Question for those of you to track your net worth

[Anonymous]

I don’t reduce my salary by my taxable rate when I use it to estimate the 401k income I want in retirement, though I know taxes are out in both. If I factored taxes into both then that would be comparable, but it seems like extra work when I can just compare current salary to projected 401k withdrawals.

[Anonymous]

Why do so many folks insist on complicating such an extremely simple concept?

Do you also multiply your salary by .65 and pretend it’s a meaningful action?

[Anonymous]

I worked at Brown Brothers Harriman where actual super wealthy bank.

We only tracked “investable assets” or free money. Theory was that is all you can spend or invest. Under that metric most people in DCOM are poor.

Stocks, bonds, real estate, 401ks, IRAs, Gold, Cars all zero.

I recall one very very wealthy lady back in 1997 I was helping. She had 100 million in cash in 1997. She did have 900 million in stocks. Plus 100 million in bonds and REITs.

But the 100 million was her only number we cared about as that was only money she could spend or invest. Literally wanted cash in case business opportunity, mansion she could write did someone was selling a 50 million dollar house in Southampton in a distress sale for $40 million write a check or get in a pre IPO investment write a check.

What amazed me her onr billion was throwing off 100 million in dividends, interest, capital gains each year. So that 100 million built up quick

[Anonymous]

Anonymous wrote:I worked at Brown Brothers Harriman where actual super wealthy bank.

We only tracked “investable assets” or free money. Theory was that is all you can spend or invest. Under that metric most people in DCOM are poor.

Stocks, bonds, real estate, 401ks, IRAs, Gold, Cars all zero.

I recall one very very wealthy lady back in 1997 I was helping. She had 100 million in cash in 1997. She did have 900 million in stocks. Plus 100 million in bonds and REITs.

But the 100 million was her only number we cared about as that was only money she could spend or invest. Literally wanted cash in case business opportunity, mansion she could write did someone was selling a 50 million dollar house in Southampton in a distress sale for $40 million write a check or get in a pre IPO investment write a check.

What amazed me her onr billion was throwing off 100 million in dividends, interest, capital gains each year. So that 100 million built up quick

That is absolutely not how most banks view “investable assets” or “ liquid net worth”. Liquid DOES include stocks because they can be sold rapidly, unlike say real estate. Liquid has never meant just cash.

[Anonymous]

Anonymous wrote:How do you deal with 401k assets? Do you include them in your net worth pre-tax or do you apply a factor to reduce their value to account for taxes when you ultimately withdraw?

Right now, I multiply my 401k assets by .65 to account for future taxes.

OP.. It's simple and practical to keep track of just your liquid net worth (exclude RE; include 529) for retirement planning at full value. All assets ( (except Roth IRAs) have a tax liability attached to them, unless managed, and it gets cumbersome if you start factoring that in. 65+ retirees get additional tax deductions and you could withdraw 100K+ and get away with paying zero to very low tax. Deal with taxes as an expense. If you need to spend, say $200K/yr in retirement, plan on a 20% overall tax on your withdrawal vs. reducing your assets by 35% and zero tax in retirement.

I know some pedantic idiot will come by to yap about my treatment of 529 and RE. Here's how to deal with it:

529 - Treat the balance as an asset and withdrawals as an expense. The money you have is yours, any balance left over is yours as well to gift your grandkids later, or just withdraw, pay penalty and spend. Excluding it makes no sense.

RE - You always need a roof over your head. If your have "excess RE" (live in a fully paid off $4M house but can easily downsize to a $1M house, have investment property, etc), by all means include that excess into your net worth. Otherwise ignore. Treat mortgage payments as an expense.

[Anonymous]

Look there is no one I officially report by net worth to - it is something I try to assess every once in a while for my own benefit. And to keep it as meaningful for me as possible, I do roughly factor in taxes.

For example, I have $1M in a regular IRA and $1M in a Roth IRA. I do not consider those two accounts to be equally valuable - because the Roth one is not going to be taxed so it is worth more to me.

