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Re: Percentage of Net Worth in Home


@Bentley wrote:

@Anitya wrote:

 

Very few people count taxes when talking about their net worth.


 

 

 That is because taxes have nothing to do with net worth.


Catchy phrase - makes a nice slogan / bumper sticker!

After one dies, one's net worth is zero.  What is one going to do with a net worth number when alive if it can not be used to buy essentials / conveniences: just look at it like a score card?   Net worth is only as good as one's desired purchasing power.

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Re: Percentage of Net Worth in Home


@Tibbles wrote:

Antiya: "Very few people count taxes when talking about their net worth."

Tibbles: Perhaps because it's too depressing to do so! And likely to be getting more depressing before long.


You may be right.  Burying one's head in the sand might work in some instances but does not work well when one owes money to somebody else (e.g., taxes) - goons will show up at the front door!  A friend of mine who is a VP of Tax at a big company had a goal to retire when they reached a certain net worth number.  When they said they are going to announce their retirement, I asked whether they considered taxes in calculating their desired net worth.  They lost sleep for a week after that on the thought that their imagined goal is farther than they thought.  

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Re: Percentage of Net Worth in Home


@Anitya wrote:

@Tibbles wrote:

Antiya: "Very few people count taxes when talking about their net worth."

Tibbles: Perhaps because it's too depressing to do so! And likely to be getting more depressing before long.


You may be right.  Burying one's head in the sand might work in some instances but does not work well when one owes money to somebody else (e.g., taxes) - goons will show up at the front door!  A friend of mine who is a VP of Tax at a big company had a goal to retire when they reached a certain net worth number.  When they said they are going to announce their retirement, I asked whether they considered taxes in calculating their desired net worth.  They lost sleep for a week after that on the thought that their imagined goal is farther than they thought.  


 


Antiya,

Interesting post. Most financial advisors, wealth managers, retirement calculators, academics work off “nest eggs” and not a net worth number to determine if they are able to retire.

Financial planners and retirement calculator tools collect tax bracket information before running any projections; to have a “VP of Tax” at a big company lose sleep over you raising taxes in retirement seems odd. The fact that he told you they were losing sleep over you raising a tax issue when he was a tax professional also is curious.

Cheers

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Re: Percentage of Net Worth in Home

 

Yale's Shiller has pondered

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Re: Percentage of Net Worth in Home

d

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Re: Percentage of Net Worth in Home


@Bentley wrote:

@Anitya wrote:

@Tibbles wrote:

Antiya: "Very few people count taxes when talking about their net worth."

Tibbles: Perhaps because it's too depressing to do so! And likely to be getting more depressing before long.


You may be right.  Burying one's head in the sand might work in some instances but does not work well when one owes money to somebody else (e.g., taxes) - goons will show up at the front door!  A friend of mine who is a VP of Tax at a big company had a goal to retire when they reached a certain net worth number.  When they said they are going to announce their retirement, I asked whether they considered taxes in calculating their desired net worth.  They lost sleep for a week after that on the thought that their imagined goal is farther than they thought.  


 


Antiya,

Interesting post. Most financial advisors, wealth managers, retirement calculators, academics work off “nest eggs” and not a net worth number to determine if they are able to retire.

Financial planners and retirement calculator tools collect tax bracket information before running any projections; to have a “VP of Tax” at a big company lose sleep over you raising taxes in retirement seems odd. The fact that he told you they were losing sleep over you raising a tax issue when he was a tax professional also is curious.

Cheers

veni vidi vici vti


 

If you want to understand, apply veni vidi vici to yourself and it will be clear as day light.  

 

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Re: Percentage of Net Worth in Home

Any useful (accurate) financial planning tool should account for taxes in a retirement planning strategy. Usually the client provides cumulative balances in each of the three account types: taxable, tax-deferred, and tax-exempt. The planner/tool either uses the client's stated effective (not marginal) tax-bracket info to compute tax drag OR some tools actually have an embedded tax calculator that is based on the current progressive tax system. The really good financial tools will also provide guidance on Roth Conversions as part of a overall tax-minimization strategy.

Whether you personally consider taxes important in a Net Worth computation is sorta irrelevant. Regardless, the resultant income stream generated from the nest-egg composition will be a function of that tax burden.

A retiree with a "Net Worth" of $3M that consists entirely of tax-deferred assets (401Ks, traditional IRAs) is certainly less wealthy than a retiree who has a "Net Worth" of $3M that is distributed evenly across taxable, tax-deferred, and tax-exempt account types. They would also have fewer tax-mitigation options.

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Re: Percentage of Net Worth in Home

Federal and State (if applicable) income tax is a household expense....nothing more, nothing less.

The Tax software we used to use...and I've been out of it a few years so new updates may have made this much easier....but a proforma tax projection by the software (Money Tree) was part of the forward expense projection, and yes, it took into account progressive tax brackets, deductions and credits. However, it was careful to point out its only a tax estimator.

The hard part was accounting for all sources of income. Although we oversaw retirement plans, often the client would have separate invested assets from which capital gains + dividends were paid. So we generally used the last year's sources of income as the basis. It was important to get this as close as possible to get the quarterly estimated tax payments as accurate as possible.

BruceM

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Re: Percentage of Net Worth in Home


@FD1001 wrote:

Percentage of Net Worth in Home is irrelevant.  A much better criterion is how many times your investments + SS, pension and others cover your expenses.

I know a couple who retired from IBM and their total pensions + SS is about $27-28K monthly.  They live in a house that's worth about 2 million and their monthly expense is $10-12K.  It doesn't matter if their house is 20% or 80% of their net worth.


@FD1001 

That depends on them.  To they care about leaving wealth to their heirs?  If so, and 80% of their net worth is in their house and it is in a challenging real estate market ... it matters a lot. 

ctyankee  

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Re: Percentage of Net Worth in Home


@ctyankee wrote:

@FD1001 wrote:

Percentage of Net Worth in Home is irrelevant.  A much better criterion is how many times your investments + SS, pension and others cover your expenses.

I know a couple who retired from IBM and their total pensions + SS is about $27-28K monthly.  They live in a house that's worth about 2 million and their monthly expense is $10-12K.  It doesn't matter if their house is 20% or 80% of their net worth.


@FD1001 

That depends on them.  To they care about leaving wealth to their heirs?  If so, and 80% of their net worth is in their house and it is in a challenging real estate market ... it matters a lot. 

ctyankee  


This thread is not about the next generation it’s about "What's the maximum percentage you would find comfortable, if you were tempted by a more expensive home?"  It's about how typical retirees manage their expenses during their lifetime.

It's also pretty obvious that these couple didn't use 80% on their investment for the house ;-)  I wanted to show how it's irrelevant. Even if this house will take a 20-30% hit it's still a nice sum for heirs. Isn't RE a huge part of your portfolio and why you want to discuss it?

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