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  • jfoxcpacfp jfoxcpacfp 
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    Examples: if you plan to sell your home and rent in retirement, then include home equity in the net worth calculation.  If you plan to die in your home and you are planning for retirement, then don’t include the home.

    Click to expand…

    One of the few times I’ve disagreed with you, maybe the only. Your home will be included in your estate value and, for many docs in the future, this will be an important number for estate planning purposes. I would include it if you are HNW. If you’re ok keeping track of 2 numbers, I suppose that works just fine, but the home has value to you beyond a place to sleep – for ex, in extreme circumstances, for a reverse mortgage. And you may change your plans about dying there as you age – it happens. I’ve definitely changed my views at 62. But, as posted earlier, just be consistent.

    Now I’m not so sure I’ve disagreed. Maybe we can call that an alternate viewpoint 😉

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #204317 Reply
    White.Beard.Doc White.Beard.Doc 
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    Status: Physician
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    Joined: 02/06/2016
    Examples: if you plan to sell your home and rent in retirement, then include home equity in the net worth calculation.  If you plan to die in your home and you are planning for retirement, then don’t include the home. 

    Click to expand…

    One of the few times I’ve disagreed with you, maybe the only. Your home will be included in your estate value and, for many docs in the future, this will be an important number for estate planning purposes. I would include it if you are HNW. If you’re ok keeping track of 2 numbers, I suppose that works just fine, but the home has value to you beyond a place to sleep – for ex, in extreme circumstances, for a reverse mortgage. And you may change your plans about dying there as you age – it happens. I’ve definitely changed my views at 62. But, as posted earlier, just be consistent.

    Click to expand…

    What I was trying to say, not very eloquently, if you are looking at retirement planning and using the 4% rule, while still planning to live in your home, then don’t include home value when applying the 4% rule.  For estate planning purposes, of course you would need to include the value of your home.

    Said another way, each bucket of assets requires a different analysis when planning for retirement income vs for estate planning.

    #204323 Reply
    Lordosis Lordosis 
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    Status: Physician
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    Joined: 02/11/2019

    Net worth vs retirement funds

    “Never let your sense of morals prevent you from doing what is right.”

    #204327 Reply
    Avatar Kamban 
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    Status: Physician
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    Joined: 08/01/2016

    Net Worth – Include Home value if sold today minus the liability of Mortgage, HELOC and any other loans associated with it. I do not include children’s 529 or UGMA unless you are planning to pull the rug underneath them in the last minute.

    For retirement net worth I look at my residential situation in retirement. If I am going to live in the same house I do not include it in my worth but if I plan to sell and either rent or move into a less expensive home I might include the difference minus the capital gains tax paid. This is not quite clear cut until I approach close to retirement.

    The problem becomes apparent like in the case of a recent poster here who had a net worth of $2.7M or so but almost $2M was tied to the house. Unless he planned to sell the house and rent/move into less expensive one/move to different state he will not have sufficient funds for retirement and is a paper tiger multimillionaire.

    #204328 Reply
    Liked by hatton1
    Avatar orthodds 
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    The strange animus re:expensive homes comes from opportunity cost and utility not realized. On the first matter you tie more assets up in a low performing asset when it could have done better elsewhere. That sacrifice has real consequences re: financial safety earlier in life, inheritance, college funding, and ability to retire when you want. The latter concept is important as well, as I’m sure any person buying an expensive home (in excess of what achieves objective gains such as putting you in a good school district) originally bought it because they perceived life would be X% better by executing the purchase. But when the reality of higher taxes, more upkeep and more expensive upkeep sets in I’d bet a fair number of people wished they had simpler lives. Do some get persistent utility from owning a big home with many rooms, a pool, tennis court and jacuzzi? Sure. But if the perceived utility doesn’t meet reality then you’ve not only sacrificed a lot in opportunity cost but purchased something at low value. And I personally look down on utility derived from status (bragging), if that has anything to do with the purchase, as that represents a misunderstanding of where individual worth is derived from.

    Click to expand…

    I agree with your analysis of opportunity cost and unrealized utility.  Those are good points.  When I have made home buying or home building decisions I have done this analysis myself and put numbers to it and projected it out 10-20-30 years to really try to understand the impact.  I think you will find broad agreement on the downsides to buying or building more house than is practically necessary–although the word “necessary” is open to interpretation.

