[POLL] Net worth to income ratio - how do you compare

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How does your net worth:income ratio compare to households with the same age of head?

0.5x the average or less
11
6%
0.5-1.0x the average
15
8%
1.0-2.0x the average
50
27%
2.0-5.0x the average
61
33%
5.0-10.0x the average
16
9%
10.0+
31
17%
 
Total votes: 184

Topic Author
nomadgecko
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[POLL] Net worth to income ratio - how do you compare

Post by nomadgecko »

I admit I love looking at the data in the Fed's US Family Finances study. While I honestly think I may never be able to retire, the data does help me feel good that our family is above average at savings.

What is the ratio of your household's net worth divided by you household's last year income compared to peers your age?

I chose the average instead of the median because that is a higher bar, skewed by wealth accumulators.

Code: Select all

2010 Averages	(pages 8 & 17)		
Age of head     Income          Family Net Worth         Net Worth/Income
< 35            $47,700         $65,300                  1.4
35-44           $81,000         $217,400                 2.7
45-54           $102,200        $573,100                 5.6
55-64           $105,800        $880,500                 8.3
65-74           $75,800         $848,300                 11.2
75 or more      $46,100         $677,800                 14.7
Net worth: All assets minus all liabilities
Income: All pre-tax sources: wages, dividends, capital gains, alimony, etc.


For this poll, look at households with the same head age, and calculate your net worth/income as a multiple of the average. For example, if you're 50, had an income of $100,000 last year, and have a net worth of $1,000,000 - your net worth/income is 10.0 and you are 1.79x above the average of (10.0/5.6 = 1.79).

[EDIT - Ack, I accidentally 2007 net worth numbers. Now corrected with 2010 net worth numbers]
Last edited by nomadgecko on Wed Jun 20, 2012 11:46 am, edited 2 times in total.
xerty24
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Re: [POLL] Net worth to income ratio - how do you compare

Post by xerty24 »

At constant net worth, I'd rather have a low NW/income ratio :).
No excuses, no regrets.
bourg
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Re: [POLL] Net worth to income ratio - how do you compare

Post by bourg »

I'm actually surprised how high the numbers are in the study, especially for the < 35 group. I expected those numbers to be much lower based on all the debt and lack of savings of most of the people I know.
natureexplorer
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Re: [POLL] Net worth to income ratio - how do you compare

Post by natureexplorer »

bourg wrote:I'm actually surprised how high the numbers are in the study, especially for the < 35 group. I expected those numbers to be much lower based on all the debt and lack of savings of most of the people I know.
I don't believe these numbers. There are plenty of people with negative net worth.
natureexplorer
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Re: [POLL] Net worth to income ratio - how do you compare

Post by natureexplorer »

So the average household income in the 45-65 year category is above $100k??? :confused
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GregLee
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Re: [POLL] Net worth to income ratio - how do you compare

Post by GregLee »

0.57 -- I'm well below the average because my income is higher (net worth is about average).
Greg, retired 8/10.
rkhusky
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Re: [POLL] Net worth to income ratio - how do you compare

Post by rkhusky »

I guess it would be interesting to see the median. I would have thought the average household income would be 40-50K.
i<3Investing
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Re: [POLL] Net worth to income ratio - how do you compare

Post by i<3Investing »

Not very high. But at the same time I'm 27 so I have some time to increase it :D
hsv_climber
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Re: [POLL] Net worth to income ratio - how do you compare

Post by hsv_climber »

natureexplorer wrote:So the average household income in the 45-65 year category is above $100k??? :confused
Sure. And average net worth above 55 is $1million.
We live in a country of average millionaires.

