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I was just reading an article on net worth on Boldin (previously New Retirement), and it got me wondering how often this is performed, and why, by my fellow Humble Dollar readers.
As for me, as I have written before, I calculate this number quarterly because we’re living off of our retirement assets until, most likely, we turn 70 in 3-4 years. If our retirement assets sink to an admittedly somewhat random level, we would claim my wife’s (the lower income’s) benefit to stretch our savings. I want to keep a keen eye on our financial status to make sure it is not slipping significantly.
I figure once we are receiving Social Security benefits, when I expect not to be withdrawing large amounts from savings, this activity will only occur annually.
I do two versions (because I am OCD about personal finance and I like spreadsheets, and it is oddly satisfying and amusing).
I do a super in-depth one annually. For this one, I include tangible assets like the estimated value of our home, vehicles, and belongings if they were to be sold quickly. If you are wondering why I track larger belongings (anything worth more than $100 usually…furniture, TVs, lawn mower and so on) once a year, it is basically to see if we picked up a lot of material stuff in the last year or sold off stuff (which I love doing). It’s more of a minimalism check than anything that requires much immediate action from me or my wife. I also check and track life insurance coverage, health coverage/premiums, and car insurance coverage/premiums once a year. Just to make sure we are covered in case of ill events. Lastly, I track line of credits (personal and HELOC). My wife works at a bank, so the personal personal LOC is free, and the HELOC is $50 a year. They are nice to have in case I find something expensive, I want to flip quickly or want to jump on a used car deal. The HELOC is to give us a month or two to move money around if we were to become unemployed and is only an extreme last resort (or one day, if we have a gap in funding to put a down payment on a home before we sell our current one).
Then, I do quarterly checks to see where I check our financial assets ( I just carry over values of tangible assets from the January numbers and delete any large items I sell or add any larger purchases I make). This tracks our retirement accounts, bank accounts, credit card accounts, mortgage, cash, HSA, any medical debt or misc small debts. I also track my kids (ages 5 and 7) Roth IRAs quarterly but do not include the amounts in my net worth.
What does this level of tracking do for me? Number 1 is giving me hope and a little peace. My wife and I are 40….retirement is, at best 10 years off, but more likely 14-18 years off. We are close enough to where it is no longer an abstract concept, but it’s far enough away that I can’t go telling off clients I don’t like working with lol. When I have a bad day at work, I plug in our financial networth (not counting home, vehicle and so on) and put in a modest 6% inflation adjust CAGR and dream of when exactly we can be more free.
Number 2: helps me identify options. How much money could we free up if we downsized our home and belongings? Somewhere between 49-55 we want to downsize our home and belongings. Kids will be old enough to identify some sentimental things and will make them hope chests and the rest we want to reduce while we have the energy and health to do it all ourselves.
Number 3: Helps me make plans for things/stuff in the event of my passing. I have a couple heart conditions that is top of mind always. Having a list of big stuff and all accounts helps me give my wife directions of what to do if I pass. She can ultimately make any decision she likes, but it lays options if she doesn’t want to think about what to do with so many things if I pass and gives her a ballpark value of things if she chooses to sell them.
Also, having my pulse on our insurance coverages and financials helps me update our “death file” every year (I really need a less morbid name for that). But basically, it lays out what to do with the insurance money and tangible stuff if were to pass or my wife. Much easier to open talk about that once a year and update the game plan together than the living spouse be completely overwhelmed if one of us unexpectedly goes.
Probably about twice a year (at least once at the end of the year).
“And why?” is a great question. Aside from being human, it’s just a progress report. I’m still in working years, pre-retirement, so it’s somewhat relevant for me.
I’d be lying if I said it wasn’t pride.
In my situation I learned over time how to manage my finances. A few years back I decided 2 metrics are essential, annual cashflow and net assets. The purpose of cashflow is to make sure income exceeds expenses. The purpose of net assets is to make sure I am making long term progress. In retirement checking net assets is to make sure I don’t run out of money. This enabled me to stop chasing income and return percent. Instead I focus on how much I invest and how long I stay invested without interrupting the compound interest effect. I enjoy spreadsheets so I use them to manually calculate both net assets and annual cashflow. It’s good for my brain. I tend to calculate net assets when the market is up and not when the market is down except I also always calculate my net assets on December 31. I have records going back to 1999. If circumstances are good I spend more and if not, then I spend less.