    If you are looking at YOUR finances and developing an animus toward expensive houses that’s one thing.  However, if you get worked up about someone ELSE going with an expensive house then that’s where it gets a little strange.  Reminding someone about the cost/utility analysis is probably a helpful exercise, but I’ve noticed the discussion often goes well beyond that.  Maybe it has something to do with your last sentence?  I don’t presume to know what someone was thinking when they bought or built a particular house.  Did they do it for status or bragging reasons?  I don’t have any idea and therefore don’t spend half a second wondering.  There will always be someone with a lot more money, a more expensive house, a more expensive car etc.  I just don’t care at all what anyone thinks about me and I don’t pass judgement on anyone else.  I assume everyone has their own circumstances and reasons for doing things and that they are doing the best with what they have (unless they prove me wrong and they are truly up to something sinister).  If you get right down to it I believe everyone has the exact same individual worth which is why I think we should treat everybody with the same respect we would hope to be treated with.

    For the sake of this discussion, I’m just saying net worth has a definition and that I think it muddies the waters unnecessarily to try to say it doesn’t include something like home equity when the definition of net worth so clearly does include it.  There are other terms like “invested assets” or “retirement assets” or whatever you might want to go with that could exclude home equity.  Everyone’s situation is different so how these assets are used in calculating something like the 4% rule might be different from person to person, but language has meaning and I think it helps if everyone uses the correct definition of words.

    #204349 Reply
    Liked by hatton1, ENT Doc
    Avatar Tim 
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    Joined: 09/18/2018

    Assets – Liabilities = Net Worth
    all stated at fair market value

    The number alone is of no value. Paying an electric bill may not be possible. The appropriate metric depends on the purpose and intents and the details.

    Cash & IRA’ – titled with rights of survivorship outside of the estate.
    Home with transfer on death deed. With a mortgage.

    Drastically different numbers for Estate planning vs retirement planning vs tax planning. Liquidity and intent are also big factors.

    Use a NW metric for your personal plan that is easy and use it consistently. Stay out of the weeds.

    #204357 Reply
    ENT Doc ENT Doc 
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    Status: Physician
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    Joined: 01/14/2017

    The strange animus re:expensive homes comes from opportunity cost and utility not realized. On the first matter you tie more assets up in a low performing asset when it could have done better elsewhere. That sacrifice has real consequences re: financial safety earlier in life, inheritance, college funding, and ability to retire when you want. The latter concept is important as well, as I’m sure any person buying an expensive home (in excess of what achieves objective gains such as putting you in a good school district) originally bought it because they perceived life would be X% better by executing the purchase. But when the reality of higher taxes, more upkeep and more expensive upkeep sets in I’d bet a fair number of people wished they had simpler lives. Do some get persistent utility from owning a big home with many rooms, a pool, tennis court and jacuzzi? Sure. But if the perceived utility doesn’t meet reality then you’ve not only sacrificed a lot in opportunity cost but purchased something at low value. And I personally look down on utility derived from status (bragging), if that has anything to do with the purchase, as that represents a misunderstanding of where individual worth is derived from.

    Click to expand…

    I agree with your analysis of opportunity cost and unrealized utility.  Those are good points.  When I have made home buying or home building decisions I have done this analysis myself and put numbers to it and projected it out 10-20-30 years to really try to understand the impact.  I think you will find broad agreement on the downsides to buying or building more house than is practically necessary–although the word “necessary” is open to interpretation.

    If you are looking at YOUR finances and developing an animus toward expensive houses that’s one thing.  However, if you get worked up about someone ELSE going with an expensive house then that’s where it gets a little strange.  Reminding someone about the cost/utility analysis is probably a helpful exercise, but I’ve noticed the discussion often goes well beyond that.  Maybe it has something to do with your last sentence?  I don’t presume to know what someone was thinking when they bought or built a particular house.  Did they do it for status or bragging reasons?  I don’t have any idea and therefore don’t spend half a second wondering.  There will always be someone with a lot more money, a more expensive house, a more expensive car etc.  I just don’t care at all what anyone thinks about me and I don’t pass judgement on anyone else.  I assume everyone has their own circumstances and reasons for doing things and that they are doing the best with what they have (unless they prove me wrong and they are truly up to something sinister).  If you get right down to it I believe everyone has the exact same individual worth which is why I think we should treat everybody with the same respect we would hope to be treated with.

    For the sake of this discussion, I’m just saying net worth has a definition and that I think it muddies the waters unnecessarily to try to say it doesn’t include something like home equity when the definition of net worth so clearly does include it.  There are other terms like “invested assets” or “retirement assets” or whatever you might want to go with that could exclude home equity.  Everyone’s situation is different so how these assets are used in calculating something like the 4% rule might be different from person to person, but language has meaning and I think it helps if everyone uses the correct definition of words.