Similarly, I am in the highest tax bracket and planning to work for 10 + years (hopefully at this income level) and just inherited a $2M in an IRA. Do I consider myself $2M richer? Nope I consider myself to be about $1.15M richer because I mentally net out the taxes.

[Anonymous]

Anonymous wrote:Look there is no one I officially report by net worth to - it is something I try to assess every once in a while for my own benefit. And to keep it as meaningful for me as possible, I do roughly factor in taxes.

For example, I have $1M in a regular IRA and $1M in a Roth IRA. I do not consider those two accounts to be equally valuable - because the Roth one is not going to be taxed so it is worth more to me.

Similarly, I am in the highest tax bracket and planning to work for 10 + years (hopefully at this income level) and just inherited a $2M in an IRA. Do I consider myself $2M richer? Nope I consider myself to be about $1.15M richer because I mentally net out the taxes.

Net worth is not a useful substitute for cash flow analyses, which indeed should incorporate taxes as an annual expense. For most people, projecting growth of income and expenses to and after retirement is the valuable exercise. Net worth is only tangentially relevant to that, to the extent that your assets can be 1) expected to grow at a certain rate over time, and 2) expected to generate a certain amount of dividends/interest/capital gains at specific points in time, which you can use to offset your anticipated expense, including taxes.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I worked at Brown Brothers Harriman where actual super wealthy bank.

We only tracked “investable assets” or free money. Theory was that is all you can spend or invest. Under that metric most people in DCOM are poor.

Stocks, bonds, real estate, 401ks, IRAs, Gold, Cars all zero.

I recall one very very wealthy lady back in 1997 I was helping. She had 100 million in cash in 1997. She did have 900 million in stocks. Plus 100 million in bonds and REITs.

But the 100 million was her only number we cared about as that was only money she could spend or invest. Literally wanted cash in case business opportunity, mansion she could write did someone was selling a 50 million dollar house in Southampton in a distress sale for $40 million write a check or get in a pre IPO investment write a check.

What amazed me her onr billion was throwing off 100 million in dividends, interest, capital gains each year. So that 100 million built up quick

That is absolutely not how most banks view “investable assets” or “ liquid net worth”. Liquid DOES include stocks because they can be sold rapidly, unlike say real estate. Liquid has never meant just cash.

That’s why he “worked.”

[Anonymous]

Anonymous wrote:How do you deal with 401k assets? Do you include them in your net worth pre-tax or do you apply a factor to reduce their value to account for taxes when you ultimately withdraw?

Right now, I multiply my 401k assets by .65 to account for future taxes.

It’s fine to apply the .65 reduction. What matters at the end is the year-to-year changes to your net worth. As long as you keep things consistent, you can meaningfully compare the changes year-to-year.

That all being said, the term “net worth” has a definition. And if you go with that definition, you will not be applying any haircuts.

The way I do it, I calculate my NW. Then I calculate many other derivatives that I find useful. For example, I exclude real estate, or money that is earmarked for certain purposes. These metrics are useful to me and I track them each year. They are not NW though.

[Anonymous]

Tax consequences of liquidation are not considered. That said I am cognizant of taxes that would be owed if I sold. And I consider the fact that our we have multi million dollar Roth IRAs to be a major plus but it doesn’t factor into the net worth calculation.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I worked at Brown Brothers Harriman where actual super wealthy bank.

We only tracked “investable assets” or free money. Theory was that is all you can spend or invest. Under that metric most people in DCOM are poor.

Stocks, bonds, real estate, 401ks, IRAs, Gold, Cars all zero.

I recall one very very wealthy lady back in 1997 I was helping. She had 100 million in cash in 1997. She did have 900 million in stocks. Plus 100 million in bonds and REITs.

But the 100 million was her only number we cared about as that was only money she could spend or invest. Literally wanted cash in case business opportunity, mansion she could write did someone was selling a 50 million dollar house in Southampton in a distress sale for $40 million write a check or get in a pre IPO investment write a check.