But in reality, it is something like Bill Gates + 100 million people with negative net worth.
Last edited by hsv_climber on Wed Jun 20, 2012 11:30 am, edited 1 time in total.
gkaplan
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Re: [POLL] Net worth to income ratio - how do you compare

Post by gkaplan »

Define "family."
Gordon
sscritic
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Re: [POLL] Net worth to income ratio - how do you compare

Post by sscritic »

Above 1.0 times, but not by much.
Topic Author
nomadgecko
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Re: [POLL] Net worth to income ratio - how do you compare

Post by nomadgecko »

I just edited the table because I accidentally used the 2007 net worth data (not 2010), so the ratios are different. My fault for trying to do this too fast over lunch!
Tuxx
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Re: [POLL] Net worth to income ratio - how do you compare

Post by Tuxx »

natureexplorer wrote:So the average household income in the 45-65 year category is above $100k??? :confused
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YDNAL
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Re: [POLL] Net worth to income ratio - how do you compare

Post by YDNAL »

nomadgecko wrote:What is the ratio of your household's net worth divided by you household's last year income compared to peers your age?....

For this poll, look at households with the same head age, and calculate your net worth/income as a multiple of the average. For example, if you're 50, had an income of $100,000 last year, and have a net worth of $1,000,000 - your net worth/income is 10.0 and you are 1.47x above the average of (10.0/6.8 = 1.47).
It doesn't matter.

What matters are (1) savings rate and (2) that Net Assets (Net Worth) can provide in retirement when Income goes away.
  • For instance, a poster can take home $200K from $300K income, and has a Net Worth of $1.250 million, so to answer the poll (s)he would say 4.17x.
  • What if the poster is saving $150K annually and spends $50K. (S)He already has sufficient Assets to cover expenditures under a 4% SWR.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
Tuxx
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Re: [POLL] Net worth to income ratio - how do you compare

Post by Tuxx »

I guess "income" is your income taxed at the fed rate?
Last edited by Tuxx on Wed Jun 20, 2012 11:58 am, edited 1 time in total.
NorCalDad
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Re: [POLL] Net worth to income ratio - how do you compare

Post by NorCalDad »

natureexplorer wrote:
bourg wrote:I'm actually surprised how high the numbers are in the study, especially for the < 35 group. I expected those numbers to be much lower based on all the debt and lack of savings of most of the people I know.
I don't believe these numbers. There are plenty of people with negative net worth.
Average net worth provides an inaccurate portrayal of what is actually the norm, especially when significant wealth is concentrated at the top. This is why it's better to consider the median when discussing income.

From the same report, the 2010 median net worth is as follows (based on age of HoH):
<35: $9,300
35-44: $42,100
45-54: $117,900
55-64: $179,400
65-74: $206,700
75+: $216,800
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HomerJ
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Re: [POLL] Net worth to income ratio - how do you compare

Post by HomerJ »

My wife is losing her job come fall...

I can't wait, because then our net worth to income ratio will go much higher!

Will I be able to say "Hey honey, I know we lost half our income, but we're better off than ever before!"

(On a similar note, every time you get a raise you're apparently doing WORSE because then your Net worth to Income ratio drops...)

Obviously I don't find this ratio very meaningful.
Khanmots
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Re: [POLL] Net worth to income ratio - how do you compare

Post by Khanmots »

How do you calculate NW? Include vested pension? Projected SS?
Topic Author
nomadgecko
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Re: [POLL] Net worth to income ratio - how do you compare

Post by nomadgecko »

natureexplorer wrote:
bourg wrote:I'm actually surprised how high the numbers are in the study, especially for the < 35 group. I expected those numbers to be much lower based on all the debt and lack of savings of most of the people I know.
I don't believe these numbers. There are plenty of people with negative net worth.
Ok
rkhusky wrote:I guess it would be interesting to see the median. I would have thought the average household income would be 40-50K.
The medians are significantly lower than the means across all ages for income and net worth.
hsv_climber wrote: Sure. And average net worth above 55 is $1million.
We live in a country of average millionaires.

But in reality, it is something like Bill Gates + 100 million people with negative net worth.
Agreed
gkaplan wrote:Define "family."
Hugs and home :D
rrosenkoetter wrote:My wife is losing her job come fall...

I can't wait, because then our net worth to income ratio will go much higher!

Will I be able to say "Hey honey, I know we lost half our income, but we're better off than ever before!"

(On a similar note, every time you get a raise you're apparently doing WORSE because then your Net worth to Income ratio drops...)

