Planning Your Retirement: Calculating Your Net Worth
Calculating your net worth today is important for your financial future. Your net worth is a high-level snapshot of your current financial health, and allows you to help assess your future.
You can think about calculating your net worth like going to a doctor for a checkup. Knowing your net worth can help you develop a deeper understanding of your current financial situation and what areas of your life might need to adjust, whether it be staying the course for retirement planning, managing debt or planning to pay for other major life events.
Understanding your net worth can you help identify and value your assets and debts. It can also help you estimate how much money you’ve saved for retirement and the cash flows you can expect to generate over time on that money.
The first step is understanding how to calculate your net worth.
Assets and Liabilities: What You Own Versus What You Owe
Fortunately, calculating your net worth is relatively simple. Net worth is essentially what you own (total assets) minus what you owe (liabilities and other debt).
Net Worth = Total Assets – Liabilities
Before you calculate anything, you should gather your major financial documents—or have a good idea of the details of your accounts including savings accounts, credit card balances, loans, etc. Then add up the value of all of your assets. That includes, but isn’t limited to, the following asset categories:
Liquid assets. These items consist of assets that are valued frequently and can be sold and converted into cash relatively easily. Your liquid assets might include
- Cash
- Securities in taxable investment accounts (e.g., brokerage accounts and trust accounts)
- Bank certificates of deposit (CDs)
- Individual retirement accounts (IRAs) and other retirement plan assets
- Cryptocurrencies
See Our Investment Guides
The world of investing can seem like a giant maze. Fisher Investments has developed several informational and educational guides tackling a variety of investing topics.
Non-liquid assets. The value of these assets is generally harder to gauge. Selling them might take a while. However, you may be able to estimate their market value by comparing them to recent sales of similar assets. Non-liquid assets commonly include
- Real estate
- Personal items such as jewelry or vehicles
- Collectibles
- Precious metals
- Business ownership interests
Liabilities. Once you have added up the value of your assets, subtract the amount of your debt and other liabilities. These may include
- Mortgages
- Student loans
- Car loans
- Margin loans on securities’ accounts
- Lines of credit
- Credit card debt
- Other debt (e.g., unpaid taxes, alimony, child support, personal loans, etc.)
Your net worth can be calculated “as is” or including the taxes you may have to pay in the future when you take money out of tax-deferred accounts or sell appreciated assets. Because tax rates vary among individuals, account types and investment vehicles, we assume an “as is” calculation without including taxes. For example, if your assets add up to $1.5 million, and your liabilities total $200K, then your net worth would be $1.3 million ($1.5 million – 200K = $1.3 million).
Your Net Worth Over the Long Term
Worrying about your net worth on a day-to-day, month-to-month or even a year-to-year basis isn't necessary as long as you have a sound long-term investment strategy and financial plan in place. However, changes in life happen and your financial situation evolves over time. As you experience certain life events that can impact on your net worth, it’s a good idea to recalculate your net worth to see how far along you’ve come in reaching your goals, or if any changes are required. Examples could include like paying off debt, changing residence, getting married, having children, etc.
After calculating your net worth, you can ask yourself some questions to help determine if any other changes are needed:
- Have your long-term financial goals changed? Does your current net worth put you closer to or further away from your goals?
- Have your anticipated cash flow needs changed? When and how much money do you need?
- Does your current financial situation foreshadow a change to your investment time horizon? If your goals or needs have changed, does your current investment time horizon give you a realistic period to achieve your goals?
Strategic planning and managing your personal finance can mean the difference between a comfortable retirement and having to worry in your later years about how to maintain your lifestyle.
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