Target Net Worth

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raisinsaregrapes
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Target Net Worth

Post by raisinsaregrapes » Sat Dec 30, 2017 6:55 pm

What is you target net worth and how did you come up with it?

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LittleGreenSoldiers
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Re: Target Net Worth

Post by LittleGreenSoldiers » Sat Dec 30, 2017 7:06 pm

40x annual expenses.
a. I planned to achieve it by age 55.
b. Based on my plan it is where I should be at 55.
c. 55 is the age I am targeting for early retirement as an option.

ebrasmus21
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Re: Target Net Worth

Post by ebrasmus21 » Sat Dec 30, 2017 7:19 pm

Don't really know yet. Just working on saving 25% or more of income at this time.

sambb
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Re: Target Net Worth

Post by sambb » Sat Dec 30, 2017 7:28 pm

i like 30-35x expenses. I also like the millionaire next door formula. A lot of people criticize it for a variety of reasons, but it can be a reasonable guide in some cases.

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MikeWillRetire
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Re: Target Net Worth

Post by MikeWillRetire » Sat Dec 30, 2017 7:44 pm

I have estimated my retirement expenses, assuming my kids are independent, and house is paid off. I then subtract my modest pension. Then I subtract what social security will be at age 62. I then multiply that by 25. That's my target.

Lonestarz
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Re: Target Net Worth

Post by Lonestarz » Sat Dec 30, 2017 7:57 pm

Desired annual income / 3.5% = target. Enough discretionary to cover unplanned expenses and market downturns.

aquifer
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Re: Target Net Worth

Post by aquifer » Sat Dec 30, 2017 8:50 pm

Lonestarz wrote:
Sat Dec 30, 2017 7:57 pm
Desired annual income / 3.5% = target. Enough discretionary to cover unplanned expenses and market downturns.
This. I used 3%, but the idea is the same. I plan to withdraw 3% annually from my portfolio upon reaching retirement. I'm expecting social security to pay for only health insurance/medicare, and nothing more. It may or may not work that way, but you have to go with an assumption of some kind.

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Garco
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Re: Target Net Worth

Post by Garco » Sat Dec 30, 2017 8:56 pm

I built SS into my targeting. Expected SS to provide 25-30% of income in retirement. So any formula such as Desired Ann Income/.035 would need to be adjusted. For example if your target annual income is $150K and your SS is $50K per year, you would need to reach 100000/.035= $2.8 million, not $4.3 million.

bhsince87
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Re: Target Net Worth

Post by bhsince87 » Sat Dec 30, 2017 9:13 pm

I've never had one. I do however have a target for investable liquid assets.

Net worth includes real estate, cars, furniture, collectibles, etc.
Retirement: When you reach a point where you have enough. Or when you've had enough.

Grt2bOutdoors
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Re: Target Net Worth

Post by Grt2bOutdoors » Sat Dec 30, 2017 9:26 pm

No specific target in mind. Simply target to save at least 15% of gross or net income annually in a variety of tax deferred (if unavailable), then in taxable accounts.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

bigred77
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Re: Target Net Worth

Post by bigred77 » Sat Dec 30, 2017 9:44 pm

5 million in 2017 dollars but plan to adjust spending to whatever I end up with at age 55 (or whenever I just can’t stand working any longer).

My target networth assumes I will need about $1M for a large condo in a prime location and that we utilize the 4% rule with the remainder. We also have a medium size pension and SS that will be additional.

6% Real gets me there by 55. I will need to save more than planned or decrease my expectations if returns are lower (as many are predicting).
Last edited by bigred77 on Sat Dec 30, 2017 9:51 pm, edited 1 time in total.

kappy
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Re: Target Net Worth

Post by kappy » Sat Dec 30, 2017 9:46 pm

Garco wrote:
Sat Dec 30, 2017 8:56 pm
I built SS into my targeting. Expected SS to provide 25-30% of income in retirement. So any formula such as Desired Ann Income/.035 would need to be adjusted. For example if your target annual income is $150K and your SS is $50K per year, you would need to reach 100000/.035= $2.8 million, not $4.3 million.
Depending on the time horizon, the $4.3M may be a good estimate adjusted for inflation. My parents retired recently with around $1M plus SS and they should be able to do fine. I'd be more happy if they were at $2M so that's what I've started basing my numbers on. That $2M today could very well be $4M in 2050 dollars.

