Author Topic: Net worth increase 2017 (i.e. the 'present' you give yourself)  (Read 103398 times)

eyePod

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #150 on: January 09, 2015, 04:46:20 PM »
A simple decision to move money from 2% bonds to pay off a 4% loan means our net worth dropped by $150,000?

Yes, your net worth dropped and so did your expenses.  You effectively spent part of your net worth to reduce your ongoing housing costs.

For the purposes most often discussed here, "net worth" refers to invested assets that can generate profits for you to use as living expenses.  Your house only does this if you intend to sell it, at which point you will have new housing costs.  In this way it's no different from any other cost-saving purchase, you've spent money up front to save money in the future.  But you've still spent the money today, so your net worth goes down today.

I disagree completely. The money wasn't spent. It was put into a super illiquid investment. They haven't "spent" anything.
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Roland of Gilead

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #151 on: January 09, 2015, 04:51:41 PM »

I disagree completely. The money wasn't spent. It was put into a super illiquid investment. They haven't "spent" anything.

Not really that illiquid since it is a requirement for our plans that we sell our house in 2015.  Thus every dollar we put down on the 3.625% loan was like buying a 1 year CD with a 3.625% return  (we don't itemize taxes).  It was a 100% safe investment paying off our loan since we would owe that money at closing in 2015 anyway.   I shifted more of our investment portfolio from bonds to stocks to account for the paydown of the home loan.

Chranstronaut

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #152 on: January 09, 2015, 04:54:58 PM »
Dec 2012 -8k (20k in student loans, working for 2 months)
Dec 2013 39k (12k in student loans)
Dec 2014 95k (student loans killed, 401k bumped to 25% and spending cut per month)

Just getting to positive NW seemed like the hardest part.  Once the machine is running and kept oiled, it's amazing!
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eyePod

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #153 on: January 09, 2015, 04:58:41 PM »

I disagree completely. The money wasn't spent. It was put into a super illiquid investment. They haven't "spent" anything.

Not really that illiquid since it is a requirement for our plans that we sell our house in 2015.  Thus every dollar we put down on the 3.625% loan was like buying a 1 year CD with a 3.625% return  (we don't itemize taxes).  It was a 100% safe investment paying off our loan since we would owe that money at closing in 2015 anyway.   I shifted more of our investment portfolio from bonds to stocks to account for the paydown of the home loan.

I was trying to make the point that you guys didn't spend any money and that a house is an investment (with incredibly poor returns). And arguing that you should absolutely include it in your net worth. Just because something is in your NW doesn't mean it has to be income generating. You can put it in your mattress and lose it to inflation and it's still part of your NW. The other guy's argument was just stupid.  Now, if he was saying there are reasons to calculate your NW without a house to gather certain information, then that's different.
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FIPurpose

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #154 on: January 09, 2015, 05:29:08 PM »
2013: $11k  (graduated college)
2014: $68k

Wife recently got a really nice pay raise with a really nice job. I hoping to hit about $150k by the end of this year.
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Zaga

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #155 on: January 09, 2015, 07:25:55 PM »
2012 NW increase ~$51,000
2013 NW increase ~$76,000  (about our take home pay, the market was good to us this year!)
2014 NW increase ~$43,000

2014 wasn't as impressive as the previous 2 years, but it's still our third highest increase since we got married in 2007!

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #156 on: January 09, 2015, 09:34:32 PM »
2014:    $250k
2015: > $145k
2016: > $    ?k
2017: > inflation = Likely FI cruise control!
2018: > inflation = Fo shizzle FI cruise control!!!

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #157 on: January 09, 2015, 09:36:52 PM »
09/2014: 0.- EUR
12/2014: ~14,000.- EUR
12/2015: >75,000.- EUR (planned)

We started our journey to FI last year in September.


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dude

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #158 on: January 13, 2015, 07:47:31 AM »
hmm, haven't done the full NW calculation yet, but my 401k alone increased by $52K this year, and from now through the next 5 years, @$31K will going in annually (max deferral + catch-ups + match) to mine.  Also got the wife maxed out on hers now, so another $21K or so/year going into hers, for @$52K annually combined.  That should move the needle a little bit. Currently @ $638K combined balance.

KES

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #159 on: January 13, 2015, 08:10:24 AM »
1/1/2014: 135,000
1/1/2015: 185,000

Most of the increase is due to Zillow inflating the price of my home, actual increase in investments was about 17k.


Runge

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #160 on: January 13, 2015, 10:27:55 AM »

I disagree completely. The money wasn't spent. It was put into a super illiquid investment. They haven't "spent" anything.

Not really that illiquid since it is a requirement for our plans that we sell our house in 2015.  Thus every dollar we put down on the 3.625% loan was like buying a 1 year CD with a 3.625% return  (we don't itemize taxes).  It was a 100% safe investment paying off our loan since we would owe that money at closing in 2015 anyway.   I shifted more of our investment portfolio from bonds to stocks to account for the paydown of the home loan.

I was trying to make the point that you guys didn't spend any money and that a house is an investment (with incredibly poor returns). And arguing that you should absolutely include it in your net worth. Just because something is in your NW doesn't mean it has to be income generating. You can put it in your mattress and lose it to inflation and it's still part of your NW. The other guy's argument was just stupid.  Now, if he was saying there are reasons to calculate your NW without a house to gather certain information, then that's different.

Sol's argument is based on being able to provide a source of income after FIRE. Yes, you can see some sort of return on a house, but the only time it becomes income is when you sell the house. By ignoring assets such as primary residences, it helps determine how much income you can expect to generate after FIRE.

