All the Numbers

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Net worth, as the plan counts it

Net worth is the one number the plan's charts follow year by year. It is what is owned minus what is owed, at the end of each year. The definition matters because several things a person might expect to be subtracted are not.

The rules

net worth = assets − liabilities

Assets, counted at their balance:

  • cash and savings
  • every investment account: TFSA, RRSP, FHSA, RESP and non-registered
  • each home, at its estimated market value rather than what was paid
  • tax refunds that have been earned but not yet received

Liabilities, subtracted:

  • each mortgage balance
  • lines of credit the plan has drawn on; see borrowing when short
  • other debts entered in the plan
  • income tax owing that is not yet paid, which settles the following April

What the engine does

  • Keeps the books as double entries, so net worth is the sum of what is held less the sum of what is owed. Nothing is counted twice, and money moving between accounts does not change it.
  • Carries a home at what was paid for it, then adds the difference between its market value and that cost, so the figure shown is at market. Market value grows at the plan's home price rate; see home prices.
  • Counts a registered account at its full balance. An RRSP balance is shown before the tax that withdrawing it would cause, and an unsold non-registered gain is shown before the tax on selling it. See capital gains.
  • Does not subtract the costs of selling a home. They are charged in the month a sale happens, and not before.
  • Can restate any year's net worth in today's dollars.

What it deliberately does not

  • It does not show an after-tax or liquidation value. A figure that deducted deferred tax and selling costs would be lower, more so for a large RRSP or a home.
  • It does not count the present value of future pensions such as CPP or OAS. They appear as income when paid, not as an asset.
  • It does not count a person's future earnings, a home's contents or other belongings.
  • The rent-versus-buy comparison is the exception. It reports each side's position after selling costs, debt and the tax a sale that year would cause.

Connected to

  • "Monte Carlo: many market histories" · The Simulation page runs the plan 500 times with investment returns and home prices drawn at random each year, then shows the spread of net worth and how many runs finish, borrow or run out of money.
  • Capital gains and the adjusted cost base · Selling an investment for more than its adjusted cost base is a capital gain, and half of it is added to taxable income in the year of the sale. Growth that has not been sold is not taxed.
  • Contributions the plan could not fund in full · Each month's leftover joins cash, and each contribution takes what cash can give it, in the order the accounts are listed. A contribution that cash cannot cover is funded in part rather than by an overdraft that does not exist, and the plan says so.
  • Events outside the plan's horizon · An event, purchase or sale dated before the plan starts or after it ends is ignored rather than clamped into range, and the plan says which one it dropped.
  • Home prices over time · A home's value is projected by growing it at one assumed rate, 3.5% a year by default, which is PWL Capital's 1% real return on a house plus 2.5% inflation. It is an editable assumption, not a forecast, and the Simulation view shows how widely a real home's value varies around it.
  • Inflation and today's dollars · The default inflation rate is 2.5% a year. A future dollar amount can be shown as is, or divided by (1 + inflation) for each year to show what it would buy today.
  • Money you have not told the plan to invest · Income the plan does not spend and you have not allocated to an account is held as cash, earning the posted savings rate. It is not swept into an investment account, and it never over-fills a registered one.
  • Old Age Security · A monthly pension paid to most Canadians from 65, based on years lived in Canada after 18. It can be deferred for a permanent increase, rises 10% at 75 and is partly repaid through a recovery tax at high incomes.
  • The CPP retirement pension · A monthly pension from the Canada Pension Plan based on contributions, payable from 60 to 70. Starting earlier cuts it by 0.6% a month, starting later raises it by 0.7% a month. The plan estimates it from a Service Canada statement or from salary.
  • When the plan runs short of cash · When a month needs more money than the plan has, it draws savings in a set order, then borrows on a home equity line at 5.13% and an unsecured line at 8.38%, as far as a lender would lend. When no lender would lend more, the projection stops.