Many workers spend much of their lives focusing on their net worth and making certain that their assets exceed their liabilities by at least a certain amount before they retire. While calculating your net worth is a relatively simple process (total assets minus total liabilities equals net worth), it still needs to be done during retirement and not just before. It is vitally important for you to keep track of your net worth after you retire for several reasons.

Net Worth on the Decline
The Census Bureau indicates that the average middle-class household in America experienced a whopping 35% decline in net worth between 2005 and 2010. This disturbing statistic is due largely to the Subprime Meltdown of 2008 and the ensuing recession, and the largest dollar drop in net worth (over $25,000) was felt in the households of those 65 and older. When you assess your net worth, you need to compare your lifetime financial goals to what you see on your balance sheet. You may have enough to live on comfortably, but will you be able to leave a legacy for your family or other heirs?

Investment Returns
If your net worth declines rapidly over a short period of time, you may need to evaluate your investment portfolio to see how it is performing. If you are drawing regular income from your liquid assets, a substantial decline will either reduce the amount of income that you will receive or draw down your remaining net worth that much faster. If your investments are dropping in value on a regular basis, then it's probably time to reallocate at least part of your portfolio into more conservative holdings such as bonds, CDs or a fixed annuity. If you're tired of the constant volatility in the stock market and frustrated by low interest rates, you may want to consider an alternative such as rental properties that can pay a stream of income regardless of market performance. But it's probably not a good idea to move all of your money out of the stock market, as it has historically yielded the highest return of any asset class over time.

Other Means of Preserving Your Net Worth
There are several other steps you can take to prevent your net worth from continually declining during your retirement. Some possibilities include:

Going Back to Work
Although you may not relish the idea of having to get up for work again every morning, it may be necessary to get at least a part-time job to provide some combination of either additional savings or current income. Working full time can obviously allow you to get your net worth back to where you want it sooner than a part-time gig, but this may not be necessary. Other alternatives also exist that are more flexible; if you were to purchase a rental property or two as a means of adjusting your portfolio, then you may be able to generate additional earned income by actively managing them.

Cutting Expenses
Foregoing some of your creature comforts is another way to preserve your net worth and may serve as a viable alternative to going back to work. If you were planning on buying a cabin cruiser this year, then postponing your purchase for five years may allow you to maintain your normal routine in the meantime without having to rejoin the nine to five crowd.

Reduce Your Income
Most financial experts recommend that you draw about 4% of your liquid retirement assets each year, unless you take a lump-sum distribution to pay off high-interest debt or for some other good reason. If you cut your distributions to 3% per year for five years, this can help your assets to grow faster and replenish your net worth without a substantial reduction in your lifestyle.

The Bottom Line
These are just some of the ways that you can keep your net worth afloat after you stop working. For more information on how to preserve your assets, consult your financial advisor.

Related Articles
  1. Investing

    The Importance Of Knowing Your Net Worth

    It is vital that you track your net worth no matter what your age.
  2. Personal Finance

    The Complete Guide To Calculating Your Net Worth

    Here's everything you need to know about calculating your net worth.
  3. Options & Futures

    Net Worth Nosedive: Can You Still Retire?

    If a dip in the economy has you worried about retirement, you still have options.
  4. Retirement

    The World's Most Luxurious Retirement Destinations

    If money is no object (or if you would just like to dream), these five spots are the crème de la crème.
  5. Professionals

    How to Protect Elderly Clients from Predators

    Advisors dealing with older clients face a specific set of difficulties. Here's how to help protect them.
  6. Professionals

    Social Security 'Start, Stop, Start' Explained

    The start, stop, start Social Security strategy is complicated. Here's what retirees considering it need to consider.
  7. Retirement

    Strategies for a Worry-Free Retirement

    Worried about retirement? Here are several strategies to greatly reduce the chance your nest egg will end up depleted.
  8. Professionals

    Your 401(k): How to Handle Market Volatility

    An in-depth look at how manage to 401(k) assets during times of market volatility.
  9. Professionals

    How to Build a Financial Plan for Gen X, Y Clients

    Retirement is creeping closer for clients in their 30s and 40s. It's a great segment for financial advisors to tap to build long-term client relationships.
  10. Professionals

    Don't Let Your Portfolio Be Trump'd by Illiquidity

    A look at Donald Trump's statement of finances and the biggest lesson every investor can learn.
RELATED TERMS
  1. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  2. Dynamic Updating

    A method of determining how much to withdraw from retirement ...
  3. Possibility Of Failure (POF) Rates

    The likelihood that a retiree will run out of money prematurely ...
  4. Safe Withdrawal Rate (SWR) Method

    A method to determine how much retirees can withdraw from their ...
  5. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
  6. Mandatory Distribution

    The amount an individual must withdraw from certain types of ...
RELATED FAQS
  1. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  2. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  3. Are spousal Social Security benefits retroactive?

    Spousal Social Security benefits are retroactive. These benefits are quite complicated, and anyone in this type of situation ... Read Full Answer >>
  4. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>
  5. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>
  6. What is the Social Security administration responsible for?

    The main responsibility of the U.S. Social Security Administration, or SSA, is overseeing the country's Social Security program. ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!