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March 26, 2012

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AS this is a great story about somebody overcoming the odds and being worth over a million dollars, I am a bit confused as this person is disabled but talks about taking water skiing adventures. The financial story is great but the overall message of the post makes it contradictory in it's entirety. Could have been better without the personal touches of health issues and then adding in mentions of skiing trips.

Uncle --

There are different types of disabilities, what qualifies for disability insurance, what you can/can't do outside your job, etc. Suffice to say, he hasn't worked in many years, but has received disability payments. And in this situation, has thrived.

This is one way to do it - I like that they didn't decide to live like paupers for years to work toward their goals. In that regard, my wife and I are the same way - we focus on keeping our gap high and growing while not sacrificing too much on the things we feel are priorities. Our goal (so far so good) is to be on an accelerating income trajectory, while more slowly growing our lifestyle and giving. Yes, we expect to "succumb" to lifestyle inflation over time! It's part of the plan even!

This is a great story! Its nice to see how a disability didn't stop him from paying off his debt or doing what he loves, like water skiing. I'm a senior in college and when I graduate I'll be on my own insurance plan, I'm definitely considering more options after reading this because you never know what could happen. Insurance can be save you financially, and while you might not have to sure it, better to be safe than sorry.

I think the net worth part is exaggerated a bit. When I added up all the numbers, I got to less than $1M. The college money is likely to be all spent, so that shouldn't be counted toward net worth. Neither should their home equity, since it isn't easily spendable. That said, they are doing well and they have made good choices, no question about it.

Mark,
Why should they exclude their home from their net worth? It is certainly a valuable asset, which they could trade for cash if they desired. Money in 401ks "isn't easily spendable" either, but they still count that in their net worth. Similarly, someone with investment properties can't spend the value of the properties, but should certainly count them toward net worth.

I have been retired for 20 years. I carried disability insurance for 32 years but they made money off me, I never needed it thank goodness.

I can vouch for the fact that it doesn't make much sense to ever consider selling the home we have lived in for 35 years. At our age the prospect of having to sell our home, move into something quite small, and decide what to do with a houseful of furniture, artwork of various types, some quite large, acquired from many countries over a whole lifetime is a daunting prospect. Our hope is to leave it (plus contents) to our daughter

I also don't consider our IRAs as being attractive liquid investments because everything you take out is taxable, plus we're already forced to take the MRDs every year which results in a lot of taxes.

The liquid asset that I like the most is our Trust account which is all invested in municipal bonds. The income it produces is free of federal tax and only non-Californian bonds are taxable by the state.

For living expenses you can't beat having two pension and two social security checks that are deposited in our credit union accounts at the beginning of each month.

Today sure beat working, in beautiful weather my daughter and I hiked through two open space preserves with great views of San Francisco Bay on one side and the Santa Cruz mountains on the other, seeing many deer and lots of spring flowers

FMF - this may be one of the most important posts in my opinion.

Disability insurance is probably the most overlooked piece of financial planning. Nobody plans to become disabled, but a significant percentage of us will and it will take a toll financially. Your friend was very prudent.

@Jonathan,

Money in a 401K can be spent before traditional retirement age. It's call the rule of 72t. It's in the IRS code.

As far as not counting your house toward your net worth...unless you are actually planning on selling the house you live in and using the proceeds to fund retirement, I think it's dumb to include it in your net worth. Even if you do sell your house and move somewhere cheaper, there are a lot of costs associated with doing that, realtors fees, moving costs, etc. If you live in a low cost state like Michigan, the chances of them making some big profit on the house is not that good. The odds are better for those moving from high cost areas to low cost ones, but even then, I tend to think people overestimate how much they're really going to make.

"Net worth" is not the same as "money I could easily spend tomorrow." There's nothing wrong with including the current market value of assets when calculating one's net worth.

If you'd like to argue about whether or not net worth numbers are useful or helpful in planning one's financial future, go ahead. You don't need to redefine net worth to do so.

Two chunks of money that I don't count when I am totalling up what our investments are worth are as follows.

Today, the municipal bonds in our Trust show up on Fidelity's website as being worth $320,670 more than I paid for them. The CDs and corporate bonds in our IRAs show up as being worth $76,448 more than I paid for them.

However I will never, ever sell them but will hold them, receiving over $300K of interest every year, which I reinvest, until they mature when I will receive the par value of $1,000 per bond or CD. I show them in my own accounting records at par value so mentally I don't worry myself about the daily fluctuations, which is rather nice. Thus the $397,118 is merely a paper profit that will gradually shrink to zero by 2040 when the bond with the longest maturity finally matures. Unfortunately I won't be around in 2040 and since you can't take it with you it will pass to my heirs who hopefully will be around. Actually by the time 2040 comes around the bond ladder will certainly stretch out even further.

Unfortunately you cannot do this with stocks or real estate because they are in a constant state of fluctuation and have no guarantee of being worth a certain sum of money on a certain date, as are bonds and CDs.

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