Net worth approaching lifetime earnings. How many years did it take?

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Financologist
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Net worth approaching lifetime earnings. How many years did it take?

Post by Financologist »

I was reviewing my social security earnings record and realized that my net worth is almost equal to my lifetime earnings. I've saved and invested consistently between 15-40% of gross earnings for most of the near-21 years of my working life.

Even as a finance professional, it amazes me that one can spend (including tax) between 60 and 85% of earnings and still reach a point at which net worth approaches total gross lifetime earnings so quickly.

I've made mistakes along the way (too much company stock.. didn't turn out well, poor asset location and bad tax consequences, et al) and also got lucky a couple of times (purchased home in '13 in what turns out to be a hot market and received severance, education reimbursement and bonus simultaneously in Feb '09 and immediately invested it all in stocks at almost the very moment that turned out to be the bottom of the market).

Other than these anomalies, it appears that I've followed a similar path to many BHs.

Curious: for those whose net worth now exceeds lifetime gross earnings, approximately how many years did it take?

To me, this is a great milestone signifying that money, invested over time, works harder (or at least more efficiently) than I can.
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bampf
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by bampf »

Interesting notion. I am not there but not far off. Hadn't thought of it that way before. Interested to see the responses.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by carminered2019 »

my NW is currently 3.25x my lifetime earnings and it took me 25 years.
Momus
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Momus »

About 11.5 yrs in, NW is 1X lifetime earnings.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Soon2BXProgrammer »

Age 35, as of year end 2019, 87% retained lifetime earnings.. But more interesting because it's so short in time, it's 79% retained lifetime earnings adjusted for inflation.

Also, make sure you don't assume the social security information is correct, if you make more then the wage base. You need to use the medicare earnings, to be closer. Also consider adding back HSA contributions if you have those as payroll deduction and anything else that brings down your medicare earnings.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Financologist »

vipertom1970 wrote: Sun Feb 23, 2020 11:21 pm my NW is currently 3.25x my lifetime earnings and it took me 25 years.
Wow! Interested in your savings rate, family status, position in Apple and Netflix etc.. if you care to share. Also, curious whether you had an unusual earnings sequence (i.e., windfall early on).
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by geerhardusvos »

Age 29 and nw ($800k) is 1.1x total tle
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by carminered2019 »

Financologist wrote: Sun Feb 23, 2020 11:52 pm
vipertom1970 wrote: Sun Feb 23, 2020 11:21 pm my NW is currently 3.25x my lifetime earnings and it took me 25 years.
Wow! Interested in your savings rate, family status, position in Apple and Netflix etc.. if you care to share. Also, curious whether you had an unusual earnings sequence (i.e., windfall early on).
no windfall, 60% saving rate, zero debt except first 5 years of mortgage, construction engineer, married, 1 daughter, retired at 50. I invested a lot in rental properties in 2008-2010 and used all cashflow to invest in the equity market. I went for boke and got lucky with market timing on Wells Fargo at $15 per share and sold at $52(never do that again and didn't even know the word market timing back then)

mentally, it was easy to take on investment risks with no mortgage was the key for me.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by luminous »

I’m at 53% and I’m in my mid-40s. I’ll keep plugging away.
50/20/30 US stock/international stock/bonds. Hope to semi-retire in 2022.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by firebirdparts »

I'll never get there. We spend too much money.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by TallBoy29er »

If I ever reach that, it will take a good deal more time.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by MikeG62 »

Financologist wrote: Sun Feb 23, 2020 11:09 pm I was reviewing my social security earnings record and realized that my net worth is almost equal to my lifetime earnings. I've saved and invested consistently between 15-40% of gross earnings for most of the near-21 years of my working life.

Even as a finance professional, it amazes me that one can spend (including tax) between 60 and 85% of earnings and still reach a point at which net worth approaches total gross lifetime earnings so quickly.

I've made mistakes along the way (too much company stock.. didn't turn out well, poor asset location and bad tax consequences, et al) and also got lucky a couple of times (purchased home in '13 in what turns out to be a hot market and received severance, education reimbursement and bonus simultaneously in Feb '09 and immediately invested it all in stocks at almost the very moment that turned out to be the bottom of the market).

Other than these anomalies, it appears that I've followed a similar path to many BHs.

Curious: for those whose net worth now exceeds lifetime gross earnings, approximately how many years did it take?