If your house is worth 300k, and your stock market investments are worth 700k, you can only use returns from the 700k as income after FIRE. Assuming a 4% SWR, your income on 700k is 28k/year. If you're basing your SWR calculations on a NW that includes your house, then you would incorrectly calculate your income as 40k. That's a huge difference, and if done wrong can be extremely detrimental to your FIRE plan.

CheapskateWife

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #161 on: January 13, 2015, 11:09:30 AM »
We discovered MMM this summer and so have really been focused on killing our non-mortgage debts... up by 28% from our 2013 numbers for a whopping 312K but most of that was getting rid of a stupid car and its loan.  I can't wait to see what we can accomplish in 2015 with focus on maxing out our TSP's and Roth accounts.

The other "force multiplier" for us is that DH passed the 20 year threshold in his military service, and so his pension is locked in.  That was huge!   The value could vary by bits but he earned it, and its ours.  I'm not really sure how to reflect that in our NW calculations, or if it is just less that we need in the NW for our 4% SWR.  Right now, I don't have a value assigned to it, but it sure would be awesome to add it to our calculations with a Net Present Value.


marty998

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #162 on: January 13, 2015, 01:44:19 PM »

I disagree completely. The money wasn't spent. It was put into a super illiquid investment. They haven't "spent" anything.

Not really that illiquid since it is a requirement for our plans that we sell our house in 2015.  Thus every dollar we put down on the 3.625% loan was like buying a 1 year CD with a 3.625% return  (we don't itemize taxes).  It was a 100% safe investment paying off our loan since we would owe that money at closing in 2015 anyway.   I shifted more of our investment portfolio from bonds to stocks to account for the paydown of the home loan.

I was trying to make the point that you guys didn't spend any money and that a house is an investment (with incredibly poor returns). And arguing that you should absolutely include it in your net worth. Just because something is in your NW doesn't mean it has to be income generating. You can put it in your mattress and lose it to inflation and it's still part of your NW. The other guy's argument was just stupid.  Now, if he was saying there are reasons to calculate your NW without a house to gather certain information, then that's different.

Sol's argument is based on being able to provide a source of income after FIRE. Yes, you can see some sort of return on a house, but the only time it becomes income is when you sell the house. By ignoring assets such as primary residences, it helps determine how much income you can expect to generate after FIRE.

If your house is worth 300k, and your stock market investments are worth 700k, you can only use returns from the 700k as income after FIRE. Assuming a 4% SWR, your income on 700k is 28k/year. If you're basing your SWR calculations on a NW that includes your house, then you would incorrectly calculate your income as 40k. That's a huge difference, and if done wrong can be extremely detrimental to your FIRE plan.

Nobody here is silly enough to do that. Safe to assume most are tracking 2 net worths - a sum total of everything including the house, and a second one for size of the income producing 'stash.

Roland of Gilead

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #163 on: January 13, 2015, 02:16:35 PM »
If your house is worth 300k, and your stock market investments are worth 700k, you can only use returns from the 700k as income after FIRE. Assuming a 4% SWR, your income on 700k is 28k/year. If you're basing your SWR calculations on a NW that includes your house, then you would incorrectly calculate your income as 40k. That's a huge difference, and if done wrong can be extremely detrimental to your FIRE plan.
.

If you have a $300K house and your stock market investments are worth $700K, then yes, you can calculate your income as $40K with a 4% SWR.   If you have valued your house correctly for your net worth calculations (subtracting selling costs and other fees) then it is just an illiquid item in your portfolio.  It would be somewhat similar to a low yield bond fund that just keeps up with inflation (in most cases).  You can always extract the value out of your house and place that cash in the stock market.  Your expenses would go up but we are talking income.

Think of it another way.  What if you retired at 40 and had $300K in a 401K?  Further, what if you had that 401K invested in TIPS yielding right around 0% real?   Would you include this money in your portfolio, stache, net worth?  You can't get to it for 20 years (there are ways, but there are also ways to get money out of a house).

You need to think of all of your money and assets as one big pot which you apply the 4% SWR rule

eyePod

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #164 on: January 13, 2015, 02:36:49 PM »
If your house is worth 300k, and your stock market investments are worth 700k, you can only use returns from the 700k as income after FIRE. Assuming a 4% SWR, your income on 700k is 28k/year. If you're basing your SWR calculations on a NW that includes your house, then you would incorrectly calculate your income as 40k. That's a huge difference, and if done wrong can be extremely detrimental to your FIRE plan.
.

If you have a $300K house and your stock market investments are worth $700K, then yes, you can calculate your income as $40K with a 4% SWR.   If you have valued your house correctly for your net worth calculations (subtracting selling costs and other fees) then it is just an illiquid item in your portfolio.  It would be somewhat similar to a low yield bond fund that just keeps up with inflation (in most cases).  You can always extract the value out of your house and place that cash in the stock market.  Your expenses would go up but we are talking income.

Think of it another way.  What if you retired at 40 and had $300K in a 401K?  Further, what if you had that 401K invested in TIPS yielding right around 0% real?   Would you include this money in your portfolio, stache, net worth?  You can't get to it for 20 years (there are ways, but there are also ways to get money out of a house).

You need to think of all of your money and assets as one big pot which you apply the 4% SWR rule

Right? I understand Runge's point. He stated it very well.  Sol was acting as if the money disappears once even though it's principal. Definitely not true.

I guess we just need to be clear about what we intentend to use this "NW" calculation as. I like to think of it as "this is all the assets I've accrued."

