What is Worth?
Investors think about worth. Is the investment worth the current price? Worth is value and most of us want value for our dollars. So worth can be a monetary measure. It might be a person’s character or moral qualities. For example, you might say someone is “worth their weight in gold” That means they are valuable or very useful. Something can have temporary value but the value decreases over time. Other things become more valuable and even compound in value.
Some investment advisors have a threshold for accepting a new client. If a potential client comes to an advisor who only serves “high net worth” clients they won’t be served. So, for example, if you have less than $500,000, then many advisors won’t be willing to help you. Some advisors only accept clients with a net worth of $5 million and some even want you to start with $10 million. Barron’s lists advisors and provides tools for finding advisors that might be willing to help you.
Gross or Net Worth?
Gross means the total or whole amount. So if you add up the value of all of your assets, including retirement accounts, savings, your property, and other costly items like vehicles, art, and collections you will have a total. But even this total will miss something of eternal value.
Net worth is what remains from the whole after certain deductions are made. Businesses will talk about gross sales and gross income, but that isn’t necessarily real value. You have to subtract expenses, taxes, and other costs like insurance.
The Right Net Number for Retirement
A recent Seeking Alpha article suggested the having $1 million is no longer a sufficient net worth for a person in this country. There is a good reason the author (Financially Free Investor) raises the caution flag. The first reason is one that more people now recognize: inflation. But there are other factors, including higher taxes likely because of higher government spending and increasing risks for the traditional income safety nets like Social Security and Medicare. The “Financially Free Investor” suggests the new $1 million is now $2 million. This, I believe, is out of the question for many Americans who spend freely and live a high-debt lifestyle.
Do The Math
Suppose that you can reasonably expect 4% income on your total pool of retirement investments. If you have $1,000,000, then you may be able to create $40,000 per year in income from that base. However, don’t forget inflation and taxes when you look at that number. If you have $2 million, that number could grow to $80,000 per year.
Get off of the Net Income Train
Stop living above your means. This often means refusing to buy a new vehicle with a 60-month “interest free” loan. If you really believe there is no interest, you don’t understand how a business operates. The interest is built into the purchase price. After five or six years, you have not increased your gross worth and you have redirected dollars to an asset that becomes worth less for every year and every mile it is driven. Then add in the maintenance and insurance costs along with the cost of fuel.
Your goal in retirement should be no mortgage and no consumer debt. You should not have to calculate net worth in retirement. Rather, add up your assets and see your gross worth.
Do Not Forget Eternity
Your worth is not, or should not, be calculated based on earth-bound assets. There is a helpful song that was written by Keith Getty, Kristyn Getty, and Graham A. Kendrick. The song is “My Worth Is Not In What I Own.” This is a great Resurrection reminder song. A portion of the lyrics reminds us of something of real and lasting value and worth. It is gross worth.
I will not boast in wealth or might
Or human wisdom’s fleeting light
But I will boast in knowing Christ
At the cross
I rejoice in my Redeemer
Wellspring of my soul
I will trust in Him, no other
My soul is satisfied in Him alone
Two wonders here that I confess
My worth and my unworthiness
My value fixed, my ransom paid
At the cross
Give the song a listen and then think about gross worth. It features Fernando Ortega. My Wealth Is Not In What I Own
Seeking Alpha Article LINK