To me, this is a great milestone signifying that money, invested over time, works harder (or at least more efficiently) than I can.
100% of gross or after tax lifetime earnings?
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Millennial
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Millennial »

Based on SSA record, as a couple (both 34) we are at $2.1mm earnings, $1.8mm net worth. Not quite there, and honestly now that our earnings have risen substantially, I am not sure we'll ever get there. At least not during working years.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by flaccidsteele »

Weird flex but ok
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Wanderingwheelz »

Financologist wrote: Sun Feb 23, 2020 11:09 pm I was reviewing my social security earnings record and realized that my net worth is almost equal to my lifetime earnings. I've saved and invested consistently between 15-40% of gross earnings for most of the near-21 years of my working life.

Even as a finance professional, it amazes me that one can spend (including tax) between 60 and 85% of earnings and still reach a point at which net worth approaches total gross lifetime earnings so quickly.

I've made mistakes along the way (too much company stock.. didn't turn out well, poor asset location and bad tax consequences, et al) and also got lucky a couple of times (purchased home in '13 in what turns out to be a hot market and received severance, education reimbursement and bonus simultaneously in Feb '09 and immediately invested it all in stocks at almost the very moment that turned out to be the bottom of the market).

Other than these anomalies, it appears that I've followed a similar path to many BHs.

Curious: for those whose net worth now exceeds lifetime gross earnings, approximately how many years did it take?

To me, this is a great milestone signifying that money, invested over time, works harder (or at least more efficiently) than I can.
I wish I was able to tell you, but for me it’s far more difficult since my wife and I each own S Corps. Each of our companies paid “salaries” are a fraction of our annual draw. We each get “paid” $31,000 by our respective companies, which is plenty to live on since we have no mortgage and companies pay for things like health insurance, vehicles and even small things like cell phone.

The drawback for us is that our SS payments will be lower than other “high earners” whose salary is high enough to max out SS. But then.. things like vehicles don’t get to be bought with pre-tax dollars, either.
3 Fund Portfolio. 70%/30% AA. No mortgage. Simple.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by sc9182 »

You will see good bit of younger folks get this ratio in good ranges- due to - awareness of FIRE, raising markets over past 11 years (almost), and not much raising salaries over this bull market period.

If you are looking for such stats for folks working for 20-25 years., it is a bit harder - due to multiple market crashes, and a dead-decade (for a stocks) of 2000-2010;

Kudos to you that you (and many younger FIRE:plan/invest-right folks) are getting there !!

For a typical market, without too many salary/career hiccups., steady saving+investing - it might bra 25-30 years is a good target. Anything beyond that consider its Gravy !

If you got there sooner due to leveraged real estate, or single-stock bets working in your favor, or S-Corp tax optimal salaries/strategies — good for you - you may have gotten there sooner !
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Sandtrap »

I don't know exactly when, but my net worth has far exceeded net earnings at any point in time of significance.
Perhaps it is different depending on one's profession, income stream, whether one is a wage earner or independent business owner, whether one is employed or self employed, whether one is working toward or has a pension vs other paths, etc.

OTOH: someone with a large trust fund or inheritance, etc, when young is already ahead out of the gate. . . . . .

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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by CyclingDuo »

Financologist wrote: Sun Feb 23, 2020 11:09 pm I was reviewing my social security earnings record and realized that my net worth is almost equal to my lifetime earnings. I've saved and invested consistently between 15-40% of gross earnings for most of the near-21 years of my working life.

Even as a finance professional, it amazes me that one can spend (including tax) between 60 and 85% of earnings and still reach a point at which net worth approaches total gross lifetime earnings so quickly.

I've made mistakes along the way (too much company stock.. didn't turn out well, poor asset location and bad tax consequences, et al) and also got lucky a couple of times (purchased home in '13 in what turns out to be a hot market and received severance, education reimbursement and bonus simultaneously in Feb '09 and immediately invested it all in stocks at almost the very moment that turned out to be the bottom of the market).

Other than these anomalies, it appears that I've followed a similar path to many BHs.

Curious: for those whose net worth now exceeds lifetime gross earnings, approximately how many years did it take?

To me, this is a great milestone signifying that money, invested over time, works harder (or at least more efficiently) than I can.
It's yet another benchmark that is used.

Lifetime Wealth Ratio = Your Net Worth / Your Lifetime Income

The Millionaire Next Door talked about this to determine if one was an average accumulator of wealth or a prodigious accumulator of wealth or the worst kind - an under accumulator of wealth.

