# $2 million net worth ....question?



## jargey3000 (Jan 25, 2011)

I was looking at some numbers with a neighbor/friend.... Suppose a person had a "net worth" of a little over $2 million. This figure is arrived at by adding up all assets (EXCLUDING own home, which she owns, no mortgage), then subtracting all liabilities, which are few. Most of the assets are in fixed income or low-risk accounts - registered & non-registered, and bank accounts. Annual income approx. $50.000. Age 62. No dependents. Would such a person be considered "rich", in canada today. I wonder how many CMF-ers are in similar -or better- financial circumstances?


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## NorthernRaven (Aug 4, 2010)

The short answer is "yes", for most reasonable definitions of rich. $500K net worth would put a single person in the top 20% of single person households, and $2M+ if probably well well inside the top 10%. You'd want to define "rich", whether they are single or not, etc. Note that net worth would normally include the house. You'd also want to value any DB pension (perhaps in terms of annuity). Money in an RRSP should probably be discounted somehow for eventual tax to be paid on it.

There's StatsCan data on net worth that can be called up. Be careful of "average" - for the top 10%, for instance, an average may be skewed by the very richest 1% or better - median values can be more useful. There was a big thread either here or RFD (or both) on net worth awhile back.


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## Beaver101 (Nov 14, 2011)

^ Such excellent memory - here was that thread on CMF http://canadianmoneyforum.com/showthread.php/32473-Net-worth/page5 ... conclusion: lots of Ultra-Rich folks on here.


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## heyjude (May 16, 2009)

Your friend's Net Worth includes her home, so it is approximately $2.5 million. By any common definition, she is "rich". If her investments kept up with inflation (which doesn't seem likely from the information presented) she could spend 2-3% of that number every year and probably never run out of money.


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## jargey3000 (Jan 25, 2011)

thanks guys


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## dadaswell (Jan 6, 2016)

How does one figure out the net value of a defined benefit pension?


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## NorthernRaven (Aug 4, 2010)

dadaswell said:


> How does one figure out the net value of a defined benefit pension?


You could try and get a transfer ("commuted") value from the plan administrator. Or figure out how much the pension would pay, and price out what it would cost to buy an equivalent annuity, which should give a ballpark value.


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## Rusty O'Toole (Feb 1, 2012)

Better than a kick in the butt with a frozen mukluk. I would say in today's economy that she would be well off but not rich in the Rolls Royce and yacht sense.

Let me put it this way. Put $1 million in the bank @ 2% interest and you get $20,000 a year before taxes. When you see someone who makes $385 a week do you say 'there goes someone with a millionaire's income' because that is what it is.

I must be old, I can remember when $20,000 a year was a lot of money.


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## cainvest (May 1, 2013)

Rusty O'Toole said:


> Let me put it this way. Put $1 million in the bank @ 2% interest and you get $20,000 a year before taxes. When you see someone who makes $385 a week do you say 'there goes someone with a millionaire's income' because that is what it is.


Looking at it another way, with $1 mil in the bank that's $50,000 a year over twenty years ... all that for doing NOTHING but collecting.


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## kcowan (Jul 1, 2010)

dadaswell said:


> How does one figure out the net value of a defined benefit pension?


Use an annuity calculator. Because that is what it is. Pay attention to the COL inflator, if any.


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## humble_pie (Jun 7, 2009)

cainvest said:


> Looking at it another way, with $1 mil in the bank that's $50,000 a year over twenty years ... all that for doing NOTHING but collecting.



a mere $1M would pay quite a bit more than 50k over 20 years, though, as the residual funds would continue to earn interest. Still, taking all funds down within 20 years might be a dumb idea for a 62-year-old.

better to withdraw 50k over many more years than 20. It might be a good idea to work this one out. Again, the residual funds continue to pay interest, which must be included in the calculation. More interest in the earlier years, more rapid depletion in the final years.

best to use an annuity calculator, as kcowan suggests. It needs a cost-of-living indicator or some way of accounting for inflation across 30-35 years.

milady, though, has $2M plus a house, so she will almost certainly be comfortably off all the remaining days of her life.


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## cainvest (May 1, 2013)

humble_pie said:


> a mere $1M would pay quite a bit more than 50k over 20 years, though, as the residual funds would continue to earn interest. Still, taking all funds down within 20 years might be a dumb idea for a 62-year-old.