    Click to expand…

    Excellent points.  It’s never my intention to shame anyone – more to try jostle them a bit and make them realize what they are sacrificing and hopefully getting them to think about what that purchase really means.  If they do that analysis, as I’ve stated on this or perhaps another thread, I have zero problem with it when asked my opinion on it (which these posts explicitly or implicitly do).  My last statement was more on a personal note when I know someone well enough to know they’re doing it to be a braggart – also to explain why you might see some negative commentary come out.  Not to say it’s right, because as you said you don’t know motive in the majority of these cases.  I could not attribute those motives to the vast majority of forum members since I don’t know anyone personally, unless they explicitly state that they’re doing it as a status symbol (not applicable here, and a rarity but has been done).  And then in those cases if a little snarkiness comes out it’s because I take issue with that behavior in general – just like anyone would with behavior they deem less than ideal.  It’s not like we teach our kids to brag about themselves, or at least I hope we don’t.  Boasting and bragging aren’t good qualities IMO.  Also, the search for high quality, which may ultimately manifest in the purchase of a Mercedes, Tesla or nicer home, is different from the search for attention.

    #204364 Reply
    Vagabond MD Vagabond MD 
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    Status: Physician
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    I exclude home equity value, car value, and other tangible property. I also exclude 529s, UTMAs, and other children’s assets or allocations.

    It really depends on what you plan to do with the number. I consider net worth it to be my nest egg, what will feed, cloth, sustain, and entertain me when I stop earning money from working a job (if I ever do). On the other hand, I assume that the value locked in the house will be my housing allocation throughout my life, an asset that will not generate revenue or feed or cloth me (though it potentially could).

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #204374 Reply
    Liked by CM, Kamban
    hatton1 hatton1 
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    Status: Physician
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    Joined: 01/11/2016

    I believe you need two types of numbers.  One is your total net worth and the other is your financial net worth which is where you do the 4% rule calculation.

    #204383 Reply
    MPMD MPMD 
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    Status: Physician
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    Earnest refinancing bonus

    If we agree to use correct definitions of words and we are all using standard english, then NW is assets minus liabilities.  An asset is something that has economic value which can be expressed in dollars.  A liability is a financial debt or obligation to pay a certain amount and it is also expressed in terms of dollars.  The rest is simple math.

    Whether you include home equity as part of your retirement planning is a different question.  Net worth is net worth.  If you don’t want to include home equity in the total then you are talking about something other than net worth.  Maybe you are talking about “retirement assets” or “invested assets” or whatever.  That’s a different concept and is not net worth.

    This topic has been beaten to death on other sites such as bogleheads.  Some people want net worth to mean something other than what it means.  I’m not sure why that is.  There does seem to be a strange animus toward homes–particularly “expensive” homes–on sites like bogleheads and to some extent on this forum.

    Click to expand…

    This is my position. It triggers me a little bit (not much) when someone floats out something else.

    Like I’ve said on other threads not including your home equity is like subtracting your gut from your weight.

    Also not including home equity in NW makes zero sense in the extreme cases

    1. You bought a place for $200k in an area that has gone bonkers and it’s now worth $800k

    2. You are underwater $200k on your house.

    I know people who have sold in both of those situations. It’s sure real money when you do that transaction.

    So for option #2 you have zero cash on hand, no debt, and $100k in retirement, and you desperately want to sell your house. Are you worth $100k? Not by a long shot.

    #204403 Reply
    Lordosis Lordosis 
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    Status: Physician
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    Joined: 02/11/2019

     

    Like I’ve said on other threads not including your home equity is like subtracting your gut from your weight.

     

    Click to expand…

    But I plan to lose the gut in retirement so it does not count.

    “Never let your sense of morals prevent you from doing what is right.”

    #204407 Reply
    Avatar Laeno 
    Participant
    Status: Physician
    Posts: 43
    Joined: 05/30/2016

    I include my home equity in my NW, but I don’t include my other physical items–cars, guns, lawn equipment, furniture, etc.  Granted, they have a value that can be sold, but that’s just way too deep in minutiae for me.

    I think trying to use “net worth” when talking about what you have for retirement, 4% rule, etc. is what makes people argue about what it actually is.  NW just shouldn’t be used for that, but there’s not another widely accepted/used term that fits that people agree on.

    #204419 Reply
    Liked by Lordosis
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2590
    Joined: 09/18/2018

    Net Retirement assets!
    The term is easy. The definition is a PITA.
    Please don’t start over. You win!
    I wonder how much FLP counts the watch?
    Might become a family heirloom.
    My grandfather’s fake Rolex is not for sale.
    Priceless.

