Road to riches: how to work out your net worth and track it

Is your net worth on track for a rich retirement or a low-income pension lifestyle? Check our table to discover where you stand.

Most homeowners who experienced last year’s property price boom are much wealthier than before the pandemic, but their surge in net worth may not be enough to retire as rich as they want.

Net worth – calculated by totalling all assets minus all debts – is a valuable tool to help people map their financial growth and make changes where needed.

Money specialists say people’s net worth needs differ depending on the desired lifestyle, but there are some helpful guides.

For those relying solely on superannuation, super fund statements contain projections, while calculations by the Association of Superannuation Funds of Australia show the average super balance required today to deliver the $545,000 necessary for a single’s comfortable retirement using personal wealth and the pension.

It says a 25-year-old average worker needs only $17,000 in super today to reach $545,000 by age 67, while a 35-year-old requires $93,000, a 45-year-old should have $195,000, a 55-year-old should be at $330,000 and a 65-year-old – two years from pension age – would require $503,000.

The figures don’t count three key factors: other investments, a partner who also has super and the value of housing. Self-funded retirees may need $2 million-plus to deliver a comfortable $65,000 income.

PLEASANT SURPRISE

Beyond Bank’s general manager customer experience, Nick May, says many people don’t follow house prices closely and if theirs was valued now “their net worth is potentially far more than they thought”.

“This is similar with our superannuation – for many of us, super is a set and forget so an ad hoc review can often reveal unexpected and pleasant surprises,” May says.

Nathan and Heike Godfrey with kids Hazel, 4, and Eugenie, 7 months, at the site of their new home. Picture: Tom Huntley

Housing is part of your net worth but won’t usually deliver retirement income.

“You will always need a roof over your head so there is an element of a home being a fixed asset,” May says.

“That said, as we move through our life stages our needs change,” he says. Homes are downsized, holiday homes sold or investment properties cashed out.

Financial planners measure net worth as part of the advice process, but for the majority of Australians without a financial planner there are other tools.

You can find net worth calculators online, including one at moneysmart.gov.au, and May suggests checking wealth annually, ensuring the information is up to date, and asking for professional help if needed.

An Excel spreadsheet can track the ups and downs of your net worth over time, and compound interest calculators project growth – but be conservative with forecast returns.

MBA Financial Strategists director Darren James says people often forget to count super in their net worth, while others incorrectly “will count an inheritance before they have got it”.

WEALTH MAP

“People should be setting goals, and to set goals you need to understand what your position is to start with,” he says.

James says a home is vital to net worth as it’s the basis of borrowing money to build more wealth, and is later important for aged care. He says you can use council rate valuations as a conservative guide.

MBA Financial Strategists director Darren James says short-term negative growth is normal.

And don’t panic if your net worth falls over a year or two.

“The trade-off having exposure to growth assets is there are going to be periods where it does pull back, but if you are not looking to sell at that point in time it’s irrelevant,” James says.

“You know long term it’s going to be OK.”

Nathan Godfrey and Heike Jensen’s priorities changed when their daughters Hazel and Eugenie were born.

“We’re probably more motivated to make sure we are laying the foundations for our retirement while also creating opportunities for our kids,” Godfrey says.

“Net worth is important in terms of being able to achieve your goals, but that’s very much an internal mindset or motivation,” he says.

“We tend to spend more time discussing our financial plans through a wider lens. For example, what are the growth trends in business, what world events could impact the markets, and what decisions do we need to make now to influence our lifestyle in the future?”

WHAT TO INCLUDE IN YOUR NET WORTH

Assets: home and contents, superannuation, shares, property investments, business assets, cash, cars, jewellery and other large assets.

Debts: Mortgages, credit cards, investment loans, student debts, store cards, personal loans, business loans.

There’s no exact science to projecting net worth, but it’s wise to have a target.

WANT TO RETIRE RICH? HERE’S WHAT YOU’LL NEED

Everyone’s idea of rich differs, but people wanting to be fully self-funded at retirement are likely need at least $2 million in income-producing assets – on top of their home.

A 50-50 mix of growth and conservative investments would deliver annual retirement income of at least $60,000 based on current interest rates and yields, without reducing the asset base.

To get there, and assuming you add $200 weekly to your investment assets (including compulsory employer super contributions), an individual would require the below investment and super assets by these ages:

Age 25: $233,000

Age 30: $334,000

Age 35: $455,000

Age 40: $598,000

Age 45: $770,000

Age 50: $975,000

Age 55: $1.22 million

Age 60: $1.51m

Source: Moneysmart.gov.au compound interest calculator (assuming superannuation’s target return of 3.5 per cent above inflation).