Retiring Early

Thursday, September 07, 2006

Should you include your home in your net worth?

I admit it.

From a retirement perspective, I find it hard to include my home in my overall net worth. Granted, it is an asset with appreciable value and strictly from an accounting perspective, it should be includced. Also, I guess if I really needed the funds, I could liquidate it with a reverse mortgage, but I'm still having a hard time with it.

Perhaps it's the fact that I'm looking to retire early and will need to draw on my liquid funds much more than people retiring in their 60's. I'm not sure. Either way, if you look at a number of the profiles on NetworthIQ, you easily find a lot of profiles where the majority of the net worth is due to a large real estate holding (sometimes with a minimal mortgage, but still).

With my home included, my net worth is $832k, without it, it drops to $461k. In terms of retiring early, I want to make sure the latter number is as high as possible and it's just not there yet.

What do other people think about including your home in networth, as it relates to retiring early?


  • At 9/08/2006 8:43 AM, Anonymous Anonymous said…

    Agree with you in that it doesn't really contribute to your liquid funds during retirement -- at least not immediately.

  • At 9/08/2006 9:30 AM, Blogger mOOm said…

    euszmIf you don't own a house you have to pay rent and so it makes sense to me to include the house in net worth including for retirement planning. Really of course just looking at one number for net worth is misleading and that's why it is good to break things down into different sorts of assets of different levels of return and liquidity.

  • At 9/12/2006 3:22 PM, Blogger Empty Spaces Inc. said…

    Well, i don't own a home so its a very easy question for me.

    however when i did own a home I added it to my networth. when i sold it, the equity didn't just disappear did it? no, it went straight into my bank account and then on to greener investment pastures.

  • At 9/13/2006 7:41 AM, Anonymous pfstock said…

    Since you are considering net worth in relationship to retiring early, I would say not to include your home in the calculation. However, if you have rental property from which you derive income, I would say it is fair to include that. I also don't include the value of cars, jewelry, collectables, and consumer items in my net worth. From the standpoint of early retirement, I only count income producing assets.

  • At 9/22/2006 11:08 PM, Blogger StealthBucks said…

    Include it. Net worth is net worth. Your thoughts on usable assets is spot on though. I kind of waxed poetic on income depletion rates on my site and am a huge fan of income stream analysis. with a 65 35 ish stock bond split, you should be able to withdraw a little less than 5% per year at 60. So you need $2 mil to draw $100K annually for life. Off point, include everything in net worth.... That is what it's suppose to monitor.

  • At 9/23/2006 10:42 AM, Blogger fin_indie said…

    Sounds like most of you think you should just include it. Ok. I like mOOm's thought about making sure you have the breakout. For me, I know i'd never retire @40 with $2M, including my house. For me, I'd want at least $2M clear of the house... but that's just me...

  • At 10/19/2006 7:25 PM, Anonymous Kim Snider said…

    I agree that the value of your house is part of your net worth. But I also think you have to think seriously about separating the equity from your house using a HELOC or some other financial tool to hedge the risk if it is a major portion of your net worth. If you have some major financially disruptive event in your life, like a catastrophic illness with big-out-of-pocket costs, no one is going to give you a loan. The hardest time to get equity out of your home is when you need it most.

  • At 1/10/2007 12:03 PM, Anonymous Anonymous said…

    My logic on including a house is as follows (although my NetWorthIQ shows different).
    - If you plan to scale down in your home, you should include it
    - If your heart is in your home and you don't plan to sell it or move or scale down, then don't. If you would only make a 'lateral' move (to a home of the same value) then don't.
    Personally, I don't plan to move and if I do, it will be to another house in my expensive town, so it's lateral, so in my mind that money isn't there.

  • At 1/10/2007 1:42 PM, Blogger fin_indie said…

    Thanks for adding to the debate. It's interesting... For me, for retirement purposes, it's out, but rest assured, I will certainly use some of that equity, should I hit any danger spots later on in retirement.

  • At 3/03/2007 1:47 PM, Anonymous NetWorth said…

    Although it's a good question to ask for debate purposes, I worry that it confuses the less financially saavy indivuals that stumble upon your's and other's financial blogs.

    A home should be included in a net worth calculation. Now, if you wanted to also keep a liquid net worth calculation, that would be alright. Your liquid net worth would exclude assets that cannot be readily turned into cash, such as real estate, business equity, automobiles, and a few other items. Quicken offers a good definition of liquid net worth:

    Bottom line is that it should be included in a net worth calculation. The financially saavy that talk about savings and retirement will clearly understand that a high net worth does not guarantee a comfortable or early retirement --- although it may not hurt. Instead, the financially saavy will know it takes liquid assets to plan comfortable or early retirements.



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