What amazed me her onr billion was throwing off 100 million in dividends, interest, capital gains each year. So that 100 million built up quick

That is absolutely not how most banks view “investable assets” or “ liquid net worth”. Liquid DOES include stocks because they can be sold rapidly, unlike say real estate. Liquid has never meant just cash.

Liquid means cash and cash equivalents that can be made liquid in under a year.

I can sell my house in under a year, but I may take a hit for wanting to do it in that timeframe.

Stocks are the same: not liquid, because if you are forced to sell at the wrong time they aren’t worth what you may think they are today.

[Anonymous]

Anonymous wrote:I worked at Brown Brothers Harriman where actual super wealthy bank.

We only tracked “investable assets” or free money. Theory was that is all you can spend or invest. Under that metric most people in DCOM are poor.

Stocks, bonds, real estate, 401ks, IRAs, Gold, Cars all zero.

I recall one very very wealthy lady back in 1997 I was helping. She had 100 million in cash in 1997. She did have 900 million in stocks. Plus 100 million in bonds and REITs.

But the 100 million was her only number we cared about as that was only money she could spend or invest. Literally wanted cash in case business opportunity, mansion she could write did someone was selling a 50 million dollar house in Southampton in a distress sale for $40 million write a check or get in a pre IPO investment write a check.

What amazed me her onr billion was throwing off 100 million in dividends, interest, capital gains each year. So that 100 million built up quick

Did you get fired for incompetence and failure to understand basic finance, by any chance?

[Anonymous]

Anonymous wrote:

Anonymous wrote:I worked at Brown Brothers Harriman where actual super wealthy bank.

We only tracked “investable assets” or free money. Theory was that is all you can spend or invest. Under that metric most people in DCOM are poor.

Stocks, bonds, real estate, 401ks, IRAs, Gold, Cars all zero.

I recall one very very wealthy lady back in 1997 I was helping. She had 100 million in cash in 1997. She did have 900 million in stocks. Plus 100 million in bonds and REITs.

But the 100 million was her only number we cared about as that was only money she could spend or invest. Literally wanted cash in case business opportunity, mansion she could write did someone was selling a 50 million dollar house in Southampton in a distress sale for $40 million write a check or get in a pre IPO investment write a check.

What amazed me her onr billion was throwing off 100 million in dividends, interest, capital gains each year. So that 100 million built up quick

Did you get fired for incompetence and failure to understand basic finance, by any chance?

LOL -seriously! I work in finance and this post can't be taken seriously.

[Anonymous]

Anonymous wrote:

Anonymous wrote:How do you deal with 401k assets? Do you include them in your net worth pre-tax or do you apply a factor to reduce their value to account for taxes when you ultimately withdraw?

Right now, I multiply my 401k assets by .65 to account for future taxes.

OP.. It's simple and practical to keep track of just your liquid net worth (exclude RE; include 529) for retirement planning at full value. All assets ( (except Roth IRAs) have a tax liability attached to them, unless managed, and it gets cumbersome if you start factoring that in. 65+ retirees get additional tax deductions and you could withdraw 100K+ and get away with paying zero to very low tax. Deal with taxes as an expense. If you need to spend, say $200K/yr in retirement, plan on a 20% overall tax on your withdrawal vs. reducing your assets by 35% and zero tax in retirement.

I know some pedantic idiot will come by to yap about my treatment of 529 and RE. Here's how to deal with it:

529 - Treat the balance as an asset and withdrawals as an expense. The money you have is yours, any balance left over is yours as well to gift your grandkids later, or just withdraw, pay penalty and spend. Excluding it makes no sense.

RE - You always need a roof over your head. If your have "excess RE" (live in a fully paid off $4M house but can easily downsize to a $1M house, have investment property, etc), by all means include that excess into your net worth. Otherwise ignore. Treat mortgage payments as an expense.

Except your full home you live in is part of your NW. You could sell that $1M and rent or move to a much smaller place. You have choices

[Anonymous]

Anonymous wrote:Op here.

Thanks for the responses. Shouldn’t a net worth be what you could actually realize if you had to sell everything?

No. Of course not. That's absurd and makes no financial sense.