Obviously I don't find this ratio very meaningful.
Most people figure out how much in savings they want to retire based on a withdrawal rate, which is the ratio of desired income/savings. Obviously this data is a proxy for that, and there is the standard list of 50 if's, and's, but's, and corner cases.
Khanmots wrote:How do you calculate NW? Include vested pension? Projected SS?
I would guess that info is somewhere in the Fed report.
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ofcmetz
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Re: [POLL] Net worth to income ratio - how do you compare

Post by ofcmetz »

NorCalDad wrote:
natureexplorer wrote:
bourg wrote:I'm actually surprised how high the numbers are in the study, especially for the < 35 group. I expected those numbers to be much lower based on all the debt and lack of savings of most of the people I know.
I don't believe these numbers. There are plenty of people with negative net worth.
Average net worth provides an inaccurate portrayal of what is actually the norm, especially when significant wealth is concentrated at the top. This is why it's better to consider the median when discussing income.

From the same report, the 2010 median net worth is as follows (based on age of HoH):
<35: $9,300
35-44: $42,100
45-54: $117,900
55-64: $179,400
65-74: $206,700
75+: $216,800

I couldn't agree more. When Bill Gates and Warren Buffets assets are averaged in it tends to throw things off a bit. I prefer to look at the median as well.
Never underestimate the power of the force of low cost index funds.
ge1
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Re: [POLL] Net worth to income ratio - how do you compare

Post by ge1 »

Slightly above average but luckily both net worth and income are much higher than average... :D
rkhusky
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Re: [POLL] Net worth to income ratio - how do you compare

Post by rkhusky »

What this seems to measure is savings efficiency, i.e. how much of your income have you managed to save and how much net worth has your savings generated. This is not very accurate if you have had recent large increases/drops in income or in net worth (e.g. from an inheritance). A better measure would be to use your inflation-adjusted average income, but that is harder to compute (one could use the SS formula and weighting factors).
livesoft
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Re: [POLL] Net worth to income ratio - how do you compare

Post by livesoft »

Whenever there is self-reporting of income and net worth, the numbers are probably pretty bogus. Even on this forum folks cannot agree what "income" means and what assets go into "net worth". Do you think anybody reports a legitimate number for the US Census?

As for income, we have total income, Adjusted gross income, taxable income, under the table income, tip income, income with tax-exempt income, income with and without tax-deferred deductions, income with and without foreign income exclusion, imputed income, and so on.
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Tuxx
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Re: [POLL] Net worth to income ratio - how do you compare

Post by Tuxx »

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Sidney
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Re: [POLL] Net worth to income ratio - how do you compare

Post by Sidney »

livesoft wrote:Whenever there is self-reporting of income and net worth, the numbers are probably pretty bogus. Even on this forum folks cannot agree what "income" means and what assets go into "net worth". Do you think anybody reports a legitimate number for the US Census?

As for income, we have total income, Adjusted gross income, taxable income, under the table income, tip income, income with tax-exempt income, income with and without tax-deferred deductions, income with and without foreign income exclusion, imputed income, and so on.
Not only that, but if you are retired and managing your "income" properly to control taxes, the ratio can skyrocket. I have huge booked tax losses. I could pull a lot of capital gains income out of my existing net worth without impacting reported income. I also launder money through an HSA every year -- how do I count that?
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NateH
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Re: [POLL] Net worth to income ratio - how do you compare

Post by NateH »

8X in the 35-44 age range, but i don't see how this is meaningful.
Our incomes and net worth are many multiples of the averages.
Most people who browse investing websites probably are too.