TravelforFun
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Re: Target Net Worth

Post by TravelforFun » Sat Dec 30, 2017 9:50 pm

Already reached my target of 40 times annual expenses but I'm still working. 40X is because I like the 2.5% withdrawal rate.

TravelforFun

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FrugalInvestor
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Re: Target Net Worth

Post by FrugalInvestor » Sat Dec 30, 2017 10:02 pm

Be careful not to conflate 'net worth' with income producing assets. Your home, auto, household goods, etc. generally produce expense not income, so shouldn't be included when considering how much you have to support expenses in retirement. The exception would be if you plan to downsize considerably or relocate from a high cost of living to a low cost of living area in which case a portion of that value may be released but certainly not all of it.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

lostinjersey
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Re: Target Net Worth

Post by lostinjersey » Sat Dec 30, 2017 10:18 pm

$3M, or 25x annual expenses of $120,000. This is investable assets, excluding home equity.

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Sandtrap
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Re: Target Net Worth

Post by Sandtrap » Sat Dec 30, 2017 11:05 pm

raisinsaregrapes wrote:
Sat Dec 30, 2017 6:55 pm
What is you target net worth and how did you come up with it?
I never had a "target net worth". It's just something that turned out better than I expected by the time thoughts of retirement age came around. Along the way, I did try to make sure I was always far ahead of the curve.

What's more important to me was not "net worth" but projected net income. Or, "Bobcat2's" "Funded Ratio".

j :D

OldSport
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Re: Target Net Worth

Post by OldSport » Sat Dec 30, 2017 11:11 pm

~$3.5M in 2017 dollars. This is $120k st 3.5% withdrawal rate. This does not include medical, but I will be starting an HSA and maxing it out. This excludes any SS benefits and pension benefits, which I am not counting on, so anything there will be a bonus.

billthecat
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Re: Target Net Worth

Post by billthecat » Sat Dec 30, 2017 11:25 pm

Sandtrap wrote:
Sat Dec 30, 2017 11:05 pm
raisinsaregrapes wrote:
Sat Dec 30, 2017 6:55 pm
What is you target net worth and how did you come up with it?
I never had a "target net worth". It's just something that turned out better than I expected by the time thoughts of retirement age came around. Along the way, I did try to make sure I was always far ahead of the curve.

What's more important to me was not "net worth" but projected net income. Or, "Bobcat2's" "Funded Ratio".

j :D
Is that projected net income in a strict sense (dividends, interest, etc.) or "income" including withdrawals of principal?

Church Lady
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Re: Target Net Worth

Post by Church Lady » Sat Dec 30, 2017 11:42 pm

OP,
I targeted 3.2M when I was in my twenties using a paper worksheet provided by T. Rowe Price. I assumed no social security and no pension. (Paper worksheet -- this is how long ago that was!)

Only I do have a pension and if <temptation to make a political observation>, I'll collect Social Security too. So I retired last year before attaining 3.2M. But you can't rely on pensions and Social Security if you are a young person. You have to plan for the worst case, and be pleasantly surprised in later life and retire earlier than expected if the worst case doesn't materialize.

Good luck!
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity. Ecclesiastes 1:8

H-Town
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Re: Target Net Worth

Post by H-Town » Sat Dec 30, 2017 11:48 pm

raisinsaregrapes wrote:
Sat Dec 30, 2017 6:55 pm
What is you target net worth and how did you come up with it?
It changes every year and I get a new target at the end of each year. My new one is $5M. Keep raising the bar for myself.

Cheers! :sharebeer

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Sandtrap
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Re: Target Net Worth

Post by Sandtrap » Sun Dec 31, 2017 1:29 am

billthecat wrote:
Sat Dec 30, 2017 11:25 pm
Sandtrap wrote:
Sat Dec 30, 2017 11:05 pm
raisinsaregrapes wrote:
Sat Dec 30, 2017 6:55 pm
What is you target net worth and how did you come up with it?
I never had a "target net worth". It's just something that turned out better than I expected by the time thoughts of retirement age came around. Along the way, I did try to make sure I was always far ahead of the curve.