But Runge, you're absolutely right that you need to be wary of this # for FIRE calculations, or if you're going to use it, you'll have to assume that you sell the house and will be renting instead. I'd hope that someone who's going FIRE would think about this but who knows.
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ozzage

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #165 on: January 13, 2015, 04:14:11 PM »
My net worth and my "stache" are different numbers. My net worth includes money towards a deposit for a house, and will one day (probably, if we ever get around to actually buying one) include that house's value. That's net worth. My net worth also includes my emergency fund.

My stache is just my investment assets, and that's what I base my 4% on. No house, no emergency funds.

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #166 on: January 13, 2015, 04:47:10 PM »
I a little more than doubled my net worth in 2014, saving ~66% of my net income. A very good year. Next year should be even better.

If you have a $300K house and your stock market investments are worth $700K, then yes, you can calculate your income as $40K with a 4% SWR.

Uh, no you can't. A house doesn't generate income, so you can't "withdraw" anything from it. It may reduce your expenses, but it doesn't generate income unless you're renting out rooms.

Roland of Gilead

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #167 on: January 13, 2015, 05:05:26 PM »
Uh, no you can't. A house doesn't generate income, so you can't "withdraw" anything from it. It may reduce your expenses, but it doesn't generate income unless you're renting out rooms.

0% bonds don't generate any income  (10 year Treasuries are paying about 2% which equals inflation which means they pay nothing).

Are you saying someone who had 70% of their portfolio in the stock market and 30% in 10 year treasury bonds only really has 70% of what they think they have for income generation?

You should go over to Bogleheads and make a post on how their bond portion of their portfolio should not be included in their SWR income calculations.

Runge

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #168 on: January 13, 2015, 05:25:42 PM »
If your house is worth 300k, and your stock market investments are worth 700k, you can only use returns from the 700k as income after FIRE. Assuming a 4% SWR, your income on 700k is 28k/year. If you're basing your SWR calculations on a NW that includes your house, then you would incorrectly calculate your income as 40k. That's a huge difference, and if done wrong can be extremely detrimental to your FIRE plan.
.

If you have a $300K house and your stock market investments are worth $700K, then yes, you can calculate your income as $40K with a 4% SWR.   If you have valued your house correctly for your net worth calculations (subtracting selling costs and other fees) then it is just an illiquid item in your portfolio.  It would be somewhat similar to a low yield bond fund that just keeps up with inflation (in most cases).  You can always extract the value out of your house and place that cash in the stock market.  Your expenses would go up but we are talking income.

Think of it another way.  What if you retired at 40 and had $300K in a 401K?  Further, what if you had that 401K invested in TIPS yielding right around 0% real?   Would you include this money in your portfolio, stache, net worth?  You can't get to it for 20 years (there are ways, but there are also ways to get money out of a house).

You need to think of all of your money and assets as one big pot which you apply the 4% SWR rule

I respectfully disagree. I don't treat my primary residence as an investment with respect to my FIRE income. As ozzage stated it, my "stache" is different from my textbook NW. Maybe this is all simply a misunderstanding of terminology, but my stache is what I'm going to be living off of after I retire.

If we look at it from another angle...say my house is worth 700k and I have no mortgage. My liquid investments are worth 300k, and my target FIRE amount is 1 million. Would you seriously suggest that I pull 40k/year out to live on? If so then I must pull from the equity in my house (read pay interest). This means that I'm effectively negating any kind of growth the in the value of my home.

To simplify it, lets assume that my home value keeps pace with inflation at 3%, while the HELOC that I just took out is charging me an interest rate of 3% (which I believe in today's market is pretty good). Whoops...I just negated any growth in my house because now I'm paying the bank to make the equity in my home liquid. I now have effectively 700k (or whatever the size of the heloc is) stuffed under a mattress in cold, hard cash.

That leaves me with the typically assumed 7% growth on the 300k liquid investments, which equates to 12k/year in this case.

Unless I'm missing some fundamental flaw, the math does not add up. Please let me know if I'm mistaken. I'll gladly eat crow if I'm wrong.

Until then, I believe the proper way to prep for FIRE is have a paid off house and ignore primary residence equity in your FIRE income calculations. If your house is not paid off, then you need to account for that in your FIRE income calculations, i.e. treat it solely as an expense.

Beric01

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #169 on: January 13, 2015, 05:32:15 PM »
Uh, no you can't. A house doesn't generate income, so you can't "withdraw" anything from it. It may reduce your expenses, but it doesn't generate income unless you're renting out rooms.

0% bonds don't generate any income  (10 year Treasuries are paying about 2% which equals inflation which means they pay nothing).

Are you saying someone who had 70% of their portfolio in the stock market and 30% in 10 year treasury bonds only really has 70% of what they think they have for income generation?

You should go over to Bogleheads and make a post on how their bond portion of their portfolio should not be included in their SWR income calculations.

Bond are part of a mixed portfolio of stocks and bonds. When stocks are down, the bonds can be sold to buy more stocks, re-balancing the portfolio and ultimately increasing your returns. Bond of themselves aren't contributing to 4% withdrawal, but when combined with stocks in a proper portfolio they are.

I haven't see any mention of people selling half of their house to buy more stocks when the market is down, but if they do I might be willing to include the house as part of their SWR.

Runge

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #170 on: January 13, 2015, 05:37:27 PM »
Also,

There's this thread that talks about this exact topic:
http://forum.mrmoneymustache.com/investor-alley/swr-4-and-4-of-what/

Roland of Gilead

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #171 on: January 13, 2015, 09:47:22 PM »
One of the posters in the other thread (Sherr) got it right.  This is what I was trying to convey.

