Reply to Counting home value in net worth

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]We met with a financial advisor at Schwab a few years ago to come up with a retirement funding plan.  In the process, they calculated our "net worth."  It's very straightforward:  assets minus liabilities.  We have two homes, together worth about $2.5 million, but have a $600k mortgage on one of them.  So the advisor included the $1.9 million we have in equity as part of our net worth.

Then, when coming up with our numbers, the advisor assigned that part of our net worth to "not funding goals."

That's how this works, folks.  "Net worth" is a defined financial term -- assets minus liabilities -- and as such it includes the value of your real estate minus mortgages.  Whether you use it or not for retirement planning is a separate and irrelevant issue.[/quote]

I just don’t care what my net worth is if it includes assets like my home, which I do not plan to liquidate to fund my lifestyle. So I don’t really bother tracking it. The metric I think is useful is the value of my investments, both taxable and in retirement accounts. Technically we’re worth more than I think we are, possibly significantly more, but so what?[/quote]

It's not just about whether you care.

Funding your lifestyle in retirement isn't the only reason why your net worth is calculated,

Insurance companies will require your net worth, which must include the equity in your home. Financial advisors will also need to consider your home equity to accurately calculate your net worth for financial planning.

[/quote]

It is just about whether I care. Insurance companies don’t care what my net worth is, they care whether I pay the premium for the insurance I buy. And my financial adviser plans for my finances the way I ask them to, so if I tell them not to consider my home equity in assessing whether I have enough money, they won’t. [/quote]
You don’t know how insurance works. Insurers need to make sure you aren’t a fraud. No insurance company will approve a high value policy if you don’t have a net worth that justifies it.
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Well, my term insurance policy face value is for less than my net worth. But I think they’d have been fine selling me a larger policy if I paid them for it. Odds are they won’t ever have to pay it out anyway. [/quote]

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