What's more important to me was not "net worth" but projected net income. Or, "Bobcat2's" "Funded Ratio".

j :D
Is that projected net income in a strict sense (dividends, interest, etc.) or "income" including withdrawals of principal?
[/quote
For myself, it was rental income, portfolio returns, SS, SPIA as needed, with no withdrawal of principal.
j :D

SGM
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Re: Target Net Worth

Post by SGM » Sun Dec 31, 2017 5:46 am

I have never had a net worth target. I have targeted income vs. expenses. Part of that income is portfolio return and rental income. We also have delayed SS which we will take at 70. Currently we also have a SS spousal benefit and some pension benefits. In the future I might ladder SPIAs after age 70 in increments and 5 or so years apart. The more direct deposits we get the more we spend. :wink:

We have pulled some money out of the portfolio for some major projects, but fortunately it still has risen in value since retirement.

ge1
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Re: Target Net Worth

Post by ge1 » Sun Dec 31, 2017 6:02 am

No hard target as such, but if I had to pick one I'd say 5m, with 4m as minimum. Also obviously depends when we would retire.

Based on where we are now this should be very doable.

TwstdSista
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Re: Target Net Worth

Post by TwstdSista » Sun Dec 31, 2017 6:10 am

$3,000,000. It's kinda random and a total stretch for us.

Actually hoping for $2,000,000 -- which is more attainable.

Not planning on SS and ignoring Medicare/health insurance issues since I can't control them. I actually don't ever plan to retire (I'm self-employed). I need to be busy or my mental health deteriorates fast. The husband needs to retire some day though. Probably whenever his current job ends....

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Didymograptus
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Re: Target Net Worth

Post by Didymograptus » Sun Dec 31, 2017 6:41 am

Probably about £1,000,000 (say $1,500,000) in 401k and some company stock.

With a small UK pension from mega-corp, US Social Security, UK state pension (v conservative estimates due to WEP) and a house to be paid for with cash after selling US home, I think we can live on a fairly modest income.

One big uncertainty is the $:£ exchange rate going forward.

An April 2017 article from the UK Consumer's Association says that
Even if you’re getting the state pension and aiming for a comfortable post-tax income of £26,000 per year, a lifetime income via an index-linked, joint-life annuity will require a pot of £370,000 according to our calculations.

Alternatively, you’d need £210,000 in an initial defined contribution pot, which then goes into income drawdown at retirement.
We're aiming for at least twice this "comfortable post-tax income".
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DaftInvestor
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Re: Target Net Worth

Post by DaftInvestor » Sun Dec 31, 2017 7:22 am

aquifer wrote:
Sat Dec 30, 2017 8:50 pm
Lonestarz wrote:
Sat Dec 30, 2017 7:57 pm
Desired annual income / 3.5% = target. Enough discretionary to cover unplanned expenses and market downturns.
This. I used 3%, but the idea is the same. I plan to withdraw 3% annually from my portfolio upon reaching retirement. I'm expecting social security to pay for only health insurance/medicare, and nothing more. It may or may not work that way, but you have to go with an assumption of some kind.
This - and I am NOT using my net worth in the calculation but rather investment accounts (e.g. not counting my house nor other possessions).

Stormbringer
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Re: Target Net Worth

Post by Stormbringer » Sun Dec 31, 2017 7:32 am

FrugalInvestor wrote:
Sat Dec 30, 2017 10:02 pm
Be careful not to conflate 'net worth' with income producing assets. Your home, auto, household goods, etc. generally produce expense not income, so shouldn't be included when considering how much you have to support expenses in retirement. The exception would be if you plan to downsize considerably or relocate from a high cost of living to a low cost of living area in which case a portion of that value may be released but certainly not all of it.
The value of the home doesn't show up as income, but rather as reduced expenses. Consider two retirees with $1M of income producing assets:
  • One owns a home free and clear.
  • One rents a home.
Assuming the homes are comparable, the second retiree is going to have higher expenses than the first.