“Instead I focus on how much I invest and how long I stay invested without interrupting the compound interest effect.”
Ah, as Albert Einstein said, “Compound interest is the eighth wonder of the world.”
For planning purposes, I mentally divide our net worth into two piles: (1) Investable assets intended to fund retirement. (2) Everything else.
I can look up the amount for the former with a couple keystrokes. Our home, personal property and cash in the bank belong to the latter. Its easy to estimate this value and add it to the former to come up with net worth.
Planning informs me how much I can afford to withdraw annually without running out of money. But life happens, so depending on what the future may hold, we could end up needing to tap all assets.
Similar to others, I use Quicken (Premier edition), which auto-updates most of our investment account balances daily with real-time share #s and the prior day’s NAV. Quicken also updates our HH net worth daily, showing the net worth total at the bottom of our account list on the left side of the page.
The idea of using a brokerage company’s website to aggregate and update the values for our multiple investment accounts makes me more than a little bit skittish (call it “big brother” paranoia, if you like). I don’t want to risk the chance of information from our investment accounts (in particular, the accounts we hold elsewhere) being data-mined and potentially used for future marketing efforts by our current brokerage company.
Added Quicken bonus: reconciling all our cash accounts (including checking / CC / MMKT) is a breeze. Any occasional errant transactions posted to our credit card jump out quickly, in contrast to days of old, when we would manually review each end-of-month CC paper statement.
Most importantly, our son (who serves as our backup POA & executor) has our Quicken password in case of my premature demise. Living half a continent away, he has access to a backup copy of our Quicken data (the data file updates and “auto-saves” each day to an encrypted / password protected family cloud account). Should my departure occur sooner than hoped, he can readily assist my wife with any account questions and financial decisions, with both parties looking at the same Quicken data. We have done yearly test runs on this exercise (a fire drill, so to speak) and had no issues to date.
Time is my most treasured asset in this phase of life. After 30+ years of using Quicken, I couldn’t possibly keep track of everything with any degree of accuracy and consistency, absent my investing significant hours to build-out an excel spreadsheet and then perpetually update the various spreadsheet account values.
For simplicity and added peace of mind, Quicken is the best $95.88 we spend each year.
I’m with you and I’ve been using Quicken for 33 years and download data everyday/week.
“The idea of using a brokerage company’s website to aggregate and update the values for our multiple investment accounts makes me more than a little bit skittish (call it “big brother” paranoia, if you like). I don’t want to risk the chance of information from our investment accounts (in particular, the accounts we hold elsewhere) being data-mined and potentially used for future marketing efforts by our current brokerage company.”
I use Morningstar’s Portfolio Manager for review of my entire portfolio. I don’t download the information, but rather update manually each quarter. This is getting significantly easier as we wind down inherited assets which were spread about three mutual fund companies. Eventually we will only have Vanguard funds so will use their website exclusively.
So you’re concerned about a brokerage company mining your data, but not about Quicken doing the same thing?
This is a valid concern and why I do not use Quicken to backup my data, nor do I use Quicken Cloud. Quicken has zero access to my data.
Maybe you need a different brokerage company if you have such expectations? I trust Vanguard more than I would whichever company maintains your cloud data.
Less so since the Admiral died. I noticed a change within a year.
I use the GnuCash accounting software and a home-made spreadsheet for tax planning throughout the year. Once a week my financial status is updated and it shows my net worth among other statistics being tracked.
Net worth is important and should be tracked by working folks particularly.
I do the quarterly thing with spreadsheets on Google Sheets. I have heard of GnuCash but never looked at it seriously. I will now. Thanks for the tip.
We calculate net worth maybe twice a year, although we don’t feel net worth (the balance sheet) is that important of a financial variable.
We mainly focus on tax-efficient cash flow to fund expenses (the income statement). This involves managing discretionary large expenses (car, home repairs, kid support, vacations) and any subsequent required marginal income sourcing from after-tax and tax-deferred buckets. At year-end, we then fine-tune Roth conversions to desired tax bracket and IRMAA limits.
