up averages and percentiles, which tells one what they could have guessed based on age, education and occupation. What are people comparing to in this purported scorekeeping? Do people actually talk about their net worth over cocktails?

No, at least not in my experience. I've never talked to any of my friends or co-workers about our NW or theirs in any setting.

What I meant in my previous post is that we kept track of our NW and speculated on how ours would compare to others in our social and work circles. So, it was pure speculation and nothing more, but rightly or wrongly, it did serve to motivate us to grow our NW (in addition to my desire to FIRE). But no, I wouldn't feel comfortable discussing our NW with anyone in our social circles then and especially now (except on this "anonymous" forum).

 

[luckydude]

I bet you're familiar with partial disclaimers. (If not, they are one technique for addressing this problem.)

Yes, I know about partial disclaimers.

The biggest problem for me is that most of the expected legacy is tied up in the family RE business. Some are shares in a private company in which all shareholders are family members, while other properties are directly/jointly held with other members of the extended family.

The problem with inherited wealth is that after a couple of generations, ownership is dispersed across extended family members. No one has a majority stake and any kind of decision making becomes difficult and contentious. In my case, I have second cousins who are also shareholders in the family business whom I've never met. I know their names, but I wouldn't be able to pick them out of a police lineup. Unwinding this kind of arrangement becomes more difficult because ownership is progressively diluted as each shareholder dies off and passes his/her interests to heirs, as well as when there are family dynamics/dysfunctions involved.

While I don't plan to disclaim my legacy (it would in fact make the situation worse for other family members because then my shares would be diluted further, so I don't want to do that), I do plan to gift some of the properties away to a couple of family members where the values of my shares are minimum. For other properties in which I will inherit more substantial interests, I hope to work with other family members to dispose of them in an orderly fashion and then look into possibly setting up a charitable trust.

My ultimate goal is to unwind all of my interests in the family business before I die so that my heirs won't have to deal with this PITA. And it is truly PITA.

 

[pjigar]

I used to track Networth as defined by "bird in the hand" theory: Every asset and liability on my name. Now I only count "cash flowing assets" as "Networth" for the purpose of calculating SWR. All liquid/non-cashflow assets are ear marked for heirs and/or rainy day fund.


I never considered NPV of the future cashflows (that's only SS for me) in the Networth calculations.

 

[MarieIG]

OP here. I figured I'd address some of comments here.

Yes - I agree that networth is a silly number because homes aren't spendable. It was a passing thought - hence the title of this thread. It does not count at all in my retirement plans other than when/if we downsize we'll add more money to the portfolio.

As far as expensive house relative to portfolio... I didn't pay the current value... I would never be able to. But it's a good house that we were able to afford at the time, and pay off. As a bonus we have very low property taxes - inherited prop 13 tax rate because I bought from my dad - but they tripled in 2008 when we built the granny flat. The new construction was billed at market rate of the time... but increases are still limited by prop 13.

Also - folks seem to have missed the fact, in the OP, that our granny flat will be generating more than $10k/year MORE than previously because old tenants moved out and we've upped the rent to market rate. So my primary home real estate with a granny flat is reducing how much I need from my portfolio. Not typical, I agree... but income is income...

And for those that suggest if you have a house that is worth a lot should sell, and move somewhere else to cash out.... Why? We can afford to live here, like the area, like being relatively close to a beach that doesn't get hurricanes
(not since 1958)... Sure we'd have a fatter portfolio... but we wouldn't have the same quality of life and amazing weather.

Rodi - Each situation is specific to the particular person. I notice that I lot of people look at another's situation through their own lenses.

You and your DH like your home, you can afford to live in your home, you got a nice bump in income - all I can say is Congrats!

 

[old medic]

I am not sure what you mean by don't fall for that?
there is so much wildlife here it is a fool's game trying to grow anything outside.

It was more of a tongue in cheek joke about saving money doing it yourself.. I do all my own home and auto maintenance.. but have thousands of dollars in tools and equipment collected over the years. Thrift stores and yard sales are great places for deals. Bought someones whole canning supply collection for $100 at a moving sale... Just the SS Canning pot was worth twice that.
We have a large garden... and the joke is most everything tastes like Venison.

 

[ShokWaveRider]

Calculating one's individual net worth any way it makes one feel better does not really change anything. As mentioned before here net worth is purely a number. What really makes a difference are one's investable cash assets that potentially generate a return to help one live a nice comfortable retirement.

 

[SecondCor521]

What really makes a difference are one's investable cash assets that potentially generate a return to help one live a nice comfortable retirement.

Or: What really makes a difference is...

... what a gross taxable estate is to help determine whether the estate pays estate taxes.

... what assets are attachable by lawsuits or Medicaid to help determine what happens in the case of being sued or being on Medicaid a long time.

... what assets are where and how much income they throw off to help determine how much income taxes one has to pay.

... how much of a downsizeable house one might prefer to own to help determine how much they can add to their FIRE stash to help with their retirement.