To put some numbers on that:
  • In my city a brand new 2-BR condo downtown would cost you about $350,000, plus about $700 a month in taxes and $200 in condo association dues, or about $900 a month total.
  • The same condo would rent for $2,200 a month.
"Compound interest is the most powerful force in the universe." - Albert Einstein

mmcmonster
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Re: Target Net Worth

Post by mmcmonster » Sun Dec 31, 2017 7:58 am

thangngo wrote:
Sat Dec 30, 2017 11:48 pm
raisinsaregrapes wrote:
Sat Dec 30, 2017 6:55 pm
What is you target net worth and how did you come up with it?
It changes every year and I get a new target at the end of each year. My new one is $5M. Keep raising the bar for myself.

Cheers! :sharebeer
$5M is a floor for me. At that point I will almost certainly slow down at work and enjoy my nights and weekends a bit more than I do today. Aiming to hit the target in 2023, with any luck. God willing my family and I will be as healthy then as we are now.

raisinsaregrapes
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Re: Target Net Worth

Post by raisinsaregrapes » Sun Dec 31, 2017 8:09 am

Thanks all for the replies. My wife and I are going to set some goals at the new year.

Doing the math some of you were using, I think my number will be 4m. With about 1.5 in a house, and 2.5 producing about 100k. To be updated as life goes on.

WolfgangPauli
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Re: Target Net Worth

Post by WolfgangPauli » Sun Dec 31, 2017 8:51 am

raisinsaregrapes wrote:
Sun Dec 31, 2017 8:09 am
Thanks all for the replies. My wife and I are going to set some goals at the new year.

Doing the math some of you were using, I think my number will be 4m. With about 1.5 in a house, and 2.5 producing about 100k. To be updated as life goes on.
$1.5 in a house - 37.5% in an illiquid asset seems an awful lot to me. I am going for about 11%. the only way I would take that risk is if I lived in San Francisco or San Jose and then, of course, $4M would not even be close to what you need. Imagine if the economy tanked right when you retire or really close.. the $1.5M could be a lot less and unsellable at that point.

Also, don't forget, home equity interest is no longer deductible so the days of having an open HELOC "just in case" just became very expensive.
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MikeG62
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Re: Target Net Worth

Post by MikeG62 » Sun Dec 31, 2017 9:06 am

DaftInvestor wrote:
Sun Dec 31, 2017 7:22 am
aquifer wrote:
Sat Dec 30, 2017 8:50 pm
Lonestarz wrote:
Sat Dec 30, 2017 7:57 pm
Desired annual income / 3.5% = target. Enough discretionary to cover unplanned expenses and market downturns.
This. I used 3%, but the idea is the same. I plan to withdraw 3% annually from my portfolio upon reaching retirement. I'm expecting social security to pay for only health insurance/medicare, and nothing more. It may or may not work that way, but you have to go with an assumption of some kind.
This - and I am NOT using my net worth in the calculation but rather investment accounts (e.g. not counting my house nor other possessions).
As I was planning for retirement (5, 10, 15 years out), my goal was "Expected Retirement Expenses / 3.5%". When I got closer to retirement (about one to two years out), I refined the calculation increasing expected retirement expenses (largely to reflect updated expectations for travel and entertainment spending) and reducing the denominator to 3.25%. Completed our second full year of retirement in 2017 and our spend rate came in at 2.61%, due to a combination of strong equity market returns (about 2/3rds of the delta) and underspend on our retirement budget (about 1/3rd of the delta)

In addition, as early retirees (I at 53 an DW at 51 when we retired) these numbers assume none of our expected retirement expenses are covered by SS. Neither of us have pensions either. So we need to finance all of our retirement spending with our financial assets (at least for a very long while). Of course, once we are collecting SS (plan is not to begin until I reach 70) a portion of our spend will be financed through SS income reducing the % financed from our invested assets.