I saw all the fantastic answers below and it seems that there is quite a range of frequency and reasons why people check their net worth, so I won’t comment there.
I do have a question about a comment you made in the original post, ‘ if our net worth drops too low, we would claim the wife’s SS early to avoid drawing down the retirement accounts too much’ ( I paraphrased). Why not do that earlier and leave the retirement account to grow now, especially we have been in the midst of this bull run? Certainly the bigger check from waiting for SS is attractive, but when you calculate the break even point, it is all the way in the 80’s when you are in the slow go years. Then I think it limits the flexibility from a legacy and giving perspective, yes you can give an amount equal to your SS amount each month, but if you took that SS money earlier, and left your retirement accounts to grow, you could then give away some tidy sums when your heirs can probably use it the most. The inflexibility of the annuity like payments of social security from a legacy planning perspective is what bothers me here. You acknowledge that by claiming SS, you can reduce the draw down on your retirement spend, yet you wait. I am in no way criticizing this decision, I think we should do what makes us comfortable, but it seems a bit counterintuitive based on the paraphrased statement in your original comment.
The only reason I might delay taking SS is if I am managing tax efficiency and need to have the lower income for ACA credits, even then, it really becomes a math equation.
Thanks for the comment Mike. The money we have withdrawn since retiring four years ago is almost exclusively inherited money from my parents so we are utilizing very little of our own retirement assets.
That being said the reason we are waiting on Social Security claiming is to get the largest inflation adjusted “annuity” possible.
When it comes to the break even point both of my parents died at just shy or beyond 85, and my wife’s mother turns 103 on Christmas Day and is quite healthy for her age (only takes medication to control high blood pressure). Her aunt lived to 103 1/2, and her mother to 92, so my wife’s great longevity genes requires that I, the higher wage earner, at least waits to 70 to claim.
We also utilized Mike Piper’s Open Social Security to determine the best claiming strategy. After claiming we will cover the vast majority of our expenses with SS checks. If my wife lives to 100 her 100% world stock fund Roth which will contain almost 1/4 million will have 35 years to compound untouched so I’m not worrying about our children’s inheritance money, they’ll get plenty.
BTW we are currently not limiting our spending in any way.
I use the Empower dashboard to check on the progress of our retirement accounts, which I look at a couple of times a week. It also has our main checking and savings accounts and two online savings account, our mortgage balance, and the Zillow estimate of our home’s value. It doesn’t include our cars or other personal property. So I get a “net worth” amount every time I open the dashboard.
That doesn’t account for the current/future values of our pensions (my husband is drawing his and I’ll draw mine starting next year), which have survivor benefits and annual COLAs. It’s hard to factor those into net worth, but obviously they’re a huge part of our future planning.
I calculate two figures. First our total net worth including our mortgage free house, and loan free vehicles. Then I calculate our liquid assets by subtracting the value of our house as calculated by Zillo, and vehicles values determined by Carfax.
I check my net worth weekly when I update my checking account, probably out of habit. I use Quicken, so it’s easy to update my investments/net worth with the latest quotes. As a side note, I include a list of income (social security, annuity, and pension).
That’s what I do, too. Quicken is a great tool for accumulating that kind of information.
I can’t begin to say the last time I calculated our net worth. Maybe it was the year before I retired or the year before that.
On the other hand, my estimate of our portfolio balance would probably be within a percent or two plus or minus without looking.
In practice, our portfolio and net worth numbers today are similar enough. I have no need to calculate net worth any more precisely.
I was thinking about an approach to this yesterday. I can’t see the point of checking daily or even monthly. If I have a drawdown strategy I think I should stick to it and trust in the longer term.
Why? Because we feel losses more keenly than enjoying gains and why spoil days when the market falls if you believe in holding for the longer term.
Obviously some checking is inevitable. For rebalancing or major reallocations. And I appreciate some people get a kick out of tinkering or like Croesus admiring their pile of gold even when they don’t need it to drawdown income.