"If you want to include the house in your investments and take 4% of your total net worth, then you can, but then you need to increase your real annual expenses by however much it would cost you to rent. That is another fine way of calculating, if your home is an investment then it is generating the amount that you could rent it for each month, and paying off your imaginary rent to live in the house each month.

What you cannot do is include the home in your investments and compare your investment amount to your real annual expenses. If you are you are double-counting the value of your home; once in reducing your expenses by not having rent / mortgage, and once by counting it among your income-generating investments. That's just bad accounting, not to mention not what the 4% rule research is based on."

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #172 on: January 13, 2015, 10:07:50 PM »
We discovered MMM this summer and so have really been focused on killing our non-mortgage debts... up by 28% from our 2013 numbers for a whopping 312K but most of that was getting rid of a stupid car and its loan.  I can't wait to see what we can accomplish in 2015 with focus on maxing out our TSP's and Roth accounts.

The other "force multiplier" for us is that DH passed the 20 year threshold in his military service, and so his pension is locked in.  That was huge!   The value could vary by bits but he earned it, and its ours.  I'm not really sure how to reflect that in our NW calculations, or if it is just less that we need in the NW for our 4% SWR.  Right now, I don't have a value assigned to it, but it sure would be awesome to add it to our calculations with a Net Present Value.

It depends on DH's rank, but that pension is probably worth a million or more in NW.

Runge

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #173 on: January 14, 2015, 06:34:33 AM »
One of the posters in the other thread (Sherr) got it right.  This is what I was trying to convey.

"If you want to include the house in your investments and take 4% of your total net worth, then you can, but then you need to increase your real annual expenses by however much it would cost you to rent. That is another fine way of calculating, if your home is an investment then it is generating the amount that you could rent it for each month, and paying off your imaginary rent to live in the house each month.

What you cannot do is include the home in your investments and compare your investment amount to your real annual expenses. If you are you are double-counting the value of your home; once in reducing your expenses by not having rent / mortgage, and once by counting it among your income-generating investments. That's just bad accounting, not to mention not what the 4% rule research is based on."

If that's what you're trying to convey, then I agree with you. :D

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #174 on: January 14, 2015, 06:39:07 AM »
We discovered MMM this summer and so have really been focused on killing our non-mortgage debts... up by 28% from our 2013 numbers for a whopping 312K but most of that was getting rid of a stupid car and its loan.  I can't wait to see what we can accomplish in 2015 with focus on maxing out our TSP's and Roth accounts.

The other "force multiplier" for us is that DH passed the 20 year threshold in his military service, and so his pension is locked in.  That was huge!   The value could vary by bits but he earned it, and its ours.  I'm not really sure how to reflect that in our NW calculations, or if it is just less that we need in the NW for our 4% SWR.  Right now, I don't have a value assigned to it, but it sure would be awesome to add it to our calculations with a Net Present Value.

It depends on DH's rank, but that pension is probably worth a million or more in NW.

You can use the DFAS High 3 calculator to give you a rough estimate.  It will be SLIGHTLY high since the numbers are running off of 2010 and the lowest annual raise they allow you to calculate from that point is 2% (and we all know that hasn't happened the past few years).  The chart at the bottom will give you a look at what it's worth pre tax going out 5-40 years.  But yes, assuming he didn't take the 15 payout out it's probably over a mill for his lifetime.  We did a run down of the hubs and with what he "expects" to retire at would be around 1.5 over 35 years.  We don't add this into our NW though, and probably never will, since we all know how the government is, and probably will, continue to look at ways to trim that down.  We don't want to rely on something and then have it not be there.  We are running FIRE on our own money and if his pension is there...gravy, we can live off of the monthly payout and not have to touch our investments for a while (and then we can have A LOT of fun in retirement lol).  He's got 5 more to go though before he hits his 20.

ak907

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #175 on: January 14, 2015, 07:51:56 AM »
2012: $222K
2013: $285K
2014: $341K

up $56K 2013-14
« Last Edit: January 14, 2015, 08:15:24 AM by ak907 »

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #176 on: January 14, 2015, 07:57:45 AM »
You can use the DFAS High 3 calculator to give you a rough estimate.  It will be SLIGHTLY high since the numbers are running off of 2010 and the lowest annual raise they allow you to calculate from that point is 2% (and we all know that hasn't happened the past few years).  The chart at the bottom will give you a look at what it's worth pre tax going out 5-40 years.  But yes, assuming he didn't take the 15 payout out it's probably over a mill for his lifetime.  We did a run down of the hubs and with what he "expects" to retire at would be around 1.5 over 35 years.  We don't add this into our NW though, and probably never will, since we all know how the government is, and probably will, continue to look at ways to trim that down.  We don't want to rely on something and then have it not be there.  We are running FIRE on our own money and if his pension is there...gravy, we can live off of the monthly payout and not have to touch our investments for a while (and then we can have A LOT of fun in retirement lol).  He's got 5 more to go though before he hits his 20.

I respectfully and 100% disagree with this viewpoint. By the time they start truly cutting military pension costs we'll be worrying about other things. Military personnel are a sacred cow and any recommendations for changes in the pension (or Social Security for that matter) include grandfathering current beneficiaries. Furthermore, I am connected with the office in one of the services that recommended cuts to benefits to avoid other cuts. I was told that the Congress basically treats anyone that has 10+ years in as untouchable as far as future benefits are concerned (obviously this does not include reductions in force). Anyone under 10 years time in service can pound sand - they'd be ready to vote for pension changes for people under that point.

