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General Discussion => Welcome and General Discussion => Topic started by: daschtick on August 31, 2018, 07:32:48 AM

Title: Net Worth as a Percentage of Lifetime Earnings
Post by: daschtick on August 31, 2018, 07:32:48 AM

So here is a calculation that I found really interesting....add up your net worth, then divide this by the sum of your entire lifetime earnings (easily picked from your social security records).  For example, if your net worth is $500k, and you divide this by a sum of lifetime earnings of $1M, then your percentage of lifetimes earnings that comprise your net worth is 50%.

$500k/$1000k = 50% Net Worth as a Percentage of Lifetime Earnings

I performed this calculation for my wife and I, and discovered that our net worth is 75% of our total combined lifetime earnings. I stumbled across this recently after reviewing our Social Security calculations, and found it really interesting.  I don't feel this value holds much water, however I just found it sort of fascinating of how powerful investing really is.  So what is your percentage?

Title: Re: Net Worth as a Percentage of Lifetime Earnings
Post by: BTDretire on August 31, 2018, 08:24:59 AM

Quote from: daschtick on August 31, 2018, 07:32:48 AM

So here is a calculation that I found really interesting....add up your net worth, then divide this by the sum of your entire lifetime earnings (easily picked from your social security records).  For example, if your net worth is $500k, and you divide this by a sum of lifetime earnings of $1M, then your percentage of lifetimes earnings that comprise your net worth is 50%.

$500k/$1000k = 50% Net Worth as a Percentage of Lifetime Earnings

I performed this calculation for my wife and I, and discovered that our net worth is 75% of our total combined lifetime earnings. I stumbled across this recently after reviewing our Social Security calculations, and found it really interesting.  I don't feel this value holds much water, however I just found it sort of fascinating of how powerful investing really is.  So what is your percentage?

I have posted a similar idea before. I wasn't entirly comfortable with it, only because there are earnings that are not included on your SS statement. I had a few houses at one time*, rent and cap gains don't show up on the SS statement.
As to our percentage, a couple qualifications, we are older** and FI and we had some SS excluded income.
 We have more net worth than our earnings at 123%.
*Glad when I sold out
** Time in the market makes a big difference.

Title: Re: Net Worth as a Percentage of Lifetime Earnings
Post by: Much Fishing to Do on August 31, 2018, 08:25:44 AM

I think it is interesting and maybe more so as comparison from year to year as you age (do you improve against yourself) and comparison at a certain point in time with others (maybe at a particular age, or at FIRE, etc).  I realized while reading this that a spreadsheet I made to track myself in a few ways calculates this ratio (using after tax numbers) using the delta for each year (I divide my net worth increase by my after tax earned income for the year). 

Title: Re: Net Worth as a Percentage of Lifetime Earnings
Post by: Arbitrage on August 31, 2018, 09:41:00 AM

A couple of other notes on this - it does give most people a ballpark for lifetime earned income, but also doesn't include:

FSA contributions
HSA contributions
Earned income over the Social Security Wage Base (for 2018, this is $128,400).

As noted, it'll obviously be much better for older people (assuming savers, which should be most people reading this forum) who have had time for their savings to compound.

Title: Re: Net Worth as a Percentage of Lifetime Earnings
Post by: Accidental Fire on August 31, 2018, 06:25:47 PM

If I did this I'd just get depressed looking at what the Social Security administration has taken from me, realizing what that money could have done for me if I had invested it....

Title: Re: Net Worth as a Percentage of Lifetime Earnings
Post by: velvethammer on September 01, 2018, 05:03:39 AM

We're at about 39% through 2017 and estimated to be 42% at the end of this year. 

Title: Re: Net Worth as a Percentage of Lifetime Earnings
Post by: BudgetSlasher on September 01, 2018, 07:29:30 AM

Quote from: BTDretire on August 31, 2018, 08:24:59 AM

Quote from: daschtick on August 31, 2018, 07:32:48 AM

So here is a calculation that I found really interesting....add up your net worth, then divide this by the sum of your entire lifetime earnings (easily picked from your social security records).  For example, if your net worth is $500k, and you divide this by a sum of lifetime earnings of $1M, then your percentage of lifetimes earnings that comprise your net worth is 50%.

$500k/$1000k = 50% Net Worth as a Percentage of Lifetime Earnings

I performed this calculation for my wife and I, and discovered that our net worth is 75% of our total combined lifetime earnings. I stumbled across this recently after reviewing our Social Security calculations, and found it really interesting.  I don't feel this value holds much water, however I just found it sort of fascinating of how powerful investing really is.  So what is your percentage?

I have posted a similar idea before. I wasn't entirly comfortable with it, only because there are earnings that are not included on your SS statement. I had a few houses at one time*, rent and cap gains don't show up on the SS statement.
As to our percentage, a couple qualifications, we are older** and FI and we had some SS excluded income.
 We have more net worth than our earnings at 123%.
*Glad when I sold out
** Time in the market makes a big difference.

I have an added difficulty for the lifetime income. I have spent some time under a state pension plan which exempted me from SS. That means that everything I made during those years is not in the easy to access SS number and I would either have to try and find records from back then or pull numbers out of my foggy memory and add them in.

I also have some other non-SS income.

All of that makes  (current net worth / SS lifetime) *100 income look ridiculous for me. As in well over 1000%.

Title: Re: Net Worth as a Percentage of Lifetime Earnings
Post by: GrumpyPenguin on September 02, 2018, 09:22:33 AM

Quote from: Arbitrage on August 31, 2018, 09:41:00 AM

A couple of other notes on this - it does give most people a ballpark for lifetime earned income, but also doesn't include:

FSA contributions
HSA contributions
Earned income over the Social Security Wage Base (for 2018, this is $128,400).

As noted, it'll obviously be much better for older people (assuming savers, which should be most people reading this forum) who have had time for their savings to compound.

There are some things that are not reported in the numbers in the Social Security statement, but it definitely does show earned income over the Social Security Wage Base, even if you're not taxed on it.

Title: Re: Net Worth as a Percentage of Lifetime Earnings
Post by: Lnspilot on September 02, 2018, 04:50:44 PM

87%. Pretty cool regardless of the little details.