    #204426 Reply
    Liked by Laeno, Lordosis
    Lordosis Lordosis 
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    Status: Physician
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    Joined: 02/11/2019

    I don’t think many people include those smaller items. Unless you happen to have quite the car/gun/lawnmower collection. A buddy of mine has easily 100k in guns. I would count that. Same if I had a fleet of Bentleys or other luxury car.

    “Never let your sense of morals prevent you from doing what is right.”

    #204427 Reply
    Liked by Laeno, Tim
    Avatar orthodds 
    Participant
    Status: Dentist
    Posts: 124
    Joined: 11/07/2017

    The strange animus re:expensive homes comes from opportunity cost and utility not realized. On the first matter you tie more assets up in a low performing asset when it could have done better elsewhere. That sacrifice has real consequences re: financial safety earlier in life, inheritance, college funding, and ability to retire when you want. The latter concept is important as well, as I’m sure any person buying an expensive home (in excess of what achieves objective gains such as putting you in a good school district) originally bought it because they perceived life would be X% better by executing the purchase. But when the reality of higher taxes, more upkeep and more expensive upkeep sets in I’d bet a fair number of people wished they had simpler lives. Do some get persistent utility from owning a big home with many rooms, a pool, tennis court and jacuzzi? Sure. But if the perceived utility doesn’t meet reality then you’ve not only sacrificed a lot in opportunity cost but purchased something at low value. And I personally look down on utility derived from status (bragging), if that has anything to do with the purchase, as that represents a misunderstanding of where individual worth is derived from.

    Click to expand…

    I agree with your analysis of opportunity cost and unrealized utility.  Those are good points.  When I have made home buying or home building decisions I have done this analysis myself and put numbers to it and projected it out 10-20-30 years to really try to understand the impact.  I think you will find broad agreement on the downsides to buying or building more house than is practically necessary–although the word “necessary” is open to interpretation.

    If you are looking at YOUR finances and developing an animus toward expensive houses that’s one thing.  However, if you get worked up about someone ELSE going with an expensive house then that’s where it gets a little strange.  Reminding someone about the cost/utility analysis is probably a helpful exercise, but I’ve noticed the discussion often goes well beyond that.  Maybe it has something to do with your last sentence?  I don’t presume to know what someone was thinking when they bought or built a particular house.  Did they do it for status or bragging reasons?  I don’t have any idea and therefore don’t spend half a second wondering.  There will always be someone with a lot more money, a more expensive house, a more expensive car etc.  I just don’t care at all what anyone thinks about me and I don’t pass judgement on anyone else.  I assume everyone has their own circumstances and reasons for doing things and that they are doing the best with what they have (unless they prove me wrong and they are truly up to something sinister).  If you get right down to it I believe everyone has the exact same individual worth which is why I think we should treat everybody with the same respect we would hope to be treated with.

    For the sake of this discussion, I’m just saying net worth has a definition and that I think it muddies the waters unnecessarily to try to say it doesn’t include something like home equity when the definition of net worth so clearly does include it.  There are other terms like “invested assets” or “retirement assets” or whatever you might want to go with that could exclude home equity.  Everyone’s situation is different so how these assets are used in calculating something like the 4% rule might be different from person to person, but language has meaning and I think it helps if everyone uses the correct definition of words.

    Click to expand…

    Excellent points.  It’s never my intention to shame anyone – more to try jostle them a bit and make them realize what they are sacrificing and hopefully getting them to think about what that purchase really means.  If they do that analysis, as I’ve stated on this or perhaps another thread, I have zero problem with it when asked my opinion on it (which these posts explicitly or implicitly do).  My last statement was more on a personal note when I know someone well enough to know they’re doing it to be a braggart – also to explain why you might see some negative commentary come out.  Not to say it’s right, because as you said you don’t know motive in the majority of these cases.  I could not attribute those motives to the vast majority of forum members since I don’t know anyone personally, unless they explicitly state that they’re doing it as a status symbol (not applicable here, and a rarity but has been done).  And then in those cases if a little snarkiness comes out it’s because I take issue with that behavior in general – just like anyone would with behavior they deem less than ideal.  It’s not like we teach our kids to brag about themselves, or at least I hope we don’t.  Boasting and bragging aren’t good qualities IMO.  Also, the search for high quality, which may ultimately manifest in the purchase of a Mercedes, Tesla or nicer home, is different from the search for attention.

    Click to expand…

    Totally agree.  Well said.

    #204439 Reply
    Liked by ENT Doc

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