This is like a discussion I often have with a friend - preparing for a complete portfolio collapse. If that happens it means we're in such a bad depression or political/social crisis that we will be worrying about putting food on the table or staying alive. That's where we'll be before your pension ever gets a serious look.

So, yeah...Go ahead and add to your NW that $1M annuity that has the full faith and credit of the United States Government behind it. If you don't believe in that, I question how you include any other American asset in your NW.
« Last Edit: January 14, 2015, 08:01:25 AM by NICE! »

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #177 on: January 14, 2015, 08:16:53 AM »
You can use the DFAS High 3 calculator to give you a rough estimate.  It will be SLIGHTLY high since the numbers are running off of 2010 and the lowest annual raise they allow you to calculate from that point is 2% (and we all know that hasn't happened the past few years).  The chart at the bottom will give you a look at what it's worth pre tax going out 5-40 years.  But yes, assuming he didn't take the 15 payout out it's probably over a mill for his lifetime.  We did a run down of the hubs and with what he "expects" to retire at would be around 1.5 over 35 years.  We don't add this into our NW though, and probably never will, since we all know how the government is, and probably will, continue to look at ways to trim that down.  We don't want to rely on something and then have it not be there.  We are running FIRE on our own money and if his pension is there...gravy, we can live off of the monthly payout and not have to touch our investments for a while (and then we can have A LOT of fun in retirement lol).  He's got 5 more to go though before he hits his 20.

I respectfully and 100% disagree with this viewpoint. By the time they start truly cutting military pension costs we'll be worrying about other things. Military personnel are a sacred cow and any recommendations for changes in the pension (or Social Security for that matter) include grandfathering current beneficiaries. Furthermore, I am connected with the office in one of the services that recommended cuts to benefits to avoid other cuts. I was told that the Congress basically treats anyone that has 10+ years in as untouchable as far as future benefits are concerned (obviously this does not include reductions in force). Anyone under 10 years time in service can pound sand - they'd be ready to vote for pension changes for people under that point.

This is like a discussion I often have with a friend - preparing for a complete portfolio collapse. If that happens it means we're in such a bad depression or political/social crisis that we will be worrying about putting food on the table or staying alive. That's where we'll be before your pension ever gets a serious look.

So, yeah...Go ahead and add to your NW that $1M annuity that has the full faith and credit of the United States Government behind it. If you don't believe in that, I question how you include any other American asset in your NW.

Agree with NICE! here.  They may fiddle with certain things like the chained CPI for COLAs, eliminating the SRS for some future FERS annuitants, and such, but a wholesale change, especially for the military, would be pretty unthinkable.  I'm FERS LEO, and I'm pretty sure they won't fuck with LEO pensions and benefits too much either, but if they do, I'll survive.  I calculate my pension's rough worth by using my expected annual annuity at retirement as a baseline, then dividing by 0.04, which gives me the whole dollar amount I'd need in a retirement account to safely draw 4%.

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #178 on: January 14, 2015, 12:49:21 PM »
You can use the DFAS High 3 calculator to give you a rough estimate.  It will be SLIGHTLY high since the numbers are running off of 2010 and the lowest annual raise they allow you to calculate from that point is 2% (and we all know that hasn't happened the past few years).  The chart at the bottom will give you a look at what it's worth pre tax going out 5-40 years.  But yes, assuming he didn't take the 15 payout out it's probably over a mill for his lifetime.  We did a run down of the hubs and with what he "expects" to retire at would be around 1.5 over 35 years.  We don't add this into our NW though, and probably never will, since we all know how the government is, and probably will, continue to look at ways to trim that down.  We don't want to rely on something and then have it not be there.  We are running FIRE on our own money and if his pension is there...gravy, we can live off of the monthly payout and not have to touch our investments for a while (and then we can have A LOT of fun in retirement lol).  He's got 5 more to go though before he hits his 20.

I respectfully and 100% disagree with this viewpoint. By the time they start truly cutting military pension costs we'll be worrying about other things. Military personnel are a sacred cow and any recommendations for changes in the pension (or Social Security for that matter) include grandfathering current beneficiaries. Furthermore, I am connected with the office in one of the services that recommended cuts to benefits to avoid other cuts. I was told that the Congress basically treats anyone that has 10+ years in as untouchable as far as future benefits are concerned (obviously this does not include reductions in force). Anyone under 10 years time in service can pound sand - they'd be ready to vote for pension changes for people under that point.

This is like a discussion I often have with a friend - preparing for a complete portfolio collapse. If that happens it means we're in such a bad depression or political/social crisis that we will be worrying about putting food on the table or staying alive. That's where we'll be before your pension ever gets a serious look.

So, yeah...Go ahead and add to your NW that $1M annuity that has the full faith and credit of the United States Government behind it. If you don't believe in that, I question how you include any other American asset in your NW.

Agree with NICE! here.  They may fiddle with certain things like the chained CPI for COLAs, eliminating the SRS for some future FERS annuitants, and such, but a wholesale change, especially for the military, would be pretty unthinkable.  I'm FERS LEO, and I'm pretty sure they won't fuck with LEO pensions and benefits too much either, but if they do, I'll survive.  I calculate my pension's rough worth by using my expected annual annuity at retirement as a baseline, then dividing by 0.04, which gives me the whole dollar amount I'd need in a retirement account to safely draw 4%.

I don't for a second think they will do away with it totally, and I do believe he will be grandfathered...HOWEVER, look at what was passed (then retracted) just this past year, a reduction in COLA for working age retirees, originally with NO grandfathering.  I just will not add it into the NW calculation because if things like Tricare rates, SBP rates, lower or no indexing to inflation occur and we are basing our FIRE NW off of a number that includes X (which involves promises over decades) and it really turns out to be Y and we don't have money to make up that difference...well then we are screwed.  Better safe then sorry in my book.

