Whats the ratio of your net worth to your taxable income

[nun]

As it's tax time we should all have an idea of our taxable income....you know the number after you've subtracted your deductions and exemptions from your adjusted gross income. So what is the ratio when you divide your net worth by your taxable income. The next question is "what's your retirement status". I know we aren't accounting for SS etc, but it will be interesting to see how the ratio and status correlate.

I'll go first my ratio is 9.7 and I'll ER when it hits 12

[justplainbll]

Quote:

Originally Posted by nun As it's tax time we should all have an idea of our taxable income....you know the number after you've subtracted your deductions and exemptions from your adjusted gross income. So what is the ratio when you divide your net worth by your taxable income. The next question is "what's your retirement status". I know we aren't accounting for SS etc, but it will be interesting to see how the ratio and status correlate. I'll go first my ratio is 9.7 and I'll ER when it hits 12

You can easily get to 19.4, right quick, by cutting your taxable income in half.

[donheff]

You forgot to specify what you meant by net worth - portfolio or all assets. I guessed that you meant portfolio.

[l2ridehd]

Based on 2011 taxable income it is about 9. However on an average of 2005 to 2010 in is about 14. In 2011 I had a very high taxable income as I was doing lots of things to get ready to retire. Consolidated all my investment accounts which caused some capital gains, sold a lot of stock options back in early 2011 and caught it at a peak. Started a pension from a prior job late in the year. So if I remove those one time events for 2011 I am at 12.9 and ready to retire.

[MichaelB]

My taxable income is investment income, so it varies substantially from year to year depending on capital gains taken. A few years ago it was negative as we had carryover losses.

[REWahoo]

Quote:

Originally Posted by nun So what is the ratio when you divide your net worth by your taxable income. The next question is "what's your retirement status". I know we aren't accounting for SS etc, but it will be interesting to see how the ratio and status correlate.

Aren't there too many variables to make this a meaningful poll? Someone with a relatively low net worth (however measured) with a nice pension and SS can have a low ratio yet live very comfortably in retirement.

[Brdofpray]

Quote:

Originally Posted by REWahoo Aren't there too many variables to make this a meaningful poll? Someone with a relatively low net worth (however measured) with a nice pension and SS can have a low ratio yet live very comfortably in retirement.

+1

[justplainbll]

Quote:

Originally Posted by REWahoo Aren't there too many variables to make this a meaningful poll? Someone with a relatively low net worth (however measured) with a nice pension and SS can have a low ratio yet live very comfortably in retirement.

Although I did not bother to do so, for the purpose of this ratio it might be appropriate to add the capitalized value of pension and SS revenues to one's net worth.

[MichaelB]

Quote:

Originally Posted by REWahoo Aren't there too many variables to make this a meaningful poll? Someone with a relatively low net worth (however measured) with a nice pension and SS can have a low ratio yet live very comfortably in retirement.

Withdrawal rate is more easily compared across retirement situations that have different combinations of pension and portfolio income and lifestyle.

[scrabbler1]

Using 2011 data, I (an early retiree) am at 37:1. But another thing which mucks up the ratio is that I have stock dividends and LTCG which are part of the TI but are taxed at 0%, while I have muni bond fund interest which is not part of the TI and is taxed at 0%.

[oldphd]

Quote:

Originally Posted by REWahoo Aren't there too many variables to make this a meaningful poll? Someone with a relatively low net worth (however measured) with a nice pension and SS can have a low ratio yet live very comfortably in retirement.

Another scenario that makes the numbers misleading pertains to me...

I have a good sized rollover IRA. I work full time at a job that has pension coverage (10% contribution) and both 403b and 457, which I max out, and am over 50. That's another $44K for 2011. My salary barely covers this, giving me W2 wages of several thousand dollars (I forget, but maybe 5-6K). I then fill out the 15% tax bracket with Roth conversion, and had mid 5 figure investment earnings. Basically I end up with a taxable income in the low 6 figures but my expenses are maybe $50K, some of which I get from DWs job and pension income, some from assets.

Basically we are FI, but I'm planning to work a few more years to potentially qualify for HI through the pension plan (which is subject to review/change!) and give us some backup, sort of a belt and suspenders approach. One of DW's pensions is with a private non-profit and is both frozen and underfunded (based on my calcs, they don't have to provide the same info as a public pension plan). That means no PBGC backup. They say they will continue to contribute as it winds down, but we'll see. The good news is they just froze it a year ago, so the ones who are more at risk are younger. Any reductions should be well down the road.

That gives me a ratio of something like 7-8 according to the poll request, or 25 according to expenses, or 300 according to W2 wages, which is obviously not as great as it sounds since the W2 is so low. But I can wish, eh?

[nun]

Quote:

Originally Posted by REWahoo Aren't there too many variables to make this a meaningful poll? Someone with a relatively low net worth (however measured) with a nice pension and SS can have a low ratio yet live very comfortably in retirement.

If you have a big pension that will lower the ratio and it will be interesting to see how many people ER with low ratios.

[nun]

Quote:

Originally Posted by justplainbll You can easily get to 19.4, right quick, by cutting your taxable income in half.

Yes that's true. My ratio is 9.7 as I have $100k in taxable income, but when I ER it will go up to 24 just because I'm a "tight wad"

[REWahoo]

Quote:

Originally Posted by nun If you have a big pension that will lower the ratio and it will be interesting to see how many people ER with low ratios.

Low ratios may not indicate a big pension. Some may be living 'high on the hog' withdrawing a high % of their portfolio for whatever reason. Maybe they are 80 years old and don't want the kids to get it have any heirs.

[MichaelB]

A low ratio can also be the product of a tax inefficient portfolio.

[justplainbll]

A very imprecise mechanism for capitalizing the value of a pension is to multiply the annual pension benefit by 20 to 30. In other words an annual pension of 25k could be considered to add 500 to 750k to a pension beneficiaries net worth.

[NYEXPAT]

I can't vote until you add a category "result is undefined". I would think 0 into 0 = 0% or 100% but my calculator does not agree!

[pb4uski]

My ratio for 2011 is 11.6 (2011 TI/ year end 2011 net worth). However, my income was abnormally high in 2011 because of a special project at w*rk where I increased my hours. 2010 would be more representative, and it was 19.5.

2012 will be above 25 since I have ER'd and am living off savings now. My TI would be nil (deductions exceed taxable interest and dividends) other than tIRA conversions to Roth.

[FUEGO]

Just finished up my 2011 Form 1040 last night. I'm right around 18. Still probably 4+ years from FIRE. Gross income (mostly earned income) is about 3.25 times taxable income due to extensive tax planning an conniving.

[justplainbll]

Quote:

Originally Posted by nun Yes that's true. My ratio is 9.7 as I have $100k in taxable income, but when I ER it will go up to 24 just because I'm a "tight wad"

Also a tightwad, I was comfortable retiring 17 years ago with a $40K pension but glad that to this point I've been able to continue increasing my net worth.