Also, agree with DaftInvestor, I do not include home equity in the calculation - only financial asset (equities, fixed income and cash). I'd only consider using a portion of it if I intended to relocate in retirement to a much less expensive area/home and invest the excess funds along with our other financial assets. Even then, I'd be very conservative with the math. FWIW, I assume we remain in a very HCOL area (in the same home) forever, although that is unlikely to be the case in reality (we will eventually move to a smaller and less expensive (to buy and maintain) home). Just adds another element of conservatism to my model.
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staythecourse
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Re: Target Net Worth

Post by staythecourse » Sun Dec 31, 2017 9:30 am

Stormbringer wrote:
Sun Dec 31, 2017 7:32 am
FrugalInvestor wrote:
Sat Dec 30, 2017 10:02 pm
Be careful not to conflate 'net worth' with income producing assets. Your home, auto, household goods, etc. generally produce expense not income, so shouldn't be included when considering how much you have to support expenses in retirement. The exception would be if you plan to downsize considerably or relocate from a high cost of living to a low cost of living area in which case a portion of that value may be released but certainly not all of it.
The value of the home doesn't show up as income, but rather as reduced expenses. Consider two retirees with $1M of income producing assets:
  • One owns a home free and clear.
  • One rents a home.
Assuming the homes are comparable, the second retiree is going to have higher expenses than the first.

To put some numbers on that:
  • In my city a brand new 2-BR condo downtown would cost you about $350,000, plus about $700 a month in taxes and $200 in condo association dues, or about $900 a month total.
  • The same condo would rent for $2,200 a month.
Good points, but it isn't that simple. You have to take the next step and calculate the opportunity cost of dropping 350k down in a house vs. the monthly rental fee- home owners insurance+ property tax+ maintenance. That 350k could have been invested instead and potentially growing that whole time in whatever asset allocation you would want. That equity is locked into the house so unless one is going to do a reverse mortgage it is a cost itself that the renter does not have. Does that make sense?

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

mnnice
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Re: Target Net Worth

Post by mnnice » Sun Dec 31, 2017 9:40 am

To put some numbers on that:
  • In my city a brand new 2-BR condo downtown would cost you about $350,000, plus about $700 a month in taxes and $200 in condo association dues, or about $900 a month total.
  • The same condo would rent for $2,200 a month.
[/quote]

You know this is about a wash? The safe withdrawal rate of 4% would give you $1167 monthly to spend plus $900 of taxes and association fees or $2067. This doesn’t account for any maintenance or special assessments. Not exactly a compelling case for one vs the other in my opinion.

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bobcat2
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Re: Target Net Worth

Post by bobcat2 » Sun Dec 31, 2017 9:50 am

Sandtrap wrote:
Sat Dec 30, 2017 11:05 pm

I never had a "target net worth". It's just something that turned out better than I expected by the time thoughts of retirement age came around. Along the way, I did try to make sure I was always far ahead of the curve.

What's more important to me was not "net worth" but projected net income. Or, (the) "Funded Ratio".
The funded ratio is a concept borrowed from the pension world. For individuals it is a metric used to monitor your retirement investment plan.

The funded ratio (FR) tells you how much of your retirement income goal you can purchase today. It is simply the ratio of your assets to your liabilities, where the assets are the size of your portfolio and the liabilities are the present value (PV) of your targeted retirement income stream. A relatively easy and straightforward way to estimate the PV of the liabilities in the denominator is to price a deferred real life annuity that has payouts that match your targeted retirement income and begins payments in your expected retirement year.

FR = assets/(PV) liabilities

Link to funded ratio thread - viewtopic.php?f=10&t=219878
That TIAA-CREF example reinforces the need for goal- or liability-driven investing. …Regarding the example, it is important to decide whether the pot is a savings account or a retirement account. It is hard to have two different goals because they conflict. One calls for having principal stability, which is a Treasury bill. The other calls for standard-of-living and income stability, which is a long-term bond. You cannot have both.

If you get clients to focus on rates of return and asset mixes, it is likely to be the wrong approach. You should get people to determine their goals instead of asking them how much they want to put in real estate.

Everyone in this room knows what people want for retirement. It is an income. Social security gives an income. DB plans give an income. In DC plans, for some reason, we do not show people the funded ratio. We are showing them the wrong thing, and then we are saying they are making the wrong decisions. We are telling people that risk is the value of their fund, when risk is really how much income they can sustain for retirement.
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In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

ready53
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Re: Target Net Worth

Post by ready53 » Sun Dec 31, 2017 10:54 am

When talking about Net Worth, don't you need to distinguish between taxable accounts and retirement accounts? $4M Net Worth in a taxable account certainly has more value than $4M in a retirement account due to tax considerations. That seems to me to be consistently overlooked.

