Calculating Net Worth at Retirement

Typically net worth is the yardstick of choice for measuring financial success. You wouldn’t be human if you didn’t wonder how yours stacked up against your peers.  Maybe you’ve self-consciously poked around on the internet or eyed your neighbor’s new sports car and tried to guess if you were ahead or behind the curve. Your retirement net worth doesn’t have to by a mystery. It’s OK to want to know! In fact, it’s smart to know exactly what you’re dealing with so you can put a successful retirement strategy in place.

United States Household Net Worth by Nielsen

United States Household Net Worth by Nielsen

Your net worth isn’t static, so it’s normal for the total value to fluctuate along with the various markets you’re exposed to. It’s important to take a long-term focus, so a dip (assuming you have a sound long-term strategy) isn’t necessarily something to stress about on a week-to-week, month-to-month or even a year-to-year basis.

There’s debate whether you should calculate your net worth “as is” or include the taxes you may have to pay in the future when you take money out tax-deferred accounts or sell appreciated assets.  Because tax rates vary among individuals, account types and investment vehicles, we will assume an “as is” calculation without including taxes. However, no one knows your tax situation better than you (exception, maybe your accountant!) so when you think about your net worth for retirement consider the taxes you’d have to pay were you to liquidate assets today. 

Net worth is essentially what you own minus what you owe.
(Net Worth = Assets – Liabilities)

You’ll probably want to gather all your major financial documents before you start—or have a good idea of the details of your accounts. Don’t forget your other assets which might include cars, boats and other personal property. The idea is to capture a snapshot of your total wealth at this moment in time.

Takeaway: Use net worth to measure your wealth, don’t obsess over it. The right strategy for your situation is more important.