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #179 on: January 15, 2015, 02:34:53 PM »
I don't for a second think they will do away with it totally, and I do believe he will be grandfathered...HOWEVER, look at what was passed (then retracted) just this past year, a reduction in COLA for working age retirees, originally with NO grandfathering.  I just will not add it into the NW calculation because if things like Tricare rates, SBP rates, lower or no indexing to inflation occur and we are basing our FIRE NW off of a number that includes X (which involves promises over decades) and it really turns out to be Y and we don't have money to make up that difference...well then we are screwed.  Better safe then sorry in my book.

But, since you're on the MMM website and in all likelihood not a huge spender, this pension could presumably pay for all, more than, or just a bit less than your FIRE expenses...right? So if this pension can cover that, how is it anything but a HUGE investment in TIPS/T-Bills?

SBP is a choice and a monthly expense, not something that effects the value of the annuity (pension). If you're worried about this going up, that goes on the expense side of the equation.

Also, Tricare rate raises? I hope you're kidding, the raises have been a joke. It pisses me off so much that they won't defray some of the costs onto comparatively rich retirees (often with another job/income) more than a couple of dollars. This is exactly why I don't give money to any of the active duty or veterans' lobbying groups. Furthemore, like SBP, this goes on the expense side of the ledger, not income.

Finally, even if you think it will lose to inflation, you can treat it as $1m in a high-yield savings account...Or something along those lines. Again, it is an annuity backed by the full faith and credit of the US government. If you don't buy that then neither your home nor your stocks/bonds should be part of your NW.

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #180 on: January 15, 2015, 03:15:55 PM »
I don't for a second think they will do away with it totally, and I do believe he will be grandfathered...HOWEVER, look at what was passed (then retracted) just this past year, a reduction in COLA for working age retirees, originally with NO grandfathering.  I just will not add it into the NW calculation because if things like Tricare rates, SBP rates, lower or no indexing to inflation occur and we are basing our FIRE NW off of a number that includes X (which involves promises over decades) and it really turns out to be Y and we don't have money to make up that difference...well then we are screwed.  Better safe then sorry in my book.

But, since you're on the MMM website and in all likelihood not a huge spender, this pension could presumably pay for all, more than, or just a bit less than your FIRE expenses...right? So if this pension can cover that, how is it anything but a HUGE investment in TIPS/T-Bills?

SBP is a choice and a monthly expense, not something that effects the value of the annuity (pension). If you're worried about this going up, that goes on the expense side of the equation.

Also, Tricare rate raises? I hope you're kidding, the raises have been a joke. It pisses me off so much that they won't defray some of the costs onto comparatively rich retirees (often with another job/income) more than a couple of dollars. This is exactly why I don't give money to any of the active duty or veterans' lobbying groups. Furthemore, like SBP, this goes on the expense side of the ledger, not income.

Finally, even if you think it will lose to inflation, you can treat it as $1m in a high-yield savings account...Or something along those lines. Again, it is an annuity backed by the full faith and credit of the US government. If you don't buy that then neither your home nor your stocks/bonds should be part of your NW.

If the pension is there, yup, the estimates say it could pay for all of our expenses when he retires.  Simply because Tricare rates haven't raised significantly in the past, doesn't mean they won't, in the future.

Yes SBP is an expense, one that could go up in the future, so it is an "unknown" variable over the course of 40 years (if we opt for it, we may not), just like taxes are.  I think we will see a tax hike sometime in the future of our lives, which could also lessen the pension and stock value. 

We will not ever count the pension in our NW calculations, based on past history of various cities and states, and watching the supposed promises the state gave my parents in regards to their pension wither away, I don't have faith that people, now, and in the future, won't vote to alter that "promise"...kind of like how they changed it from Free Medical for Life, to Champus, to Tricare, to increased copays and retiree cost sharing.  I still find the medical a ridiculous value, and it's one of the main reasons he stays in, but I don't for a minute believe that the promises in place today will remain the same 20-30-40 years from now, heck they may change in the next year when the Commission report comes out.  They may not...but that's not a sure thing.  We don't believe in leaving the fate of our future up to the whims of other people.

There is also no guarantee (though with his specialty it is HIGHLY unlikely) that he will be able to make it to the 20 year mark with the massive layoffs that are occurring in the military.  We know a number of people that were planning on retiring and having their pension in 5 or 6 years, and didn't save a lot, and now they are out of jobs, with very little in the way of savings...starting over from the ground floor instead of enjoying luxury in retirement.

Plan for the worst, hope for the best.  I'd rather have our estimated 1.5 mil in the investment accounts plus a paid off house when he retires.  If the pension is there gangbusters!  We will live the grand life, and travel a lot in retirement while being able to give back more to the community then we had originally planned for.

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #181 on: January 15, 2015, 11:16:26 PM »
If you're not at 20 years yet then I completely agree, it isn't part of the NW. BUT it is the day you hit 20. Again, medical & SBP are expenses. You project them on the expense side of things, not NW or income.

Again, full faith and credit of the US Government as a guaranteed annuity. You stocks and bonds are far riskier and I don't see how that is even a discussion. Even if you combine all of the possible sky-is-falling factors that you're mentioning, you probably still have a pension that pays close to your monthly expenses. Good job saving, I'm doing it as well, but you can't pretend like the military pension isn't most lucrative and guaranteed annuities in existence.

