Don’t Make This Retreat Mistake


On the dashboard of my personal financial software, there is a number.

Finance gurus tell me that number is one of the three most important in my life. Another is my credit score. The third is my age. (After all, I can only shape the other two if I’m still kicking.)

I certainly don’t measure myself against these numbers. Although I admit to paying much more attention to the age figure as it increases.

But other people use them to rate me, that’s for sure.

In fact, to hear some people say, these little financial indicators are more important than a person’s morals, ethics or good works. (Dating sites that require your credit score are particularly nasty…the romantic in me says yuck to that.)

Age, credit score and… can you guess the other number? Do you know yours?

Above all, can you trust its accuracy? What if it was just a mirage?

You wouldn’t go to sea without knowing exactly how much fuel, water, food and other essentials you had on board. After all, your life depends on it.

But chances are you’re heading into retirement with the wrong number for your net worth…

Speculate on your future

Ever since I studied economics in college, the distinction between price and value has fascinated me.

Price is the amount of currency someone wants to part with for something at any time.

$1.75 for a large at Starbucks.

$299 for the latest video game console my daughter wants for Christmas.

Value is our subjective assessment of something’s usefulness. My daughter’s video game may cost $299, but I promise you at that price there’s a lot I could use a lot more.

In markets, price is meant to be an indicator of value. But prices tend to detach from value.

For example, a while ago every kid wanted a silly little gadget that spins on your finger. For a few weeks, they sold at ridiculous prices as the demand was strong. Once the kids realized it was actually an annoying little gadget, the price plummeted.

But the problems really start when you introduce time into the price/value relationship. This is where net worth comes into play.

For example, right now I think my house will reach a certain price. This award contributes a significant portion to my net worth. My net worth, in turn, is the foundation of my retirement plans.

I’m sure I could sell my house right now to one of the young families who are flocking to my neighborhood because of the good schools. They have the income to pay my price.

But I don’t plan on selling my house for a few decades at best. What if the young families of the future couldn’t pay my price?

So what happens to my net worth?

begging your children

When we retire, we typically cash out the assets that make up our net worth, including our homes. For example, a couple I know recently sold their home and used the proceeds to purchase an assisted living apartment that will take care of them for as long as they live.

But if today’s younger generation can’t afford to buy our homes at the prices we use to measure our net worth, we could be stuck.

And it looks like the kids won’t be well in 2037.

According to the Credit Suisse Research Institute’s Global Wealth Report, if global wealth were divided equally, each household would be worth $56,540.

But the top 1% own more than half of all wealth. THE median household wealth is only $3,582. If you are worth more than that, you are among the richest 50% of the world’s population.

One can debate the reasons for this unbalanced distribution of wealth. But there is no debate that people who have reached adulthood since 2000 are the losers.

It’s especially bad in the US

On average, Americans between the ages of 30 and 39 have half the wealth in 2017 than that age group did in 2007.

This means they will be significantly less well off in 10 to 20 years…unable to afford the kind of homes we take for granted today.

In other words, thanks to rising inequality, you may be heading into retirement with the wrong numbers.

Plan your future around value, not price

I constantly ask myself: what is the big idea in my writing? What connects all of this?

While writing this article, I was struck by the fact that My Big Idea is the absolute importance of planning your future based on value, not price.

You know, for example, that you can’t count on current stock prices to stay the same throughout your retirement. Converting equity holdings into other assets that tend to hold their value before stock prices fall is a key strategy.

Given the impact of wealth inequality on our younger generations, if you’re heading into retirement in the next two decades, you might want to consider the same strategy…when it comes to your House.

Source by Ted Bauman

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