Net Worth:Life Time Income Ratio?

[mb]

This was also from Liz Weston's article on MSN. Kind of a pain to do the calculation but I found the result interesting.

Also, accumulating a worth of 100-200% of your life time earnings says something about compounding and the time value of money.

Step 1: Add up your lifetime earnings. You don’t have to go searching for your old tax returns; just use the handy summary Social Security sends you every year, a few months before your birthday. (If the “Social Security” and “Medicare” earnings columns show different amounts, use the Medicare column.)

Step 2: Calculate your net worth. This measure of wealth is basically the total of all your assets (investments and property) minus your liabilities (your debt).

Step 3: Divide your net worth by your lifetime earnings. This is what all your labor has achieved for you in terms of tangible wealth.

Rick Ulivi, a fee-only financial planner in Orange, Calif., likes to have his clients do this calculation. He wants to see the following ratios:
For young clients early in their careers, the desired ratio is somewhere between 0 and 25%.

For clients in midcareer, he wants a ratio between 25% and 100%.

By the time they’re ready for retirement, the preferred ratio is 100% to 200%.

[sgeeeee]

You're missing the box for 75%-100% for 50+ year olds.

[mb]

Thanks sgeeeee. Hopefully got it this time. MB

[Nords]

I can't remember why we started tracking this but we've been doing it for years. Was that in "The Millionaire Next Door"?

180% with the real estate equity based on our tax assessment.

With recent appraisal values the ratio is just silly.

[grumpy]

I can't even guess what my lifetime income was.

Grumpy

[sgeeeee]

Originally Posted by Nords

I can't remember why we started tracking this but we've been doing it for years.* Was that in "The Millionaire Next Door"?

. . .

I think that's where I originally read of this metric. I took our Social Security statements and ran the numbers then, so I only had to update to answer the pole.

I don't think this metric is really very useful. What you have earned and what you have are not necessarily related to what you need to retire. A $100M lottery winner has a ratio of about 0.5 because of taxes, but is probably set to retire. Someone who has worked a lot a years at a low paying job, saving every dime they could might have a ratio of 2 and still not be ready to retire.

If enough posters do the calculations, the results might be interesting.

[Nords]

Originally Posted by sgeeeee

If enough posters do the calculations, the results might be interesting.* *

Maybe the IRS could do it for us. That would theoretically eliminate the erroneous & omitted data.

The IRS could sell the resulting data to Google, buy themselves a real computer system to improve their tax-collection efficiency, and then start retiring the national debt!

Naaaa-- I'd rather take a poll on this board.

[. . . Yrs to Go]

I'd have voted if "Have absolutely no idea" was a choice. Something less then 100% for sure, but how much lower is anyone's guess.

[mb]

This is probably a better metric for how good a saver you are than if you are ready to retire.

MB

[cute fuzzy bunny]

Yep, IIRC when I saw it my first thought was that it was a great metric to see how well you're doing as an accumulator, but of little value for someone already retired.

[Cool Dood]

Originally Posted by Nords

Maybe the IRS could do it for us. That would theoretically eliminate the erroneous & omitted data.

The IRS could sell the resulting data to Google, buy themselves a real computer system to improve their tax-collection efficiency, and then start retiring the national debt!

Hell, why don't they just let Google run it on their massive clusters? GoogleTax Beta......

Did you mean to enter "No child tax benefit"?

Do you owe the IRS money? Check out our program! Presented by GoogleAds.

etc.

[igsoy]

Wouldn't this make more sense to do with after tax money? We are at 66.666% at age 37/38, but all the missing 33% was gone before we ever saw it. If we can count from take home pay, then we are at 100%, dangit!!!!