As a thought experiment if you imagine a job where you are contracted for 20 years but your pay was entirely funded by an endowment upfront of say 1m. Then they said you only get paid for days when the fund is up. Of course there would be streaks when everything looked great and you were earning handsomely but there would be months and possibly years where you barely made anything with the prospect of a pay cut in years to come ( as growth from a lower capital base would be less) Those would make you fairly miserable at work.
Overall that arrangement might be a pretty good deal with plenty of upside in a nice pot to walk away with after 20 years but the volatility would be too much for most I suspect.
That’s a metaphor for retirement drawdown and why faced with the situation people would be happier setting a prudent monthly “salary” and seeing how it worked out and the pay rise only annually.
Why do you equate net worth with retirement income. Some of it surely, but most of it?
In my case my net worth has nothing to do with retirement income, but even if I counted my IRA, it would be less than half of net worth. Over 1/3 of my net worth is my homes.
i wonder what percentage of the net worth being monitored is strictly retirement assets?
Because it’s there to live off for those not blessed with traditional pensions. Let’s not go there again with your insistence on actual income and refusal to accept that capital that is relatively liquid is a source of practical cash flow.
Obviously adding in main home and car etc is fairly pointless unless you’re going to equity release but in theory it’s there if you’re finally downsizing into a retirement/care facility/community.
Everything is ultimately a retirement asset.
As we said in your own alternative definitions thread it’s fairly pointless if you’re just going to admire it.
That’s a concept I can’t understand. While I do live on a pension, my finances are organized as I would if I was using them for retirement.
That is, both qualified and non qualified accounts designed for growth and withdrawal (RMDs) and to produce income.
I could never see my home as a retirement asset. I would not want to retire knowing I would need my home as a live on asset even as a reverse mortgage.
However, as mytimetotravel mentioned below, selling a house at retirement using the funds as she did is a different, somewhat unique situation.
Why on earth not? I know there is emotional attachment weirdness about homes but when you’re no longer capable of living there or it becomes too big for the needs of a widow/er it is a asset to be used for the next phase.
It seems stupid overprovision to me e.g. to plan for plenty of budget to cover final care costs but rigorously keep home equity out of the equation.
You don’t need to plan to use your home but it’s economically ignorant to not factor it in as part of plan C or D or whatever if everything else goes to crap, given it’s probably the single biggest slug of realisable asset most people have.
Not that unique. There are 192 apartments in the new building I moved into last year. I suspect pretty much all of the entry fees were funded by selling a primary residence (a few people still have second houses on a lake, or in the mountains, or up north). Same at other CCRCs.
I ment unique in the number of retirees who go into a CCRC after selling their home. In the Northeast you have to be quite wealthy to afford a CCRC.
I was addressing the number who do so, or plan to do so. The wait list for my CCRC is now fifteen years for the cottages and seven to twelve for a two bedroom apartment. We also have studio and one bedroom apartments with lower fees.
All of my net worth is there to fund my retirement. Including the house I sold before I moved to my retirement community, as the proceeds paid the entry fee. If I had thought my non-COLAed pension plus SS would cover my retirement expenses I wouldn’t have saved and wouldn’t have my current portfolio.
You really wouldn’t have saved if pension and SS covered your planned expenses? Didn’t those savings help fund your travel?
Mostly no. Since I didn’t take high-priced tours or cruises, or stay in posh hotels, my trips were not that expensive. See also my previous article.
I grew up in England, with the expectation that pensions would adequately fund retirement, perhaps supplemented by savings in a building society (they funded mortgages and paid tax-free interest). I don’t think I heard the words “stock market” until after I moved to the US. I didn’t start saving seriously until I realized US pensions didn’t have COLAs.
I get both numbers – as i explained in a previous post.
I keep track of our financial net worth once a month after our mutual fund statements are all available.
I do NOT include any value for our condo, car or any other personal property.
For me, almost every day. All of our assets (and Mortgage debt) are listed by investment/instrument in eMoney, which is provided by our financial advisor. Our total Net Worth is shown at the top of the home page. I review the details by investment to get a feel how various assets are impacted by the days market moves. Does it impact my spending or allocations…not at all. Watching it go up in retirement though is gratifying but I know that could change quickly.
