This is a follow up to – Can you retire with a million dollars? Some readers pointed out that a million dollars net worth is very different from having one million dollars in investable assets. You could have $500,000 tied up in your home and other assets and you won’t have much left over to generate money for you in retirement. So I thought I would examine our net worth to see where we are.
Short Term Fund
Cash – This includes emergency funds (18 months expenses), operating funds, and a cash cushion. Our cash position is a bit higher than I’d like right now, but I’m planning to move some into a solo 401k and our dividend stock account later this year.
Mid Term Fund
Passive Income Generator – We have a dividend portfolio, rental properties, P2P lending, and I Bonds here. We use some of this income to pay for our living costs and reinvest the rest. Currently, I like our dividend portfolio the most. It is gaining value and I don’t have to spend much time on it. The rentals are a big headache. P2P lending is not bad at 8.66% ROI, but I’d like it to be closer to 10% with the risk I’m taking. I Bonds are good, but the rate is too low.
Long Term Fund
Retirement accounts – These funds are reserved for when we’re 65+. The 401k and Roth IRA accounts are great tax shelters and we won’t touch them unless it’s the last resort. I also have a small pension that’s worth about $20,000 right now. Mrs. RB40 might have a pension if she sticks with her current employer for 13 more years…
Dead Money – This is what I call our home and car. These are just things that have value, but are not making any money. This isn’t very high for us because our home still hasn’t recovered from the housing market bubble blowout.
Assets that could be sold – Artwork and collectibles.
College Fund – This is RB40 Kid’s college fund.
We don’t have any consumer debt so that’s easy. We do have mortgage debt, but I just take the value of the property minus the mortgage and they are all positives.
From the pie chart here, we are not doing too badly. Nearly half of our net worth is in our retirement accounts. We won’t touch them for another 25 years so they should have plenty of time to grow. Another big slice is in the Passive Income Generator. This is inflated a bit because we won’t net that much money when we sell our rentals. Our take would be reduced by depreciation deduction, commissions, and other factors.
I guess the good thing about our chart here is that a very large majority of our net worth is busy making money for us. The Dead Money (house and car) is just a small part of our net worth.
What will our net worth looks like in the future?
At this point, we still have active income and we will continue to build up our retirement accounts. It will be interesting to see what this chart will look like 10 or 20 years from now. I suspect we’ll keep shifting more money into the tax protected retirement accounts so that portion will keep growing. When we eventually fully retire in our 60s, we’d shift some of that out into the passive income generator again.
Have you taken a closer look at your net worth? Is your money busy working to make more money for you?
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.