[net worth / lifetime income] is a more interesting question.
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trademil
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Re: [POLL] Net worth to income ratio - how do you compare

Post by trademil »

I think the more interesting ration is net worth to expenses.
Sidney
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Re: [POLL] Net worth to income ratio - how do you compare

Post by Sidney »

trademil wrote:I think the more interesting ration is net worth to expenses.
Would that be expenses (including taxes) but net of pensions and SS?
I always wanted to be a procrastinator.
DCOutdoors
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Re: [POLL] Net worth to income ratio - how do you compare

Post by DCOutdoors »

I would also think that some kind of variable for cost of living would provide additional clarity for one's success in turning income into savings given the headwinds/tailwinds provided by localized conditions. Thoughts?
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Re: [POLL] Net worth to income ratio - how do you compare

Post by FredPeterson »

2x to 5x is a giant window, its no surprise most people fall into it.
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HomerJ
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Re: [POLL] Net worth to income ratio - how do you compare

Post by HomerJ »

nomadgecko wrote:
rrosenkoetter wrote:My wife is losing her job come fall...

I can't wait, because then our net worth to income ratio will go much higher!

Will I be able to say "Hey honey, I know we lost half our income, but we're better off than ever before!"

(On a similar note, every time you get a raise you're apparently doing WORSE because then your Net worth to Income ratio drops...)

Obviously I don't find this ratio very meaningful.
Most people figure out how much in savings they want to retire based on a withdrawal rate, which is the ratio of desired income/savings. Obviously this data is a proxy for that
Ah, desired income (at retirement) makes a lot more sense to me... Except net worth/desired income doesn't work unless I exclude my house equity from my net worth.

Okay, goal is 25-30 ratio of (net worth - house)/(desired income).

Currently I'm at 12 or so. Need another double (plus probably a bit more to be safe).

Edit: Expenses at retirement is probably a better term than "desired income"
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Re: [POLL] Net worth to income ratio - how do you compare

Post by Grt2bOutdoors »

Running at 14x - aiming for 33x, w/o s.s., but alot can happen between now and retirement.
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kenyan
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Re: [POLL] Net worth to income ratio - how do you compare

Post by kenyan »

The net worth numbers definitely look far too high at first glance, but I suppose that's what using mean rather than median will do for you. Mark Zuckerberg alone makes up for close to 300,000 people in his/my age group with zero net worth.

Various flaws aside, I suppose my answer is a little better than 2x the average. However, I'll be switching age brackets soon, so I'm apparently going to be much worse off when that happens.
Retirement investing is a marathon.
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nomadgecko
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Re: [POLL] Net worth to income ratio - how do you compare

Post by nomadgecko »

I agree with everyone's comments around the data is not perfect, median is more representative, how do you define income, how do you define net worth, etc. As one previous poster commented, I think the ratio of savings/expenses is a good way to think about it. I've considered going through my last 10 years of 1040's to see how much gross income I've had and compare that with how much I have saved, but that would only bum me out.
Confused
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Re: [POLL] Net worth to income ratio - how do you compare

Post by Confused »

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lawman3966
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Re: [POLL] Net worth to income ratio - how do you compare

Post by lawman3966 »

The term "average" is unfortunate in that it tends to connote "representative" or "typical" in ordinary English use.

The typical savings to income ratio for a household headed by persons aged 40-50 is likely about 2.5 (i.e. 100K / 40K) which are pretty common values of net worth and income for households with 40-something adults in them.

I'd use the term "arithmetic mean" for the ratio of "8" of net worth to income, since I suspect that 10% or less of the population ever achieves this.
penumbra
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Re: [POLL] Net worth to income ratio - how do you compare

Post by penumbra »

3x, but like some others, will soon be going up, as income goes down.
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pjstack
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Re: [POLL] Net worth to income ratio - how do you compare

Post by pjstack »

If I went to the trouble (admittedly minor) of computing this ratio, what would I really know?

I guess as long as I feel comfortable it doesn't really matter how I "compare", but that's just me.
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stat5
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Re: [POLL] Net worth to income ratio - how do you compare

Post by stat5 »

It is interesting to compare these numbers to those listed in the book "Your Money Ratios". In order to be on track to retire at 65 he suggests:

Age - Captial to Income Ratio
25 - 0.1
30 - 0.6
35 - 1.4
40 - 2.4
45 - 3.7
50 - 5.2
55 - 7.1
60 - 9.4
65 - 12.0

Home equity is not included in the Capital side so that can be a significant difference depending on the situation.
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