This blog post from a few years ago explains the formula....

https://www.getrichslowly.org/lifetime-wealth-ratio/

The authors suggest that most people can use a simple formula to see how they're doing financially. Here's how it works:

Multiply your annual gross (pre-tax) income by your age. Divide by ten. Your net worth — less any inheritances or windfalls — should be equal to this number. So, if you're forty years old and earning $50,000 per year, your expected net worth would be $200,000.

If your net worth is close to the expected number, the authors consider you an “average accumulator of wealth”. If your net worth is less than half that expected number, you are an “under accumulator of wealth”. If you have twice the expected amount, however, you are a “prodigious accumulator of wealth”.

It's important to note that this formula doesn't work well for younger folks, and the authors know it. It's mean to be a gauge for people getting closer to retirement.


CyclingDuo
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by goblue100 »

I found this to be an interesting question, but I don't think I will ever get there. Right now my net worth is about 65% of my lifetime earnings. I probably didn't save enough in my early years. We thought 6% with a 3% company match would be enough.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Portfolio7 »

This is a really impressive milestone. We're savers, but not at that kind of level.

Per the comment above, last year we barely eked our way past the lower boundary of 'Prodigious Accumulator of Wealth' definition (but will probably drop back out this year due to salary increases.) Our lifetime wealth ratio is 60%... if we ever hit 100% it will be very close to retirement.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by sailaway »

DH has been over the SS limit for about half of his career. I have been a grad student with an SS free stipend and a teacher who didn't pay into SS. We will never know this number.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by smitcat »

CyclingDuo wrote: Mon Feb 24, 2020 10:30 am
Financologist wrote: Sun Feb 23, 2020 11:09 pm I was reviewing my social security earnings record and realized that my net worth is almost equal to my lifetime earnings. I've saved and invested consistently between 15-40% of gross earnings for most of the near-21 years of my working life.

Even as a finance professional, it amazes me that one can spend (including tax) between 60 and 85% of earnings and still reach a point at which net worth approaches total gross lifetime earnings so quickly.

I've made mistakes along the way (too much company stock.. didn't turn out well, poor asset location and bad tax consequences, et al) and also got lucky a couple of times (purchased home in '13 in what turns out to be a hot market and received severance, education reimbursement and bonus simultaneously in Feb '09 and immediately invested it all in stocks at almost the very moment that turned out to be the bottom of the market).

Other than these anomalies, it appears that I've followed a similar path to many BHs.

Curious: for those whose net worth now exceeds lifetime gross earnings, approximately how many years did it take?

To me, this is a great milestone signifying that money, invested over time, works harder (or at least more efficiently) than I can.
It's yet another benchmark that is used.

Lifetime Wealth Ratio = Your Net Worth / Your Lifetime Income

The Millionaire Next Door talked about this to determine if one was an average accumulator of wealth or a prodigious accumulator of wealth or the worst kind - an under accumulator of wealth.

This blog post from a few years ago explains the formula....

https://www.getrichslowly.org/lifetime-wealth-ratio/

The authors suggest that most people can use a simple formula to see how they're doing financially. Here's how it works:

Multiply your annual gross (pre-tax) income by your age. Divide by ten. Your net worth — less any inheritances or windfalls — should be equal to this number. So, if you're forty years old and earning $50,000 per year, your expected net worth would be $200,000.

If your net worth is close to the expected number, the authors consider you an “average accumulator of wealth”. If your net worth is less than half that expected number, you are an “under accumulator of wealth”. If you have twice the expected amount, however, you are a “prodigious accumulator of wealth”.

It's important to note that this formula doesn't work well for younger folks, and the authors know it. It's mean to be a gauge for people getting closer to retirement.


CyclingDuo
It's yet another benchmark that is used.
Lifetime Wealth Ratio = Your Net Worth / Your Lifetime Income"
Hard to calculate for small business owners.

"Multiply your annual gross (pre-tax) income by your age. Divide by ten. Your net worth — less any inheritances or windfalls — should be equal to this number. So, if you're forty years old and earning $50,000 per year, your expected net worth would be $200,000."
Likely would have some value as a metric if your salary progression was very slow and steady over all years.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by abuss368 »

Sandtrap wrote: Mon Feb 24, 2020 10:19 am I don't know exactly when, but my net worth has far exceeded net earnings at any point in time of significance.
Perhaps it is different depending on one's profession, income stream, whether one is a wage earner or independent business owner, whether one is employed or self employed, whether one is working toward or has a pension vs other paths, etc.