Would you include an annuity you bought in your NW? I'm guessing yes, even though Bank X is a million times riskier than what we're talking about here.

11ducks

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #182 on: January 16, 2015, 02:16:45 AM »

Dec 2013 -$33,6000 (35k owed in student loans, $1400 in savings)
Dec 2014 -21k ($25,500 student loans, $4500 in savings)
Plus I spent more than 6k on unexpected medical bills in 2014

Am aiming for a net worth of about zero by December 2015 v (lofty goals!), and $30k by December 2016. I cannot wait to make that last student loan payment and be out of debt! 
Cheaper beans...CHEAPER BEANS! - dagiffy1

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #183 on: January 16, 2015, 05:52:10 AM »
You WILL do it!  Just keep at it.  Keep thinking of that day.  And when it happens, you'll be very proud of yourself --- as well you should be!  Please keep us informed of your progress.

ash7962

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #184 on: January 16, 2015, 09:03:13 AM »
All of your NW increases are so inspiring!  Here's mine:

12/31/2013 - 36k
12/31/2014 - 95.5k

So just shy of a 60k increase.  That is a wonderful present!  I found MMM in May and really started changing things in June, so maybe I can do even better this year :).  Here's to an even better year for everyone in 2015!

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #185 on: January 16, 2015, 09:55:28 AM »
All of your NW increases are so inspiring!  Here's mine:

12/31/2013 - 36k
12/31/2014 - 95.5k

So just shy of a 60k increase.  That is a wonderful present!  I found MMM in May and really started changing things in June, so maybe I can do even better this year :).  Here's to an even better year for everyone in 2015!

Huge increase, you must be making some great changes!

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #186 on: January 16, 2015, 10:07:57 AM »
It is so good to read all the positive stories. In my case my NW divided by annual expenses ratio went up from 10 to 12. That means two more years saved. Hopefully it will reach 25 in the next few years.


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ash7962

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #187 on: January 16, 2015, 11:10:43 AM »
All of your NW increases are so inspiring!  Here's mine:

12/31/2013 - 36k
12/31/2014 - 95.5k

So just shy of a 60k increase.  That is a wonderful present!  I found MMM in May and really started changing things in June, so maybe I can do even better this year :).  Here's to an even better year for everyone in 2015!

Huge increase, you must be making some great changes!

Thanks, its not all because of changes actually.  I also got my first sizable bonus in Jan of '14 which I did not spend much of.  More luck than anything because I had no real concept of saving/investing (it was more I just didn't have anything to spend it on or I couldn't imagine spending so much at once).  Although after that bonus I felt like I should at least be doing something with all that new cash which is what ultimately led me to MMM.  This year's bonus is already being put to better use, so hopefully I'll still see an increase in how much my money grows even though I got the same bonus as last year.

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #188 on: January 16, 2015, 11:15:51 AM »
I won't have final figures for some weeks, but this is pretty close:

$160,000 was our gain this year

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #189 on: January 16, 2015, 11:21:25 AM »
33 / M

Investment growth
45,000

Real Estate.
105,000-150,000

Savings
85,000

Not bad year. Had myself in very risk adverse investments in the market though, and I bought another house and had to get a old truck to replace the one that died.


11ducks

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #190 on: January 17, 2015, 02:56:23 AM »
You WILL do it!  Just keep at it.  Keep thinking of that day.  And when it happens, you'll be very proud of yourself --- as well you should be!  Please keep us informed of your progress.

Thank you :)
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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #191 on: January 17, 2015, 06:29:53 AM »
New here and thrilled to have discovered such a community.

My husband and I started 2014 with $123 000 and finished up with $150 000

I'm very happy with our $27k increase which was almost exclusively from savings but I believe that we are capable of saving over $40k/year. Our weakness is travel though and we did a fair bit in 2014 but truth be told, we also spend a reasonable amount on misc stuff that added nothing meaningful to our lives.

It is clear that we could be better using our money to generate additional income. At the moment we have almost all of it parked in savings accounts earning a measly 4% because we will likely need most if not all of it when we purchase a home - hopefully this year. On a positive note, with our savings and current low interest rates, the repayment on our home should be considerably less than our current rent.

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #192 on: January 17, 2015, 09:01:16 AM »
Jan 2014: -$25k
Jan 2015: $3K

Not as impressive as many posters here, but for me this is huge!

You now have that interest treadmill working with not against you... don't underestimate how significant your hard work was in 2014! You can now start to enjoy the power of compounding!

My NW for 2014...

Jan 1 2014:  $67,000
Jan 1 2015: $100,000

Nords

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #193 on: January 17, 2015, 02:18:21 PM »
We discovered MMM this summer and so have really been focused on killing our non-mortgage debts... up by 28% from our 2013 numbers for a whopping 312K but most of that was getting rid of a stupid car and its loan.  I can't wait to see what we can accomplish in 2015 with focus on maxing out our TSP's and Roth accounts.

The other "force multiplier" for us is that DH passed the 20 year threshold in his military service, and so his pension is locked in.  That was huge!   The value could vary by bits but he earned it, and its ours.  I'm not really sure how to reflect that in our NW calculations, or if it is just less that we need in the NW for our 4% SWR.  Right now, I don't have a value assigned to it, but it sure would be awesome to add it to our calculations with a Net Present Value.

It depends on DH's rank, but that pension is probably worth a million or more in NW.
I'd count a military pension as cash flow, not an addition to net worth.  For starters it's awfully hard to sell (if not downright illegal) and for another nobody would give you what it's really worth.

