Measuring Wealth

Do you know if you're on track for retirement? Measuring your wealth now could help.

Key Takeaways

  • Estimating your net worth could help you assess your ability to reach your retirement goals.
  • Net worth basically takes everything you own (your assets) and subtracts everything you owe (your liabilities).
  • This calculation can be useful in retirement planning, but it may not be wise to obsess over it.

Calculating your net worth today is important for your financial future because it can help you estimate your current wealth and what you might need in the future. Your net worth can also serve as a possible starting point for retirement planning.

Your current wealth can influence retirement planning as it can help you measure what you’ve saved and the amount of withdrawals and pension income you may be able to expect once your retire. Your current wealth can also influence tax planning, such as your ability to pay taxes on retirement income from pensions or other accounts. Measuring your wealth can also help you plan accordingly for your investment time horizon (how long you need your portfolio to last) and choose your portfolio’s asset allocation (the mix of stocks, bonds and other security types). For example, inflation could affect how far your money and income will go. Have you accounted for this additional cost? You could alternatively live long past your expectation or simple life tables might suggest. Will you be prepared in these scenarios? Asking these important questions when measuring your wealth can be a crucial step in that process.

Your Wealth and Debts

Fortunately, if you want to estimate your wealth, you can start by calculating your net worth. Net worth is essentially the economic value of what you own minus what you owe (Net Worth = Assets – Liabilities). This could help you make sure you have enough money and savings to live off retirement income and withdrawals in the future.

To start, accumulate your financial statements—or have a good idea of the details of your accounts. Then add up the value of all of your assets to estimate your wealth. That includes, but isn’t limited to, the following asset categories:

Liquid assets. These assets and bank products are often valued near their market value and can often be turned into cash more quickly than non-liquid assets. Your liquid assets might include:

  • Cash
  • CDs
  • Equities
  • Fixed Interest
  • Pensions and other retirement accounts

Non-liquid assets. The economic value of these assets is generally harder to measure, and selling these assets can be difficult at times. However, you may be able to estimate their value by comparing them to the values of similar assets. Non-liquid assets may include:

  • Real estate
  • Private investments
  • Collectibles

Once you have added up the value of your assets and wealth, subtract the amount of your liabilities. These may include:

  • Home loans
  • Student loans
  • Car loans
  • Unpaid credit card balances
  • Other debt (e.g., unpaid taxes, personal loans etc.)

Your net worth can be calculated “as is” or including the estimated taxes you may have to pay in the future.  Depending on your situation, you may be able to measure your net worth net of estimated taxes, but if not, just remember to save for that potential additional cost.

Planning is Good, But Fretting Can Hurt

Fretting over your net worth or frequently measuring your wealth might seem troublesome because the economic values of your assets and liabilities may change at times. It is normal for the total value of your wealth to fluctuate along with various short-term changes to asset and liability values. But it isn’t necessary to worry about your wealth on a day-to-day, week-to-week or even a month-to-month basis as long as you have a sound long-term investment strategy and financial plan in place.

When you are finished measuring your wealth or net worth, you should ask yourself some questions to help define the goals for your assets:

  • What are your long-term financial goals? Do you want to maximize your portfolio’s long-term value, or would you prefer to simply maintain your current purchasing power?
  • What about withdrawals? When and how much money do you plan to withdraw during retirement? Will you have to cover any new expenditures?
  • What is your investment time horizon? Are your investments ultimately for you, or do you plan to leave something to your loved ones such as a spouse or children?

You want to enjoy your retirement years, but you don’t want to outlive your money. Varying investment time horizons can have a dramatic effect on your optimal asset allocation.

Fisher Investments UK Can Help

At Fisher Investments UK, we understand retirement planning is a daunting and complex process. We may be able to help you on your journey to living a comfortable retirement. Fisher Investments UK has helped many investors estimate their current wealth and design a plan for their pensions and retirement. To learn more about our approach and methodology, call today and speak with one of our qualified professionals or download one of our educational retirement guides as the first of our ongoing insights. We hope to hear from you soon.

Investing in financial markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance neither guarantees nor reliably indicates future performance. The value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates.