Poll:Wealth Conversion Efficiency (WCE)

[pb4uski]

Interesting exercise. My WCE is based on networth/total income. I feel very fortunate at just over 100%, however I was lazy and did not include NPV of SS and future small pension of $13k, also too lazy to figure out inflation.

Inflation makes a huge difference... I'm well over 100% without inflation and my inflation adjusted WCE is about 2/3 my WCE without inflation.

 

[calmloki]

I remember we were Prodigious Accumulators of Wealth back when and and things haven't changed. But this poll's strictures just are too wonky for our situation. I can remove all real estate, both rentals and homes, and get our NW down, but the lifetime amount I made as earned income according to social security is just absurdly trivial compared to what we have. (not bragging about our NW - more like my top earning year was something like $15,000). That rental "unearned income" mounts up.

 

[Aiming_4_55]

Inflation makes a huge difference... I'm well over 100% without inflation and my inflation adjusted WCE is about 2/3 my WCE without inflation.

It's probably off, but I figured the "huge difference" would be reduced since I didn't factor in any pension or SS. Also, my 100% was closer to 125%. Yup, I'm lazy this weekend!

 

[Aiming_4_55]

Excellent progress!

If you do take the time to adjust your earnings for inflation, you’ll find that your income is significantly higher when inflation adjusted; likely to make 20-30% difference with your 27 yrs of income, depending on your earning history.

Thanks. My first 12 years of work was well below the SS max. contribution, starting salary in 1990 was $20k.

 

[ShokWaveRider]

Looks like some serious homework!

Nah!

Go to SS.gov, Add Up all the numbers, divide it into your NE and get the result. mine was 1.5. So it means our NW is 1.5 x our earnings. Or there abouts.

 

[calmloki]

Nah!

Go to SS.gov, Add Up all the numbers, divide it into your NE and get the result. mine was 1.5. So it means our NW is 1.5 x our earnings. Or there abouts.

OK, sounds simple. Take our NW, subtract all real estate real market value per property tax statements, both homes and rentals, add the small debt we carry on our primary house, divide by two as there are two of us. Divide that number by my lifetime social security earnings. Result is my NW is 12.8 times LE. I don't think inflation is going to explain the result. Seems like most financial planning just doesn't fit well with real estate investment.

 

[Aiming_4_55]

From the comments section of the original article, SS should not be included and if you include pension, pension contribution should be included.

"Harry Sit says
December 2, 2017 at 1:20 pm

If you include pension as assets you also have to include the pension contribution made by your employer and you as income each year. Social Security isn’t assets. The Supreme Court ruled in the 1960s that no one has a legally guaranteed right to it. You paid taxes to support the seniors at the time in the same way you paid taxes to pay for roads, defense, schools, and everything. You weren’t paying for your own benefits."

 

[NW-Bound]

Well, calmloki, this method only works for people who slave for an employer. For self-employed landlords like yourself, you need to account for your labor, which is not free.

This is harder, as I don't think you keep track of the hours you spent on your real estate investments, nor can put a per-hour pay on them.

 

[Huston55]

From the comments section of the original article, SS should not be included and if you include pension, pension contribution should be included.

"Harry Sit says
December 2, 2017 at 1:20 pm

If you include pension as assets you also have to include the pension contribution made by your employer and you as income each year. Social Security isn’t assets. The Supreme Court ruled in the 1960s that no one has a legally guaranteed right to it. You paid taxes to support the seniors at the time in the same way you paid taxes to pay for roads, defense, schools, and everything. You weren’t paying for your own benefits."

Yep. I’ve actually emailed back & forth with Harry about that, and we just disagree on inclusion of SS. My view is that all guaranteed income streams (SS, pensions, annuities, trusts, etc.) should be included @ NPV. So, that’s how I designed the poll.

If you want to exclude it, feel free to do so & state that in your post(s). But, to help maintain some consistency in the poll results, please follow the guidelines when voting. Thx.

 

[FIREd]

A quick back of the envelope calculation shows that we are just above 50% without SS (around 60% with SS). We are only 43 and have less than 20 years of compounding under our belt. We were also paying a lot in income taxes until recently and it will take many years of growth to recover what we lost to taxes (we paid more in taxes than we spent on ourselves during our working years).

 

[Danmar]

Way too complicated for me to figure out with employee options, etc. But must be over 100%. I don’t think I could possibly have “earned” as much as our current NW. Interesting question though.

 

[Huston55]

A quick back of the envelope calculation shows that we are just above 50% without SS (around 60% with SS). We are only 43 and have less than 20 years of compounding under our belt. We were also paying a lot in income taxes until recently and it will take many years of growth to recover what we lost to taxes (we paid more in taxes than we spent on ourselves during our working years).

This would put you in line with his suggested benchmarks below.

 

[Cobra9777]

Interesting poll. I got 81%. Without SS, it's 61%. And without SS or pensions, it's 45%.

I used the spreadsheet with inflation adjustment. Income was fairly easy using medicare earnings records from the SS website. For NW, I don't usually count the NPV of pensions and SS. So I used the Bedrock Capital tool to calculate the NPV of our combined SS benefits. And I used our recent lump sum options for the NPV of our two pensions.

 

[audreyh1]

Nah!

Go to SS.gov, Add Up all the numbers, divide it into your NE and get the result. mine was 1.5. So it means our NW is 1.5 x our earnings. Or there abouts.

Yeah - all that work.

 

[USGrant1962]

Interesting poll. I got 81%. Without SS, it's 61%. And without SS or pensions, it's 45%.

I used the spreadsheet with inflation adjustment. Income was fairly easy using medicare earnings records from the SS website. For NW, I don't usually count the NPV of pensions and SS. So I used the Bedrock Capital tool to calculate the NPV of our combined SS benefits. And I used our recent lump sum options for the NPV of our two pensions.

I also use that site to to figure NPV of SS, but it comes out really high with their default parameters. I prefer to put in the 30-year Treasury rate for calculating the discount rate (~2.75% versus a "riskless" 2.00%) and I think in our low-inflation environment the COLA may be lower than the last 25 year's average, so I drop that to 2.0%. It still comes up with a high number, which shows the value of SS.