But if you want to put a number on it, you could start with the equivalent monthly income that you'd get from a portfolio of I bonds.  They're paying 1.48% for another few months (https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm) but they get the same COLA and they're exempt from state/locality taxes.  It's not a very good analogy, but it's close enough.

http://the-military-guide.com/2011/03/17/present-value-estimate-of-a-military-pension/

Oh, and remember to adjust that calculation for the Survivor Benefits Plan.  I'm not sure how to do that, but you could hypothetically stretch out that cashflow for many decades. 

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #194 on: January 17, 2015, 02:43:07 PM »
2014 was definitely a banner year for investments, and our savings we added to the investments were also great since we downsized our house in 2013, though still not what it could be.


I had a couple realizations in the last few months that I enjoyed. First, I realized we were around half a million net worth. (probably over, but I like to be conservative in things like house value) To me that is a mile stone that snuck up on us. For years I was worried about our large house with underwater mortgage, and hadn't realized how the compounding nature of our investments were allowing us to build up net worth despite our other financial issues.


Second, I realized our net worth has grown to the point that the growth in investments is starting to outweigh the additions we make to investments. That is definitely true this year, the growth is greater than out contributions. Psychologically this was positive reinforcement for the investments we have made over the years, and comfort to know even if we had to stop investing we could retire in around 10 years when the kids graduate from HS, even if we never added another penny to the accounts. At some point we can stop worrying about investments and watch growth take over. Since I enjoy my job, we enjoy travel, we might help the kids with college, etc, I will probably keep working as long as I enjoy it. But the option of early retirement has never seemed to be so real, and we are getting that much closer to having the FU money that provides the peace of mind I desire.
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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #195 on: January 17, 2015, 04:59:48 PM »
We discovered MMM this summer and so have really been focused on killing our non-mortgage debts... up by 28% from our 2013 numbers for a whopping 312K but most of that was getting rid of a stupid car and its loan.  I can't wait to see what we can accomplish in 2015 with focus on maxing out our TSP's and Roth accounts.

The other "force multiplier" for us is that DH passed the 20 year threshold in his military service, and so his pension is locked in.  That was huge!   The value could vary by bits but he earned it, and its ours.  I'm not really sure how to reflect that in our NW calculations, or if it is just less that we need in the NW for our 4% SWR.  Right now, I don't have a value assigned to it, but it sure would be awesome to add it to our calculations with a Net Present Value.

It depends on DH's rank, but that pension is probably worth a million or more in NW.
I'd count a military pension as cash flow, not an addition to net worth.  For starters it's awfully hard to sell (if not downright illegal) and for another nobody would give you what it's really worth.

But if you want to put a number on it, you could start with the equivalent monthly income that you'd get from a portfolio of I bonds.  They're paying 1.48% for another few months (https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm) but they get the same COLA and they're exempt from state/locality taxes.  It's not a very good analogy, but it's close enough.

http://the-military-guide.com/2011/03/17/present-value-estimate-of-a-military-pension/

Oh, and remember to adjust that calculation for the Survivor Benefits Plan.  I'm not sure how to do that, but you could hypothetically stretch out that cashflow for many decades.

I really like the way you put this Nords!

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #196 on: January 17, 2015, 11:02:38 PM »
2013 ~$255k
2014 ~$306k

I am new to MMM, so hopefully my self inflicted face punch will get my ass in gear to make that number jump much closer to $100k for 2015.

But in my defense we did also pay off about $65k of "debt" in 2014 as well.

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #197 on: January 18, 2015, 08:14:26 AM »
I'd count a military pension as cash flow, not an addition to net worth.  For starters it's awfully hard to sell (if not downright illegal) and for another nobody would give you what it's really worth.

But if you want to put a number on it, you could start with the equivalent monthly income that you'd get from a portfolio of I bonds.  They're paying 1.48% for another few months (https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm) but they get the same COLA and they're exempt from state/locality taxes.  It's not a very good analogy, but it's close enough.

http://the-military-guide.com/2011/03/17/present-value-estimate-of-a-military-pension/

Oh, and remember to adjust that calculation for the Survivor Benefits Plan.  I'm not sure how to do that, but you could hypothetically stretch out that cashflow for many decades.

It seems like you're really saying the same thing I'm saying. Like me, you're considering it to be a guarantee, while Siobhan is focusing on hypothetical changes that will, at worst, nibble at the margins. If anything's safe, it is that pension. The second someone starts questioning the pension, I'll question the heck out of stocks, bonds, and real estate. I still assert that we're talking serious social issues before we're talking major changes (IE enough to seriously change your FIRE spending) to the military pension for retirees. Token increases to Tricare are a joke...And belong on the spending side of the equation, as does SBP (insurance - you can't tell me that car or life insurance should be subtracted from NW). And PS they need to make retirees pay more for Tricare - I don't want rich retirees putting active benefits at risk, nor do I want them pulling more from the taxpayer than they need.

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #198 on: January 18, 2015, 08:38:59 AM »
NW end of 2013: $40k
NW end of 2014: $56k

$16k increase- not too bad!
« Last Edit: January 18, 2015, 11:48:30 AM by Fletch »

horsepoor

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Re: Net worth increase 2014 (i.e. the 'present' you give yourself)
« Reply #199 on: January 18, 2015, 08:46:01 AM »
Off the cuff guesstimate for just my own retirement accounts and debt reduction:  $45,500.  Amazing when I write that down.  Does not include getting out of the underwater 6.375% mortgage on our old house (juuuuust managed to squeak out enough equity to sell without bringing money to closing), husband's investments, or any appreciation on our current home.  Adding all that in might bring us to about $80-90K up for the year (!)