OTOH: someone with a large trust fund or inheritance, etc, when young is already ahead out of the gate. . . . . .

j :D
All excellent points that definitely would have a material impact on the result. Also one needs to consider the financial crisis and market upswing of the last 12 years.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by MMLC3 »

[/quote]



Multiply your annual gross (pre-tax) income by your age. Divide by ten. Your net worth — less any inheritances or windfalls — should be equal to this number. So, if you're forty years old and earning $50,000 per year, your expected net worth would be $200,000.

If your net worth is close to the expected number, the authors consider you an “average accumulator of wealth”. If your net worth is less than half that expected number, you are an “under accumulator of wealth”. If you have twice the expected amount, however, you are a “prodigious accumulator of wealth”.

It's important to note that this formula doesn't work well for younger folks, and the authors know it. It's mean to be a gauge for people getting closer to retirement.[/i]

CyclingDuo
[/quote]

Interesting - had not heard of this. Thanks for sharing!
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by jharkin »

luminous wrote: Mon Feb 24, 2020 2:16 am I’m at 53% and I’m in my mid-40s. I’ll keep plugging away.
I had to go run some numbers and Im probably barely worth 35% of lifetime earnings. also mid-40s.

And that's not even factoring time value of money or figuring out hte net after tax value of my 401k. Those 1997 income dollars are worth a lot more than current dollars.....


If the OP is basing it off the SSA report and is high income they are probably way underestimating real lifetime gross earnings (due to SSW FICA earnings cap). I guesstimated actual gross including bonuses, stock income, etc.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by dcdowden »

I am 68 and have tracked our AGI, taxes, and Net Worth for the past 45 years.
Our Net Worth is now approximately 50% of our lifetime AGI.
Our lifetime tax bill for income and property taxes is about 33% of our lifetime AGI not including FICA.
We are retired and have substantial defined benefit pensions plus social security that covers our expenses,
so the vast majority of our net worth will go to our heirs, charities, and the government because about 50%
of our net worth is in tax deferred accounts.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Financologist »

jharkin wrote: Mon Feb 24, 2020 4:05 pm
luminous wrote: Mon Feb 24, 2020 2:16 am I’m at 53% and I’m in my mid-40s. I’ll keep plugging away.
I had to go run some numbers and Im probably barely worth 35% of lifetime earnings. also mid-40s.

And that's not even factoring time value of money or figuring out hte net after tax value of my 401k. Those 1997 income dollars are worth a lot more than current dollars.....


If the OP is basing it off the SSA report and is high income they are probably way underestimating real lifetime gross earnings (due to SSW FICA earnings cap). I guesstimated actual gross including bonuses, stock income, etc.
Based on taxed Medicare earnings.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Normchad »

I don’t have perfect records, but I think I’m there right now. 1.0X. Took 28 years since graduating college and starting my first professional job. 35 years if you go all the way back to my first W2 income at 16.

Our savings rate is strong now, but was more modest at the beginning. The biggest difference maker is the amount of time we’ve been in the market.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by surfstar »

flaccidsteele wrote: Mon Feb 24, 2020 9:50 am Weird flex but ok
Agreed :sharebeer

I saved my first dollar earned. Age 14. I win.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by PhoebeCoco »

Net worth currently 1.8 times lifetime earnings. I retired a couple of years ago at age 57.

I did it by working hard and not having children. I am happy with that choice that I made.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Xrayman69 »

MMLC3 wrote: Mon Feb 24, 2020 12:55 pm


Multiply your annual gross (pre-tax) income by your age. Divide by ten. Your net worth — less any inheritances or windfalls — should be equal to this number. So, if you're forty years old and earning $50,000 per year, your expected net worth would be $200,000.

If your net worth is close to the expected number, the authors consider you an “average accumulator of wealth”. If your net worth is less than half that expected number, you are an “under accumulator of wealth”. If you have twice the expected amount, however, you are a “prodigious accumulator of wealth”.

It's important to note that this formula doesn't work well for younger folks, and the authors know it. It's mean to be a gauge for people getting closer to retirement.[/i]

CyclingDuo
[/quote]

Interesting - had not heard of this. Thanks for sharing!
[/quote]


I appreciate the simplicity of this formula. Will use this as example when mentoring younger individuals.

Late starter, first real job after grad education early 30s now late 40s. Ratio now is 1.12. Hopefully will get this up to 2 over the next 10 years as spending levels off and life simplicity kicks in. Late 30s and early 40s were generous spending years.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by acegolfer »

Assuming wage increases by 2% and return is 7%/yr.