Bacchus01
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Re: Target Net Worth

Post by Bacchus01 » Sun Dec 31, 2017 10:58 am

$10M

Why? Because I like the sound of it.

That number is not what we will achieve before I retire. I will continue to build to it.

sambb
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Re: Target Net Worth

Post by sambb » Sun Dec 31, 2017 11:25 am

To the OP - your orignial question aboiut target is interesting, but more interesting is HOW one came up with it - (your second question).
Many here use 25-40x expenses, but one time i read a thread that this also depends on inflation. If inflation is high, then it is harder to judge. There are other confounders - does one want to leave inheritance, or spend more in retirement, or less? Current expenses could go up or could go down in retirement. THen there is healthcare, and perhaps long term care. I wonder if anyone has a way to account for all the variable or a list of them at least.

moneywise3
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Re: Target Net Worth

Post by moneywise3 » Sun Dec 31, 2017 11:29 am

$20M in today's dollars in about 20 years.
Expect my NW to increase exponentially from this point onwards.

travellight
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Re: Target Net Worth

Post by travellight » Sun Dec 31, 2017 11:32 am

thangngo wrote:
Sat Dec 30, 2017 11:48 pm
raisinsaregrapes wrote:
Sat Dec 30, 2017 6:55 pm
What is you target net worth and how did you come up with it?
It changes every year and I get a new target at the end of each year. My new one is $5M. Keep raising the bar for myself.

Cheers! :sharebeer
Ditto. It was never lower than 2 million which was my theoretical goal in my early 30s. It drifted up to 4 million at some point. Now, it is at 10 million, but that includes pension but not SS. Or, 3 bucket retirement income yearly of 350k/year (pension, real estate net income, retirement accounts).

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rocket354
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Re: Target Net Worth

Post by rocket354 » Sun Dec 31, 2017 11:56 am

staythecourse wrote:
Sun Dec 31, 2017 9:30 am
Stormbringer wrote:
Sun Dec 31, 2017 7:32 am
FrugalInvestor wrote:
Sat Dec 30, 2017 10:02 pm
Be careful not to conflate 'net worth' with income producing assets. Your home, auto, household goods, etc. generally produce expense not income, so shouldn't be included when considering how much you have to support expenses in retirement. The exception would be if you plan to downsize considerably or relocate from a high cost of living to a low cost of living area in which case a portion of that value may be released but certainly not all of it.
The value of the home doesn't show up as income, but rather as reduced expenses. Consider two retirees with $1M of income producing assets:
  • One owns a home free and clear.
  • One rents a home.
Assuming the homes are comparable, the second retiree is going to have higher expenses than the first.

To put some numbers on that:
  • In my city a brand new 2-BR condo downtown would cost you about $350,000, plus about $700 a month in taxes and $200 in condo association dues, or about $900 a month total.
  • The same condo would rent for $2,200 a month.
Good points, but it isn't that simple. You have to take the next step and calculate the opportunity cost of dropping 350k down in a house vs. the monthly rental fee- home owners insurance+ property tax+ maintenance. That 350k could have been invested instead and potentially growing that whole time in whatever asset allocation you would want. That equity is locked into the house so unless one is going to do a reverse mortgage it is a cost itself that the renter does not have. Does that make sense?

Good luck.
Very true. As well, depending on the complex, the owner would be responsible out-of-pocket for more repairs.

On the other side, the home is, theoretically, appreciating at the rate of inflation (so likely around 2%, highly variable, going forward). That is illiquid, but has value if/when one were to move or downsize, or take out a HELOC, or in terms of inheritance. Additionally, the rent one pays would be increasing over time. Also, using the given numbers, the $350k in the home supplies stable value: a guaranteed $1300/month that goes directly towards living costs and increases as rents increase. $350k in the market would be much more highly volatile in terms of month-to-month spending power--stabilizing it a bit by using the 4% rule, which many seem to think is now too much, that supplies less than $1200/mo.

So there's a lot that goes into the rent vs buy calculation.

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