For sure, real world you'd be getting much more, just a quick example. There is investment money to be added, then CPP/OAS later on plus any other assets (like a house) that get thrown in. Point being, a single person with $1M in the bank (even RRSP adjusted funds) is doing very, very well at 62. 

Taking down the $1M in funds (die broke) from 62 to 82 puts one right at the life expectancy point, I wouldn't consider this bad if one is also has a house.


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## humble_pie (Jun 7, 2009)

^^

but ca i don't want you to be alooooonne & pennneeeeless in a big, cold, unheated house at the age of 82 .each:


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## cainvest (May 1, 2013)

^^ @ 82 you'd likely be downsizing (if not already done) or thinking of assisted living places.


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## humble_pie (Jun 7, 2009)

^^

idk, if she were like jargey she might not be too well organized or practical, sometimes those newfoundlanders can be a bit flyée ... kidding


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## 1980z28 (Mar 4, 2010)

humble_pie said:


> ^^
> 
> idk, if she were like jargey she might not be too well organized or practical, sometimes those newfoundlanders can be a bit flyée ... kidding


Be nice ,


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## NorthernRaven (Aug 4, 2010)

To prevent humble_pie's worries about cainvest getting the chills, currently i think $1M would buy about $56K/year of annuity income ($470/month/$100K). That's not indexed - I think 2% indexing would bring in about $47K/year, but there's no current quotes. 2% is a reasonable proxy for inflation, but obviously a true CPI-indexed annuity might be preferable (but apparently rare or non-existent).

If you are trying to convert a monthly pension payout for net worth estimates, remember that the annuity valuation would be the net worth at the age the pension starts, not now. If you want current net worth, you'd have to somehow price out a deferred annuity until the retirement age. If you are in a DB plan that provides a "bridge" amount before CPP harmonization kicks in (say, from 60-65), you'd want to price out a term annuity for the bridge portion amount, then the rest with a normal life annuity.


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## agent99 (Sep 11, 2013)

cainvest said:


> Looking at it another way, with $1 mil in the bank that's $50,000 a year over twenty years ... all that for doing NOTHING but collecting.


But what happens at the end of 20 years? 

I sometimes do that calculation. Divide our total portfolio by a guess at longevity. Under the mattress portfolio management technique. I also come up with $50k/yr. But this can be very misleading depending on just how much of the portfolio is in RRSP/RRIF. The government own a good percentage of those registered accounts and will collect as you withdraw.

So basically, do these calculations AFTER tax!

By the way, that lady at 62 will presumably also receive CPP/OAS which could add up to $15k or so of income. She should get some help on improving yield. No sense in being ultra conservative at a time when you should be enjoying retirement.


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## Rusty O'Toole (Feb 1, 2012)

cainvest said:


> Looking at it another way, with $1 mil in the bank that's $50,000 a year over twenty years ... all that for doing NOTHING but collecting.


What bank pays 5% interest?


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## humble_pie (Jun 7, 2009)

agent99 said:


> But what happens at the end of 20 years?
> I sometimes do that calculation[$1M x WD 50k each year = 20 years]. Divide our total portfolio by a guess at longevity. Under the mattress portfolio management technique. I also come up with $50k/yr.


annuity table . each:





Rusty O'Toole said:


> What bank pays 5% interest?


annuity table . each:


does anyone think that the lady of the illustration is actually Jargey himself, wearing a mask?


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## donald (Apr 18, 2011)

I didn't know 62 yr old women were like 20 and 30 yr old guys lol
Is 7 big or not???


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## steve41 (Apr 18, 2009)

Do people actually worry about this stuff? Who knew?


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## humble_pie (Jun 7, 2009)

donald where ya been?

jargey has posted re daughters in their 30s, he's often said he's in his 60s, which is why folks worry about him when he gets those nutbar investing ideas from time to time ...


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## donald (Apr 18, 2011)

Just got back from Rona Humble lol
Bought a wack of tools
gave the manager my business card and told him i will show my mthly receipts i spend at my local supply house(mr new lowes shows up this spring)
Certainteed and Owens corning are taking market share! and i want in on that
Other than that just glad i re-balanced a few things monday(usa financial and industrials and canadian energy)
been here 5 yrs and this imo is the 3rd opportunity to buy (was)


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