Occam's Razor

I’ve been watching our net worth. It’s just a number and an inexact number at that. Your real net worth isn’t known until you are dead and your estate is settled.

There are lots of vagaries when calculating your net worth, such as the value of your house, cars and other possessions. I use the city’s appraisal of our house as a benchmark. It’s probably understated, but the city assessed it at $558,800. Cars tend to depreciate. Once a year, I use Consumer Reports car value estimator to figure that out. Assessing the value of our other property like furniture and clothes seems kind of pointless, as you can’t live in a home without them, so I don’t. The value of our stocks and bonds will fluctuate from day to day. About 66% of our net worth consists of these investments, so when markets are up our net worth tends to balloon, and visa-versa. Generally Quicken will keep track of the bottom line for me, but it won’t read in the prices for my Thrift Savings Plan funds, so I have to enter these manually.

I’ve been paying more attention lately because we’re getting close to hitting a bigger number: $2M in net worth. It was ten years ago when our portfolio hit the $1M mark, which technically made us millionaires. Back then I noted I didn’t feel particularly rich, because most of our wealth was in our house and because inflation erodes away at the value of our assets when priced in dollars. I’m guessing our net worth would need to be $20M – $50M in today’s dollars to really “feel” like a millionaire. With that level of wealth I’d probably have a couple of vacation homes and fly first class everywhere.

We would have briefly passed the $2M net worth mark has I not booked a cruise for December. That cost us about $7000 . The cruise companies don’t give you much time before you are required to pay in full. So that money is gone plus the stock market has slumped a bit. So we’re not quite at that $2M net worth threshold, but closing in at about $1.982M in net worth.

I’d like to brag that it was our great investing that is responsible for nearly doubling our net worth in ten years. But I largely leave that to our financial adviser. In truth, aside from the true luxury of being debt free, most of it is due to spending a lot less than our income. Even in retirement, as much as twenty percent of our income is saved. Since early this year, we’re not even withdrawing from our retirement accounts. Money coming in, mostly in the form of a generous federal pension plus Social Security, is responsible.

The pandemic has helped too. Until recently there was no place to go and it’s still a bit chancy to travel today. So much sitting at home has allowed me, a retiree, to rake in additional income from consulting services that I do online. It’s not a huge amount (about $27,000 so far this year), but it’s enough where I became subject to windfall elimination provisions in retirement laws. My social security payment this month was reduced for one month to $460 this month. This will likely affect me for a few years as long as I keep doing consulting. At my full retirement age (66.5 years), side income won’t affect my social security payments anymore.

In short, we’ve been fortunate rather than savvy. Certainly my relatively high salary when I was employed helped us eliminate debt and fund investments. Having just one child doubtless helped a lot too. Retiring debt free helped as well, but living in an area of rapidly rising house prices helped a lot. Also, the Federal Reserve has helped by making markets behave abnormally, pushing equity prices up when they should have dropped.

I’ll take credit for a certain amount of common financial sense, but our wealth seems mostly due to fortuitous timing and our government’s actions to keep financial markets afloat. It mostly feels like a lot of white privilege to me.

If I didn’t have the comfortable pension though, we’d be much more circumspect in our spending. These days, building wealth for us comes mostly from having that pension and not spending down our assets to maintain our standard of living. My consulting helps as well, but that income is never guaranteed.

What we are experiencing though was not that unusual in the past. People routinely retired on a pension and by the time they retired their mortgages were paid off. It didn’t cost an arm and a leg to raise a passel of kids or to send them through college. We may have more opportunities to spend wealth on more exotic trips like Caribbean cruises, but living a comfortable retirement used to be routine, at least for white people.

Policies that have sapped wealth from the working class and moved it into upper class largely explains why things are bleak for so many people of retirement age these days. Much of our wealth is because we were grandfathered into a system that is not an option for most working people.

I can’t take our portfolio with me into the hereafter, but I can live a comfortable and in some ways luxurious life in the time I have left alive. My intent is to see if we can keep getting rich and leave the bulk of our estate to charities that will lift people not so fortunate into opportunity and hopefully out of poverty.