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A FEW WEEKS AGO, my net worth hit the $1 million mark. It was a milestone I’d been looking forward to for years.
Almost a decade ago, I performed my first net worth calculation. Back then, I was recently divorced and living on my own for the first time in my life. My only assets were three retirement accounts and a seven-year-old car, plus half the proceeds from the sale of a house my ex and I had owned.
I calculated my net worth because I wanted a starting point for evaluating my financial health. My bottom line back then was $230,544. I knew conventional financial wisdom preached that folks should have at least $1 million saved before they retire. Having a net worth of less than one-quarter of that amount—at age 45—served as a reality check. I made the decision to dedicate the next several years to shoring up my finances.
That involved setting goals—including the goal of eventually hitting a net worth of $1 million. I had no idea if or when I’d ever achieve that level of financial security. How, in less than a decade, was I able to get there?
Saving voraciously. Once I’d found my financial feet following the divorce, I was able to consistently save and invest a huge percentage of my paycheck over a four-year stretch. Starting in 2014, I began steadily increasing the amount of money I contributed to my retirement accounts. Initially, I set aside $500 each month. But within a year, I’d increased my contributions to $2,000 a month, which meant I was saving some 40% of my pretax income. I continued to contribute between $1,000 and $2,000 every month through 2018.
Winning at real estate. In late 2018, I purchased a modest-sized home in a popular Portland, Oregon, neighborhood for $375,000. The money I had been contributing to my retirement accounts was now funneled into making mortgage payments. In March 2022, I sold the home for an astonishing $600,000, thanks to the booming real-estate market of the past two years.
Getting married. In 2018, I remarried. Since my husband and I each entered into the marriage with our own set of assets, we now hold a mixture of joint and individual accounts. For the purposes of my own net worth, I only include those assets we own jointly. This includes a home in Arizona we bought together in 2019, as well as the two vehicles we own.
Where do I stand now? My retirement account balance peaked in January at $477,000, but it’s since fallen back to $436,000.
In March, I deposited a $278,000 check. That check was the proceeds from the Portland home’s sale, after deducting closing costs and the sum owed on the mortgage. Meanwhile, the value of our Arizona home has increased substantially since we purchased it in 2019. We now have approximately $200,000 in home equity.
The last component of my net worth equation is my state pension. Although my pension makes up a relatively small percent of my overall net worth—about 5%—I hadn’t previously included it in my net worth calculation. Until I turned 55, the only value it held would have been as a survivor’s benefit for my beneficiary if I’d passed away. Now that I’ve reached the minimum eligibility age for drawing benefits, I feel comfortable including it as part of my overall financial worth.
All that, plus a few other assets such as our two cars, gets me to seven figures. But arguably, my net worth is even larger. How come? I haven’t included the value of my future Social Security benefit. To buy a government-guaranteed, inflation-adjusted stream of income like that would likely cost a hefty six-figure sum.
Kristine Hayes retires this month from her job as departmental manager at a small, liberal arts college. She enjoys competitive pistol shooting and hanging out with her husband and their dogs. Check out Kristine’s earlier articles.
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Excellent, Kristine! Congratulations!
Good job, Kristine!
Kristine chose to target net worth for her goal. Along the way, she surfaces several challenges with that measurement, including 1) do you include future income streams, and if so, how? and 2) if you’re married or in a relationship, do you count your net worth jointly or individually.
Ultimately I guess it was her measure and she gets to decide what she wants to include. I also make my own decisions about what to include.
My own net worth spreadsheet includes cash, investments, possessions (including the house I live in,) and potential future streams of income in four different sections. Generally, though, I only include current assets when I calculate my current “net worth.” Since I’ve been married once, for 42 years and counting, it also makes sense to me to calculate OUR net worth, since we treat it all as a shared stewardship. Occasionally I think about what would happen if we divorced or one of us died. It’s pretty obvious divorce would hurt in so many ways, including our financial security.
Inflation over the last decade has been tame–15.87% total on one calculator. On the other hand, the total return of the S&P 500 has been rich. Just under 200% adjusted for inflation, 270% not adjusted for inflation. If the original investment of $225k was invested in the index (and there were no fees!) that would be worth $607k today. But then $1000 a month for ten years is itself $120k additional plus perhaps another $100k for its investment return.
Of course, we never do quite as well as an index!
“Of course, we never do quite as well as an index!” Now that Fidelity offers zero-cost index funds, yes you can.