If one saves 30%, it takes 33 yrs.
If one saves 40%, it takes 25 yrs.
If 50%, 19 yrs
If 60%, 14 yrs
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by smitcat »

acegolfer wrote: Mon Feb 24, 2020 7:15 pm Assuming wage increases by 2% and return is 7%/yr.

If one saves 30%, it takes 33 yrs.
If one saves 40%, it takes 25 yrs.
If 50%, 19 yrs
If 60%, 14 yrs
That would be great - but the original formulae states "on gross income" which makes the chart uneven.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Rosencrantz1 »

Interesting question. I had to think about it for a bit. I'm probably behind the curve - by my calculations, my net worth equaled my lifetime earnings at about age 58. I'm 62 now and networth has gone up and over earnings total.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by GuySmiley »

Fun topic. I am 42 and about 1x. If I retire tomorrow (hypothetical), I would remain at about 1x due to low expenses. If I keep working, I would remain about 1x due to income tax bite and low forecasted growth for a conservative asset allocation. Ask this same question in 5 years, very possible I remain at 1x. Ask this 5 years ago, I don't know but I wouldn't be surprised if I was near 1x.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by sc9182 »

GuySmiley wrote: Mon Feb 24, 2020 8:57 pm Fun topic. I am 42 and about 1x. If I retire tomorrow (hypothetical), I would remain at about 1x due to low expenses. If I keep working, I would remain about 1x due to income tax bite and low forecasted growth for a conservative asset allocation. Ask this same question in 5 years, very possible I remain at 1x. Ask this 5 years ago, I don't know but I wouldn't be surprised if I was near 1x.
If you paid of mortgage and or car loans, no kids (or at very least not worry about their college costs), and healthy (hopefully cheap/good insurance coverage) that you can keep running costs very low (especially adaptable) - your investments doesn’t have to deliver ground breaking returns. You may have achieved FIRE Nirvana; assuming future is predictable., now that’s the hard part !!

Good to hear !
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Starfish »

It seems to me that is not desirable to maximize this ratio.
If income increases significantly year after year you cannot get there.
Net worth can increase rapidly only through speculation (or successful investment, whatever you call it).
The simplest way to increase the ratio is by not having an income and not spending much. Like if you are retired for long time.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by sc9182 »

acegolfer wrote: Mon Feb 24, 2020 7:15 pm Assuming wage increases by 2% and return is 7%/yr.

If one saves 30%, it takes 33 yrs.
If one saves 40%, it takes 25 yrs.
If 50%, 19 yrs
If 60%, 14 yrs
Didn’t check math - but this (years) sounds about right.
If you are able to front load your savings in early part of your career with decent salary (while single/room-mates et ), good savings, decent “employer-match”, and decent investments - you can achieve this target sooner !

Surprisingly this target is harder to achieve (at least takes longer) for folks whom have promotions/higher-salary during later part of their career ; as compounding takes time to work effectively. Recent 30% of your higher salary has not had enough time to compound yet !! But on brighter side - you have bigger nest egg !! I would take bigger nest egg over 1.x ratio in itself :-) (just like starfish mentioned above). Most importantly, don’t increase your lifestyle creep too much (moderation is keyword), instead increases your savings rate - when you enjoy salary higher-growth during later half of your career! You need to allow more time to let higher $$s saved to allow those to compound and grow!
Last edited by sc9182 on Mon Feb 24, 2020 9:38 pm, edited 2 times in total.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Ice-9 »

Mid-40's and my net worth is about 65% of lifetime earnings on the Social Security statement. As I added the totals up, it was looking like I might make it to "approaching lifetime earnings" until I added in the last five years, during which I had bigger salary increases. So, I guess I can't complain.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Thesaints »

Net worth approaching lifetime earnings. How many years did it take?
With, or without accounting for inflation ?
sc9182
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by sc9182 »

Thesaints wrote: Mon Feb 24, 2020 9:37 pm
Net worth approaching lifetime earnings. How many years did it take?
With, or without accounting for inflation ?
Lol, if folks are having hard time achieving 1.0 ratio as it is, you want to throw inflation math into it ! Good number of already low-Percentile folks will then be eliminated— making harder to achieve this 1.x number !

Btw do you want inflation adjusted, or weighted inflation adjusted math ? :-)
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Plano
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Plano »

sailaway wrote: Mon Feb 24, 2020 11:56 am DH has been over the SS limit for about half of his career. I have been a grad student with an SS free stipend and a teacher who didn't pay into SS. We will never know this number.
I think most professionals are like your DH. We will never know because the SSA only reports income it considers taxable.

