Personal Net Worth Benchmarks

[saltydog]

Does anyone know of benchmarks for personal net worth? I saw an article years ago that stated them, but can't recall beyond something like 3-5x annual gross income for someone at about 35. I know the wealth accumulation formula from the "Millionare Next Door", but that is not neccessarily the same.

 

[wabmester]

The census provides a bunch of net worth distributions, including by age and income:

Census net worth summary

For age 35-44, median net worth in 2000 was $44K.  Top 20% was $150K.

 

[kramer]

One personal benchmark can be your ratio of Net Worth to Lifetime Earnings. You can find your gross Lifetime Earnings on your annual social security statement. You can also estimate your annual net after-tax Lifetime earnings. This ratio should increase throughout your working life due to savings, investment earnings, and inflation.

This year my Net Worth surpassed my lifetime after-tax earnings, which I had considered a benchmark.

There was a thread on this at raddr's board: http://www.raddr-pages.com/forums/viewtopic.php?t=1748

I seem to recall there was a thread on it on this board before, too.

I never liked The Millionaire Next Door benchmark.

Kramer

 

[Spanky]

This year my Net Worth surpassed my lifetime after-tax earnings, which I had considered a benchmark.

Based on Weston's article, your ratio (network/life time earning) indicates that you are ready to retire.

 

[wabmester]

Based on Weston's article, your ratio (network/life time earning) indicates that you are ready to retire.

If my first job after college pays $10,000 / year, and I go to vegas and put $5000 on black and win, then am I ready to retire?

Anyway, it seems like we should be able to solve for the kramer equality, but my math skills are too rusty.

If we know

N = the number of years of wage slavery
x = starting salary
r = average annual raise
s = savings rate
R = average investment returns

then we should be able to solve for the s and R that give us the equality for a given N, right?   I tried it, but I ended up with a couple of polynomials that I forget how to reduce....

 

[kramer]

Based on Weston's article, your ratio (network/life time earning) indicates that you are ready to retire.

I'm ready, and my boss agrees, too! But seriously, the article is using gross lifetime earnings -- whereas I am using after-tax earnings for my calculation. I forget what I calculated my lifetime tax rate to be -- I think it was about 25% (for the most part, all of my earnings have been in high earnings years, my current aggregate tax rate is over 30%). So I would have to save/earn/grow 33% more, plus, whatever I earned between now and then. Using that calculation, I am probably 6 or 7 years away.

But since I am single, I would be ready to retire well before then.

Kramer

 

[kramer]

it seems like we should be able to solve for the kramer equality

Patent pending!! An income stream from royalties in retirement!!

Seriously, I think if you make it too complicated, it loses its usefulness as a benchmark.

Personally, I think the 1.0 lifetime earnings is too high of a benchmark to guage readiness for retirement for most (including myself). Especially, those that have been wage slaves for 2 or 3 decades or more, and are closer to SS and Medicare.

Kramer

 

[Delawaredave]

This year my Net Worth surpassed my lifetime after-tax earnings, which I had considered a benchmark.

There was a thread on this at raddr's board: http://www.raddr-pages.com/forums/viewtopic.php?t=1748

"Lifetime earnings" - are we talking about the SS statement - up to now ?   I'm assuming people are not adding future expected wages/salaries up to retirement point.

What's a workable ER net worth / lifetime gross earnings ?   Anything magic or significant about 1 ?

I'm at 70%, based on gross lifetime earnings (in mid 40's). 

The Raddr thread had some ranges - but they were incredibly wide:  25%-100%

Don't know if I should feel good or bad....  Thanks for any comments !

 

[Nords]

Don't know if I should feel good or bad....  Thanks for any comments !

I think comparing meaningless benchmarks can make you feel good for no reason ("Tastes great! Less filling!!") and make you feel even worse for all the wrong reasons.

The relationships noted in TMND are just that-- correlated numbers specific to one set of data that can't be applied to the rest of society. I bet Stanley is really sorry that he ever tried to make a net worth formula.

Maybe the lifetime earnings vs net worth ratio is easier to calculate, but it's also horribly misleading if you've had low earnings or high expenses.

I think the only net worth benchmark worth considering is the % of income you save every year. 10%, 15%, 20% or higher-- it really doesn't matter as long as you're meeting your personal goal and not that of some sound-bite deadline journalist.

 

[Spanky]

Don't know if I should feel good or bad.... Thanks for any comments !

Ignore the benchmarks and feel good about whatever you have. It really does not what other s have and how wealthy they are. Comparison is one of the major cause of unhapiness. The important thing is to identify your expenses and save accordingly. A saving of of 25x the expenses will suffice.

 

[kramer]

The lifetime earnings benchmark was used in Your Money or Your Life. The reason that I like it is because it helps bring home the importance of savings, investments, and LBYM.

If you have saved up 1.0 after tax lifetime earnings, your investments have earned back everything that you have ever spent your entire life. That is a feedback mechanism that can be encouraging for sacrifices made in the past and encourage you to continue on the path.

But like other posters said, it is just a rule-of-thumb benchmark. What matters is where you are with respect to your real goals.

Kramer

 

[FIRE'd@51]

You can find your gross Lifetime Earnings on your annual social security statement.

Only since 1993 when the amount of earnings subject to the medicare tax was uncapped, unless your earnings were less than the medicare cap in years prior to 1993.

 

[BunsGettingFirm]

The Federal Reserve publishes a Survey of Consumer Finances every 3 years. I believe the last one was from 2004, but rest assured that almost everyone on this board is way above the average for their age. Some are way above the average regardless of age (you damn IBers).

 

[LOL!]

An article on the Fed survey: http://www.federalreserve.gov/pubs/oss/oss2/2004/bull0206.pdf

The Farrell article on personal finance ratios:
http://www.fpanet.org/journal/articles/2006_Issues/jfp0106-art6.cfm (not quite net worth, but probably close enough)

 

[dmpi]

The census provides a bunch of net worth distributions, including by age and income:

Census net worth summary

For age 35-44, median net worth in 2000 was $44K.  Top 20% was $150K.

As far as metrics go, I tend to think that the bottom line is ... the bottom line.
The only metric worth anything is your NW compared to others in your age group.

But as a data point: We are in our mid 40s & our NW/ lifetime gross earnings = %90.  I'd rate our income = A, LBYM = A+, Investments Returns = B.

 

[saltydog]

Thanks for the insights. I wasn't looking for the benchmarks in order to pat myself on the back, I was just looking for another way track my forward progress. I've done the comparison of life earnings...at about 50% for single income with three kids, but since I am in the military and do not own a home/mortage, my calculations can be a little misleading, but we remain focused on the future bottom line and are mentally prepared for beginning mortage payments as late as our mid-fourties. We are saving hard for this, three 529s, and of course in three retirement accounts. I have not cheated and included a current value of my projected future pension payments, which would be slightly less than my current income now.

Again, I appreicate the discussion, and plan to stick around the FIRE pages for time to come.