In my most recent post, I updated my investment account balances as of January 31, 2021. In this post, I’m going to take a crack at estimating my total net worth.
As a reminder, my total savings (basically accounts with stocks and bonds in them) reached about $320,000 as of the end of 2020. I am going to be starting with that balance and adding in a couple other assets (net of their liabilities of course). I don’t have a ton of other assets, so this post shouldn’t be too long.
First, I own a little house. I ran a couple of “scenarios” (basically using different assumptions for market values for the property). Under a more aggressive scenario (basically using Zillow’s estimate), I would have about $200,000 in equity.
A slightly less favorable estimate of the value yields an equity estimate of about $140,000. This estimate is basically taking a haircut on the comparable sales and sort of cross-checking that by applying a 10% capitalization rate to estimated (gross) rents for the property.
As a third, more conservative method (just to test the reasonableness) based on tax assessed value would yield only about $75,000 in equity.
I’m going to go with that middle estimate. I don’t want this figure to be overly impacted by real estate fluctuations over which I have no control, but I also don’t want to totally ignore the impact of real estate on my balance sheet (especially the value of the rent I am avoiding/hedging by owning my home).
In addition to the real estate, I have a little deferred compensation plan via my employer. It is basically a deferred income annuity (or defined benefit plan). I took my “vested” benefits and used an annuity premium estimator on a couple of annuity sales/insurer websites to get a value.
This assumes I don’t accrue any more benefits and that I start drawing on the annuity at 65. I provided my birth date (so they can estimate my longevity). The calculators did not share their assumptions, but two calculators both came up with estimates of ~$149,000.
That’s probably a conservative estimate of the value, as as these are quotes to sell me a fixed annuity (with a built in assumption of profit for the seller of the annuity). Last year I did a “bespoke” estimate, but this is probably just as good and maybe more conservative. It is also has some arm’s length aspect to it.
One thing to note is that the current value of these type of annuities goes up when rates go down (because the “discount rate” is related to what the issuer can earn on the premium you pay upfront and from which they pay you back in the future). So, if rates move up bigly, this figure could go down, even if I am accruing more benefits under my plan at work by hanging around longer.
To sum that up, we’ve got $320,000 (stonks and bills) + $140,000 (RE equity) + $149,000 (deferred comp). So, my 12/31/20 guesstimate of my net worth is $609,000.
This is a big jump from the $450,000 estimate at the end of 2019. A $159K increase. That kind of sets off my B.S. meter.
It looks like $64K of that increase is due to investment account balances. That figure kind of is what it is. I don’t have a lot of SAAS stocks or anything, but I am exposed to the stock indexes (but I also have a metric sh*t ton of t-bills).
I marked my house equity up from $90K to $140K. That might be a tad aggressive. The housing market (and rents) have really been pretty hot here, but I am not very confident in this figure. Only a small portion of the change is due to debt pay down, as I don’t believe aggressively prepaying my mortgage is remotely optimal. The increase/ROE on the home is pretty levered.
I am also marking my deferred comp annuity up from $104K to $149K. I used the same methodology as last year for this. As a sanity check, I think if I just added the contributions to the plan that both my employer and I made, I would get an estimate that would not be a lot lower (and would also fail to take the decline in interest rates into account).
Overall, this might be a bit of an aggressive estimate. If interest rates spiked to 7% tomorrow all three categories would likely take a big hit. I guess that is the Federal Reserve’s “net worth effect” in action.
If I were trying to make a FIRE decision or something I would likely take a more conservative view of the available net worth. For example, I might exclude the equity value of my home and just allow the impact of that asset to be reflected in my cost base/estimates of required spending (i.e., largely fixed, low housing expenses).
Oh well, the purpose of this calculation is primarily just to motivate me and to get a general idea of the direction of things, so it should suffice for that purpose. Thanks for reading!
Well written, but typically one should not include the house one lives in, in one’s net worth. Since that house is supposedly not for sale.