The SSA website only shows the max for the last 6 years: https://www.ssa.gov/planners/maxtax.html but there's an 81-year chart in this article: https://www.fool.com/retirement/2017/01 ... earni.aspx. Shocking how low the limit was as recently as the 90s.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Thesaints »

I'm asking because is extremely easy to achieve that target, if an inflation spike almost but erases the influence of previous earnings.
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Financologist
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Financologist »

Thesaints wrote: Mon Feb 24, 2020 9:37 pm
Net worth approaching lifetime earnings. How many years did it take?
With, or without accounting for inflation ?
I was only looking at total lifetime medicare earnings on my SS statement vs. current net worth. No adjustment for inflation.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by angelescrest »

Never made any significant income, but looking at a total of 18 years of income (at least counting the years breaking five digits), I’m just over 50% as far as what’s in my actual retirement accounts. Add on another 10% if counting all assets.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by NoVa Lurker »

This is an interesting topic, even though other posters are correct that inflation effects, etc., make this rather meaningless.

Our net worth is around 55% of our lifetime earnings.

I am 43, and my wife and I currently have a gross income around $320k. With 3 kids, high property taxes, and a lot of the net worth tied up in our home, we might never hit 1x lifetime earnings, unless there is a lot of inflation. We paid off our mortgage and save almost half our income, but our investment earnings don't make up the other half, so every year our savings increases by a bit less than our income from that year.

We left law school / grad school with big loans and immediately decent incomes, and now we pay a lot in child care, so I think those factors constrain our ratio. We have no desire to save more, and in fact we are probably over-saving right now.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by Shallowpockets »

I will have to lookup those numbers to answer this question specifically.

BUT, I can say that into my fourth year of retirement (I am 69) my net worth has increased on average by more than I ever made in any year of my working life. Net worth does not include my house either.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by CyclingDuo »

MMLC3 wrote: Mon Feb 24, 2020 12:55 pm
Multiply your annual gross (pre-tax) income by your age. Divide by ten. Your net worth — less any inheritances or windfalls — should be equal to this number. So, if you're forty years old and earning $50,000 per year, your expected net worth would be $200,000.

If your net worth is close to the expected number, the authors consider you an “average accumulator of wealth”. If your net worth is less than half that expected number, you are an “under accumulator of wealth”. If you have twice the expected amount, however, you are a “prodigious accumulator of wealth”.

It's important to note that this formula doesn't work well for younger folks, and the authors know it. It's mean to be a gauge for people getting closer to retirement.


CyclingDuo
Interesting - had not heard of this. Thanks for sharing!
Another document I like to use is the data and research from The College Payoff - especially when working with college students discussing their career paths, academic advising, education levels, fears of their student loan debt and how they can capitalize from their individual and household human capital and the incomes they will bring in from their work. I am often surprised by how few arrive at college with any history of talking about finances in their family, so I include a segment covering that subject in the classroom within our department. I also cover the pension plans of our state and the neighboring states for our education majors who are heading into the field of education. There are many graphs and charts within the pdf document, but here is one from page 3 of that document:

https://www2.ed.gov/policy/highered/reg ... payoff.pdf

Image

Beyond the calculation from The Millionaire Next Door, or the data/research from The College Payoff, or the oft quoted multiple of annual expenses for the retirement phase, we also like to use the Fidelity "journey to retirement" information...

Image
https://www.fidelity.com/viewpoints/ret ... -to-retire

The Fidelity graphic and information includes working until FRA and taking SS at FRA, contributing 15% of your income beginning at age 25 to retirement savings in an AA that includes at least 50% in equities. We know it doesn't always work out that way due to layoffs, health issues, need to take care of aging/ill parents, etc... - but, when used in conjunction with the other measuring sticks of The College Payoff, the equation from The Millionaire Next Door, and multiples of annual expenses in the nest egg to fund retirement - one can focus in on targets.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by abuss368 »

This is an interesting thread. I did not consider net worth as a percentage of lifetime earnings. Thanks for the perspective.
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Re: Net worth approaching lifetime earnings. How many years did it take?

Post by MathWizard »

I just did. our NW=sum of all gross earnings over my wife's and my lifetime. (I did have to approximate, since I do not
have the figures in front of me.) 60% of it is in tax deferred, so maybe I have not yet made it.

It took 30 years of investing after getting my PhD.
I actually had a negative NW when I started 30 years ago due to student loans.

I would not have guessed that this was attainable given the huge run-up stocks
soon after I started working (late 90's) then the poor market performance through the 2000's.
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