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net worth

The Queen Is in Her Counting House…

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So now that the Dow is closing on 11,000 again, I spent part of yesterday evening counting up my shekels.

Some time back, I figured the crash of the Bush economy (oh, how i luv bugging my rightie friends with that one! 😉 ) had drained my retirement savings of about $180,000.

Things are looking somewhat better today. Thanks to ten nontaxable grand available from a whole life policy, I contrived to set things up so I could pay my share of the downtown house’s mortgage without drawing down from the big, professionally managed IRA. Landing a temporary loan modification helped, too: the reduction in monthly payments will draw out the number of months the $10,000 lasts.

Despite partially drawing down the cash in that policy, total retirement savings are now down “only” $95,400 from the all-time high in October 2007.

We know, of course, that stocks were hugely overvalued in October of 2007. And some say they’re overvalued now. Seeking a more realistic measure, I compared total savings today with the figure that appeared in January 2001, when I first started tracking the various accounts in Excel. In that scenario, over 9.4 years my savings have grown by $18,211.

Looks like a pretty poor return on investment, eh?

However, it must be remembered that I used some of my savings to pay off the loan on my house. I also used about 30 grand to copurchase the downtown house with my son. So, it could be said that some of the funds were simply reinvested elsewhere

That notwithstanding, there’s no question the crash did some serious damage. If we look at the amount that was in savings in December 2006, before the run-up had built any momentum, we see that today’s bottom line is down $55,716 off what might be regarded as a reasonable figure.

Well, it’s better than a $180,000 loss, anyway. Just depends on how you look at it, eh?

Checking net worth: Respectable, though down about $400,000 from the 2007 estimate. Net worth sustained a huge loss when the mortgage on the downtown house went upside-down. Equity in that property is now negative…to the tune of about –$60,000. However, my own house, the one that’s paid for, retained its value and may even have crept up a little. So, even though M’hijito and I took a bath in real estate, it could have been worse. A lot worse.

My net worth is still significantly stronger than most Americans’. A calculator at CNN Money suggests the median net worth for Americans my age is $232,000; mine is about three times that. For 65-year-olds in my post-canning income bracket, median net worth is $34,375; mine is about twenty times that. For those in my pre-canning income bracket, median net worth would be $301,475; mine is 2.2 times that.

Despite the fact that I moved a fair amount of cash from equities into real estate, I’m still none too thrilled at the piddling $18,000 ten-year growth in liquid holdings.

But on reflection, my sense is that a free-and-clear house may be more valuable than smoke-and-mirrors money in stocks and bonds. While the sale price of a house may rise and fall, the value of a roof over your head is pretty immutable. It’s hard to evict a person from a house that has no mortgage.

To rent my house would cost between $800 and $1,200 a month. At 4.8 percent, principal and interest for a traditional 20 percent-down mortgage on this house would cost about $995. So I figure owning the house outright represents a return on investment of about $1,000 a month. Though that’s only a 5% annual return on the house’s present sale value, the fact is that if I had to pay $1,000 a month out of my much-reduced “retirement” income, I could not afford to stay in my home! And since my home is nothing very extravagant, that would mean that when I was laid off I would have had to move into some pretty downscale digs.

Another benefit to owning the house: when I shuffle off this mortal coil, the house will pass directly to my son, giving him a pleasant place to live with very little overhead. He then can rent the downtown house for the amount of the mortgage (or, if things are better, sell it) and end up with a solid basis to build his own retirement savings.

Both of these advantages, IMHO, are huge.

How are things in your money bin? Are you seeing any improvement?

Median income, median savings?

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Chug on over to Free Money Finance, where you’ll find an interesting article and discussion about some figures FMF has found, suggesting few Americans are ready for retirement. FMF is spinning off an article that dispenses advice on using your home equity to help finance retirement, but his attention is caught by some figures the authors refer to in passing. The passage he cites says this:

What’s more, the report noted the median value of financial assets is less than 1.5 times median income—$75,000— for the majority of middle-class households and that the median value of financial assets is just three times median income—$132,000—for the vast majority of affluent households. Read that report at this Web site.

The report indeed does suggest that most people have around 70 percent of their assets tied up in their homes.

Figures like these can’t tell us much until they’re correlated with age groups. It would help if we could know the median value of financial assets for people in their 20s, their 30s, their 40s, their 50s, and their 60s. Then we could have a reliable feeling for how many 80-year-olds will be competing with how many 20-somethings to find jobs greeting shoppers at the local Walmart.

Since we can expect young workers to have little or no savings, and since many workers of all ages live in right-to-work states where wages are low, a combined disproportion of young earners and lower-income older workers would work to push the median down, unless there were an equal number of very high income workers. And nationwide, I’ll bet there’s not, despite the widely publicized conspicuous consumption.

Also, take a look at the wording in this thing. It’s hard to tell what is being said:

The median value of financial assets is less than 1.5 times median income—$75,000—for the majority of middle-class households and that the median value of financial assets is just three times median income—$132,000—for the vast majority of affluent households.

Is the median income $75,000, or is that the median value of financial assets? Is $132,000 the median value of financial assets, or the median income for most affluent households? Probably, one would assume, it’s the median income…but how does $132,000 qualify as “affluent” for a household income? That would amount to two $66,000 incomes. Now, $66,000 is a helluva lot better than the $28,000 gross I’ll be living on post-layoff, but it isn’t a lot. In the large scheme of things it’s really just an average income—I get by on that amount now only because my house is paid off, I have no other debt, and I live frugally.

When you get into the PDF at the Society of Actuaries website, you see that the researchers do break their data down by age group, gender, marital status, and  alleged socioeconomic class. But the subjects’ ages range from 45 to 74; “retirement” is defined as the point at which “a household’s primary focus switches from accumulating assets to using those assets to supplement its income so as to maintain a desired standard of living.”  In other words, if you kept working full-time and simply stopped contributing to your 401(k) or other savings instruments, you could be considered “retired.” This category applies only to those in the 55- to 74-year-old range. Median incomes shown in these figures are surprisingly low: for single women in the 55- to 65-year-old bracket, it’s $28,000 (men do better at $41,000), and for women between 65 and 74 it’s $18,000 (men’s median income drops to $28,000). In the “middle-class” range, net worth for younger marrieds, single women, and single men (respectively) is $348,000, $111,000, and $125,000; for the older set, net worth figures drop to $285,000 for married couples but rise to $130,000 for both single men and single women (7). The report finds that a large part of these Americans’ net worth is invested in “nonfinancial assets,” which include not just real estate equity but also equity in small businesses, vehicles, collectibles, and art (15).

Well. A small business can return a nice bit of income, and depending on how the corporation is structured, it may or may not show up on your income taxes as earned income. Much of the income from my S-corporation, for example, will be realized as dividends. And owning your house free and clear is worth more than the face value of the dollars involved.

The value of my home represents 57% of my net worth. Because the house is paid for, I would say that its real value to me is significantly higher: every dollar that I don’t have to pay to keep a roof over my head is a dollar I can use to buy groceries. My son’s monthly payment on a house of similar value is $1,420: almost an entire paycheck (net) of my soon-to-be-former $65,500 salary. If I had to pay a mortgage on my home, I could not survive on Social Security and part-time work.

While my savings eventually will supplement those two pittances enough to keep me more firmly in the middle class, as a practical matter I’m having to delay draw-downs for a year, in hopes that the economy will recover enough to allow my devastated investments to come back to normal. If I didn’t have a paid-off place to live, I couldn’t afford to do that.

Life’s a little more complicated than these figures seem to suggest at first glance.