I work up two documents during the first few days of January each year which I share with my husband.
The first is titled “Our Retirement Income”. It provides monthly and annual amounts (gross and net) for our Pension and Social Security income for the upcoming year itemized out and totaled up at the end. The second is titled “Our Net Worth”. It includes current balances for all of our accounts (checking, savings, IRA’s etc). I also note the amount and percent that our total net worth has changed from the previous year.
Before retiring I kept closer tabs on net worth. Now at age 72, living on less than 60% of income, I check it twice per year… I guess just out of curiosity.
I sold my house prior to my move to a retirement community, so all my assets are at now Vanguard, which calculates my net worth daily. I actually see it monthly, when I transfer funds between my local checking account and my money market fund. However, I don’t pay real attention to it very often, mostly once year when I take RMDs and rebalance if I think it’s needed. Should I actually notice a marked difference from what I remember I would pay attention, but not necessarily do anything.
Kathy, I also sold my house before moving to my CCRC and I also have all my assets at Vanguard. I check my holdings somewhat more often: at the end of only the days when some Morningstar style boxes show gains. This helps take the edge off any concern when the markets are having some down days. Checking frequently has the added benefit (at least to my confidence) of likely showing more timely evidence of any hacking.
Interesting. I haven’t worried about my Vanguard account getting hacked. I use a strong password, and don’t reuse it for other accounts. I also activated two-factor authentication.
When my wife and I had debt, we monitored net worth more closely, calculating it several times per year. Seeing that we were gaining ground on both sides of the equation was encouraging. These days, I’m most concerned about assets that we might draw on for income once we’re retired, and I have a pretty good Idea of where those stand at any given time. For other assets, like property, I don’t expect to add or subtract any large amounts for some years into the future, so I don’t often include those in my calculations. The exception is deciding on a level of umbrella liability insurance. But at our present level of wealth, the increments of additional coverage give me a space of time until I need the exact figure of our total net worth. So, I’m a little lazy about the calculations.
When I was younger and there were not any good calculators online (heck for the majority of my pre retirement life there was no “online”), and we had very little retirement assets my obsession was yearly crossing off 12 lines of our mortgage amortization schedule I printed out when we bought our house.
Oh yes, amortization tables. I’d forgotten about them, but when I was making extra principal payments I checked mine frequently!
I check every 2 or 3 days. It’s an addiction (that I can live with). I stick to my plan, but just feel that strong pull to know the numbers all the time. See a previous post: Hitting Reset
We had a lively discussion of net worth a month ago so if you are tracking it for retirement income purposes, do you focus on liquid investments or total net worth?
I was a part of that thread, and I think I’ll let my comments lay 😂
I use Empower as a way to track cash flow/budget, so it tells me my net worth every day. I don’t consider it an especially important number except that it provides a fast snapshot as to what’s happening. I’m more interested in the year over year, even more so the rolling 5 year change in net worth.
My question is once knowing it what do people do with the information. I once worried about state and federal inheritance taxes, but no more.
Nothing. The only time I do anything (other than performing monthly Roth conversions to dollar cost average) is when Morningstar’s portfolio manager say the portfolio portion of my net worth is 5% off of it’s targeted allocation.
I would cut down on our spending if our target minimum portfolio level is reached, but we have never reached even 100K away from that number even during larger market slides.
What do I do with it? Absolutely nothing. Mostly I’m just curious.
Me too.
Our net worth is auto-calculated in my Excel spreadsheet. Like Mr. Quinn and Mr. Housley, I can see it any time I wish to do so. Now, how often do I actually check it? Perhaps monthly. That seems frequent enough.
My net worth is consolidated on my Fidelity account so i can view it anytime and often do, sometimes just to boost my spirits or on some days, not so much.
I hear ya Dick!
I would not invest in a company that did not know their numbers. Running our family resources is a business. This includes net worth. Google sheets is a great tool to track all investments. So by default I can see my net worth at any moment in time.
I do it yearly prior to writing my investment policy statement but admit I too eyeball it quarterly to monitor for any marked changes. I am retiring this year at 66 thus assessing periodically makes me feel better.