... how much of a pension or SS is coming and when and under what circumstances to help determine if they can retire early on assets with the help of SS later.

My point is that the purpose of the NW calculation can be different, and unless we're at least starting with the same purpose, we'll probably include/exclude different things and could end up on different pages or even different books. As I mentioned before, I have at least seven different NW calculations, and they're for seven different reasons.

 

[SecondCor521]

Yes, I know about partial disclaimers.

The biggest problem for me is that most of the expected legacy is tied up in the family RE business. Some are shares in a private company in which all shareholders are family members, while other properties are directly/jointly held with other members of the extended family.

The problem with inherited wealth is that after a couple of generations, ownership is dispersed across extended family members. No one has a majority stake and any kind of decision making becomes difficult and contentious. In my case, I have second cousins who are also shareholders in the family business whom I've never met. I know their names, but I wouldn't be able to pick them out of a police lineup. Unwinding this kind of arrangement becomes more difficult because ownership is progressively diluted as each shareholder dies off and passes his/her interests to heirs, as well as when there are family dynamics/dysfunctions involved.

While I don't plan to disclaim my legacy (it would in fact make the situation worse for other family members because then my shares would be diluted further, so I don't want to do that), I do plan to gift some of the properties away to a couple of family members where the values of my shares are minimum. For other properties in which I will inherit more substantial interests, I hope to work with other family members to dispose of them in an orderly fashion and then look into possibly setting up a charitable trust.

My ultimate goal is to unwind all of my interests in the family business before I die so that my heirs won't have to deal with this PITA. And it is truly PITA.

Ah, right. Now I remember some of that from another thread of mine where you posted some similar comments.

My issues are different from yours, and I'm fairly certain we're lower on the NW rung than your family, but I have gone from the "I don't have enough" to "I have enough" to "I have plenty" to "Wow, I didn't realize more money would become a PITA" so I think I can empathize just a tiny bit in general.

As I think you pointed out, very few people get into the "I have too much money and it's a PITA" stage, so it's hard to talk about. Obviously not much sympathy or understanding from most people.

Probably doesn't mean much, but good luck with all of it. I think it's admirable you're working to fix it for the next generation. It's probably unsung labor.

 

[Sunset]

Yes, I know about partial disclaimers.

The biggest problem for me is that most of the expected legacy is tied up in the family RE business. Some are shares in a private company in which all shareholders are family members, while other properties are directly/jointly held with other members of the extended family.

The problem with inherited wealth is that after a couple of generations, ownership is dispersed across extended family members. No one has a majority stake and any kind of decision making becomes difficult and contentious. In my case, I have second cousins who are also shareholders in the family business whom I've never met. I know their names, but I wouldn't be able to pick them out of a police lineup. Unwinding this kind of arrangement becomes more difficult because ownership is progressively diluted as each shareholder dies off and passes his/her interests to heirs, as well as when there are family dynamics/dysfunctions involved.

While I don't plan to disclaim my legacy (it would in fact make the situation worse for other family members because then my shares would be diluted further, so I don't want to do that), I do plan to gift some of the properties away to a couple of family members where the values of my shares are minimum. For other properties in which I will inherit more substantial interests, I hope to work with other family members to dispose of them in an orderly fashion and then look into possibly setting up a charitable trust.

My ultimate goal is to unwind all of my interests in the family business before I die so that my heirs won't have to deal with this PITA. And it is truly PITA.

Thanks for the explanation, now it's easy to see some of the issues regarding the dilution of ownership.

The only thing I can compare it to, is some folks I know owning RE (cottage type property and land), and amongst the owners, some want to sell, but others want to keep it, so it remains unsold, and unused due to lack of agreement.

 

[brett]

I tracked our NW almost religiously through my 30s and 40s. Part of it was FIRE planning, but part of it was also the very human tendency of score keeping and wondering how we would measure up vs. our peers socially and at work.

But in the last few years, as our NW has reached a level way beyond our wildest expectations and I've really settled into FIRE, NW has become more about estate planning (as in how to minimize future estate tax hit) than anything else. We have won the game in a landslide so score keeping no longer has any meaning. Now it's all about how to keep as much of our assets out of Uncle Sam's grubby hands as possible upon our demise and how to maximize the enjoyment of our remaining active years (hopefully another 20+).

Also, one thing that DW and I have come to realize in the last couple of years is that there can come a point when having too much money becomes a burden: in managing it, in estate planning and in figuring out to pass it down without destroying the ambition and self-reliance of our heirs. (Un)fortunately I am in line for another large family legacy that has complicated RE investments, and frankly I'm dreading the day when I have to figure out how to come up with the liquidity to pay estate tax on it and how to unwind it. I don't need it and would rather not deal with the hassles of claiming it.

Ditto.

We made a decision to make our lives much simpler when we retired early and decided to travel.

We downsized literally into an 8X8X16 Pods container that went into storage for a year. If it did not fit, we did not keep it. So good to get rid of so much 'stuff' that seemed to be taking over our existance.

