# Moneysense Guide to Retiring Weathy



## Ben (Apr 3, 2009)

http://www.theglobeandmail.com/globe-investor/investor-education/book-excerpts/will-your-retirement-be-a-wealthy-one/article1789810/

Saw this in the G&M today. Some metrics for comparing net worth.

According to the "Wealth Test" worksheet, my household (pair of 30-year olds with a child) should have a net worth of over $700,000. Needless to say, we fail to stack up with our peers on that metric. 

Probably best to take the Wealth Test with a grain of salt...


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## steve41 (Apr 18, 2009)

Ben said:


> http://www.theglobeandmail.com/globe-investor/investor-education/book-excerpts/will-your-retirement-be-a-wealthy-one/article1789810/
> 
> Saw this in the G&M today. Some metrics for comparing net worth.
> 
> ...


That is nuts. Without including the couples' 'career asset'.... all those future paychecks (and subsequent pension checks) that will be coming at them, (present valued, say) then this is a nonsense metric.


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## dilbert789 (Apr 20, 2010)

The problem with some of it is that it's not really a sliding scale, like the age under 35 = -145,000, 35 to 44 = -25,000. In one year your net worth could change by $120,000! 

Best is the after tax income 
50,000-74,999 = 112k
75,000 + = 357k! 
$1 is a difference of $245k... 
Those kind of jumps make the numbers useless. It's too bad because it sounds like they have a lot of hard data behind the scenes...


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## Jungle (Feb 17, 2010)

We are ahead, but by only $10k.


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## CanadianCapitalist (Mar 31, 2009)

Ben said:


> Saw this in the G&M today. Some metrics for comparing net worth.
> 
> According to the "Wealth Test" worksheet, my household (pair of 30-year olds with a child) should have a net worth of over $700,000. Needless to say, we fail to stack up with our peers on that metric.
> 
> Probably best to take the Wealth Test with a grain of salt...


More like a barrel of salt. With a net worth of $700,000 a household will rank among the top quintile across *all* households including the loaded 55-64 year old demographic. I am pretty confident that $700K is definitely not the median networth of a household of 30-year olds.


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## michika (Apr 20, 2009)

I also agree that the metrics are flawed; apparently I'm so far behind that I'll never catch up. The net worth result I got was $446,000, which is not particularly realistic for those of us under 35 just starting out in life.


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## Jungle (Feb 17, 2010)

I went back to do the "compare your net worth;" we are 276% above average net worth and 1104% above median net worth. But heres the catch, as I posted above, we are only 3.6% above of the "All Canadian Weatlth Test" for our age/stats. 

Too bad, seems like someone worked hard on that stuff.


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## Jon_Snow (May 20, 2009)

Ran the numbers and they are encouraging for us I suppose. I know our net worth numbers are heavily skewed by our good fortune in real estate. Bought recreational property way back in my 20's that has increased in value 200% and a Vancouver condo bought in 2002 that has increased 120%. I would rather have 750k in investible assets than real estate, to be honest.

Still, good dual incomes, no kids, living below our means, has been a key for us as well. We are just naturally frugal people, my wife and I.


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## loggedout (Dec 30, 2009)

Ben said:


> http://www.theglobeandmail.com/globe-investor/investor-education/book-excerpts/will-your-retirement-be-a-wealthy-one/article1789810/
> 
> Saw this in the G&M today. Some metrics for comparing net worth.
> 
> ...


It's not really a test.

It's just a neat way of showing the median net worth for a given profile based on the statistics gathered. I'm assuming that for your profile, say something like this (because it works out to 737k):

Main income receipient in household is male 
Under 35
University degree or certificate
Other families under 65
75k and up
Two or more earners any age in household
Own with mortgage

The filtering characteristic that jumps out to me as a reason why the numbers seem out of wack is that the "75k and up" one. And up is quite a range!! I suspect that there could be a disproportionate number of million dollar earners skewing the results for more ordinary folks for that given profile. The filtering is just not granular enough.

I must add it's not really clear about that part either, is that meant as the after tax income for the entire household or just one of the earners (in the case of multiple earners).


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## Ben (Apr 3, 2009)

Even a young couple with $50k after-tax income is supposed to have $471,000. That's pretty far off the mark too, for an average/median.

The rest of the article, graphs, metrics was OK, but not this "Wealth Test".


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## steve41 (Apr 18, 2009)

This is very simplistic, but it shows just what a single guy (32-yearold with no savings) just starting out, with a $50K salary, retiring at 65 and dying broke at 95 can look forward to networth-wise over time. It assumes a 4% investment environment, 2% inflation and normal CPP and OAS expectation. The only notable assumption is that his salary grows at 3% whereas inflation is just 2%. Most modellers neglect this important fact.... they assume a person's salary grows as inflation. It doesn't.... as you advance in your career, your salary increases at a (sometimes much) higher rate than inflation. This is the reason that most individuals don't start to build a nest egg in earnest until well into their 40s/50s.

All current taxation effects, indexed brackets, clawbacks, etc are as normal.

Not to sound like a broken record, but the important number (what he gets to spend: his lifestyle) comes in at $37K annually. Those same numbers, with a $100K salary instead of a $50K salary, delivers our guy a $61K annual lifestyle. Our progressive tax system at work.

32 yearold


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## MoneyGal (Apr 24, 2009)

...and, as Steve41 mentioned earlier on in this thread, the value of your human capital can be estimated, too. 

Here is a quick calculator which provides an estimate of the present value of your human capital:

http://www.qwema.ca/calc_milestones.html

(It's the first calculator in that link.) It does provide a way for you to estimate your future wage growth, and there's also a "volatility" factor (the "job security" box). 

I can provide more background on the assumptions and equations used to power the calculator, if anyone is interested - I work for the company that designed it.


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## Sherlock (Apr 18, 2010)

In The Millionaire Next Door they said your networth should be your age times your annual salary divided by ten. But again that doesn't work well for people just starting out in the workforce.


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## steve41 (Apr 18, 2009)

OK.... time for one of Steve's rants.
[rant]
Here we are, each household sitting on more computer power than it took to send a man to the moon, and we are so stupid that we rely on these lame, simplistic rules of thumb... safe withdrawal rates, networth ratios, % of salary to save.... For goodness sakes.... how hard can it be? Your age, salary, retirement age, $ amount of RSP already saved, rate and cpi estimate.[/rant]


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## Eclectic12 (Oct 20, 2010)

steve41 said:


> [ ... ]
> 
> The only notable assumption is that his salary grows at 3% whereas inflation is just 2%. Most modellers neglect this important fact.... they assume a person's salary grows as inflation. It doesn't.... as you advance in your career, your salary increases at a (sometimes much) higher rate than inflation. This is the reason that most individuals don't start to build a nest egg in earnest until well into their 40s/50s.[ ...]


*grin* - you are correct that salary increases can vary dramatically with inflation. After years of at or below inflation, a change in specialty gained me a 60% increase in salary. A change in company later gained me 35% increase in salary.

Though I'm not so sure this is the only reason people start paying attention so late. Of my friends who became interested, some other factors were starting to understand enough about finances to start seeing the value or having someone older they trusted talk about their near or in-retirement experiences.


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