We consolidated all our investments prior to retirement and moved them to a wealth management company to manage. Took us 8 months of pre retirement shopping to select one that we felt comfortable with. They are much smarter than either of us combined. We have been happy with the results over the past 12 years.

I used to manage the accounts and the investments. DW not at all interested. I needed to have something in place so that if I popped my clogs my spouse would have to pick up as few threads as possible and move on with her life. Or our children for that matter.

We update our wills every 5 years.

So far, this strategy has worked well for us. Might not be good for others though.

 

[youbet]

I always calculate net worth the same way: Assets - Liabilities. If that number isn’t appropriate for the use I’ll put it to, I use another number such as investible assets, etc.

 

[luckydude]

Ah, right. Now I remember some of that from another thread of mine where you posted some similar comments.

My issues are different from yours, and I'm fairly certain we're lower on the NW rung than your family, but I have gone from the "I don't have enough" to "I have enough" to "I have plenty" to "Wow, I didn't realize more money would become a PITA" so I think I can empathize just a tiny bit in general.

As I think you pointed out, very few people get into the "I have too much money and it's a PITA" stage, so it's hard to talk about. Obviously not much sympathy or understanding from most people.

Probably doesn't mean much, but good luck with all of it. I think it's admirable you're working to fix it for the next generation. It's probably unsung labor.

Thank you, SecondCor521

 

[RobbieB]

Yeah, before you got into the whole "shared and split after death with people you've never met", I had no idea. I can see how this might be a huge problem. Like who is going to buy your share?

Not me, I wouldn't. There is no market for "encumbered" real estate. People want clear title.

Good luck and best wishes!

 

[luckydude]

Yeah, before you got into the whole "shared and split after death with people you've never met", I had no idea. I can see how this might be a huge problem. Like who is going to buy your share?

Not me, I wouldn't. There is no market for "encumbered" real estate. People want clear title.

Good luck and best wishes!

Thanks RobbieB.

Yep, there are a few cousins whom I've never met, and then there are a few cousins whom I've met but wish I never did. There's one cousin who lives an hour's drive away from me. I say hi to him once a year during the annual shareholder meeting, that's it. He's not a very pleasant person to be around.

It's a privately held company so shares are not traded. At least the company has been well run by a very professional management team, so the shares are worth at least the value of the underlying RE assets, which are substantial.

 

[luckydude]

Thanks for the explanation, now it's easy to see some of the issues regarding the dilution of ownership.

The only thing I can compare it to, is some folks I know owning RE (cottage type property and land), and amongst the owners, some want to sell, but others want to keep it, so it remains unsold, and unused due to lack of agreement.

That's an excellent point. It's exactly the same situation, the only difference being the number of people involved.

We've had several RE projects delayed due to disagreement among shareholders on whether/how to proceed. The most recent one was a large shopping center in a MCOL metro area. The whole project from conception to development took a whopping 20 years because of lack of consensus among family members. Project was twice approved and then cancelled. But now it looks like it's finally going to move forward (knock on wood---hopefully third time is the charm).

 

[luckydude]

Ditto.

We made a decision to make our lives much simpler when we retired early and decided to travel.

We downsized literally into an 8X8X16 Pods container that went into storage for a year. If it did not fit, we did not keep it. So good to get rid of so much 'stuff' that seemed to be taking over our existance.

We consolidated all our investments prior to retirement and moved them to a wealth management company to manage. Took us 8 months of pre retirement shopping to select one that we felt comfortable with. They are much smarter than either of us combined. We have been happy with the results over the past 12 years.

I used to manage the accounts and the investments. DW not at all interested. I needed to have something in place so that if I popped my clogs my spouse would have to pick up as few threads as possible and move on with her life. Or our children for that matter.

We update our wills every 5 years.

So far, this strategy has worked well for us. Might not be good for others though.

That's a good strategy---simplify everything, especially investments and material possessions. It just makes life so much easier so you have more time to enjoy retirement instead of dealing with the mundane day-to-day stuff.

The material possession aspect is especially true. With more financial resources available, it's tempting to want to acquire more possessions for enjoyment, whether it's nicer cars, second homes, a boat, etc. But often these things entail more $ and time to store, insure, maintain, and generally look after, and they can be more trouble than they are worth. Thankfully we've been able to resist this temptation and have kept our possessions to a minimum.

 

[Freedom56]

Live well during your retirement years and spend your money. You can't take it with you. I have watched my parents and in-laws age and they are all just past their mid-80's. They saved all their lives and continued to save during their retirement years thinking that they would run out of money. The have far more wealth than they did when they retired and they aren't even in the stock market. My in-laws have rental properties and never owned stocks or bonds. I have been managing a fixed income portfolio for my parents for the past 23 years. They have been saving about 46% of their interest income annually after taxes and expenses. I told them for years to spend more and enjoy life but somehow they seemed to be conditioned into the belief that they need to leave wealth to the next generation.