What % of your income have you converted to wealth?

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MnD
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What % of your income have you converted to wealth?

Postby MnD » Thu Feb 21, 2013 7:32 am

Our current household net worth represents 58% of our lifetime cumulative earnings.
I used investment net worth plus home equity for net worth, and the lifetime sum of our "medicare taxed earnings" from our Social Security earning statements for the denominator.

We are 50, not frugal, two kids (with us paying college), big old "money pit" house, travel etc. No regrets about our balance between the past, now and the future.
Last edited by MnD on Wed Mar 20, 2013 9:00 pm, edited 1 time in total.

livesoft
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Re: What % of your income have you saved?

Postby livesoft » Thu Feb 21, 2013 7:51 am

It would probably be too disappointing to adjust for inflation, too. :)
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Re: What % of your income have you saved?

Postby Grt2bOutdoors » Thu Feb 21, 2013 8:36 am

Early 40's - as luck would have it, we share similar company - exactly 59.7%. In my book, not doing too bad considering what isn't counted in that number is the cost of my graduate degree and the benefits that have come with it and wasn't able to really start socking it away until my late 30's due to much lower earnings. I'm not counting any 529 plan monies though - that's my child's - not mine. The numbers can change though depending on the direction of market winds.
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Re: What % of your income have you saved?

Postby Call_Me_Op » Thu Feb 21, 2013 8:41 am

How did you calculate this? You can't include investment gains but only investment cost basis. Seems like a lot of work to compute this number accurately.
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Re: What % of your income have you saved?

Postby Grt2bOutdoors » Thu Feb 21, 2013 8:49 am

Call_Me_Op wrote:How did you calculate this? You can't include investment gains but only investment cost basis. Seems like a lot of work to compute this number accurately.


Using the basis as described by the OP and yes, it is a bit of work to calculate it. I used the Social Security work record to get the denominator. I used my investment net worth including realistic home equity (cost less current market value not market high value) less 529 plan assets in the numerator.
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Re: What % of your income have you saved?

Postby jon-nyc » Thu Feb 21, 2013 9:24 am

My net worth very slightly exceeds my lifetime earnings, using the same method (also ignoring time value of money and inflation). About 105%.

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Re: What % of your income have you saved?

Postby Sunny Sarkar » Thu Feb 21, 2013 9:30 am

I'm amazed that we're right around 50% even after starting late (didn't save anything for the first several years of working), couple vacations every year (26 national parks and counting, cruises, $10k trips to meet family in India every other year, etc.), 3 new cars (plus two 5 y.o. useds) in 12 years, larger than necessary house, not infrequent eat outs, kid, dog, and such - basically not sacrificing much at all for the sake of saving. I think most of the credit goes to my frugal, but not cheap, DW; and a little bit to not handing it all over to some wall street shark.
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Re: What % of your income have you saved?

Postby MathWizard » Thu Feb 21, 2013 9:31 am

About 50% .

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Re: What % of your income have you saved?

Postby Call_Me_Op » Thu Feb 21, 2013 9:36 am

Very crudely, I compute my net worth to be 80% of my gross lifetime earnings.
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Re: What % of your income have you saved?

Postby WendyW » Thu Feb 21, 2013 9:51 am

'
A fun exercise, but not really all that informative.

If you earned $1 in 1973 and are still worth $1 today, you've saved 100% of your cumulative earnings, but your savings will only buy 1/5th of what they would've bought if you'd spent that dollar in 1973.

Also, being worth $1 million today doesn't mean you saved $1 million; it means that you saved X and it grew to $1 million due to inflation, interest, capital gains, etc.

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Re: What % of your income have you saved?

Postby Grt2bOutdoors » Thu Feb 21, 2013 10:54 am

WendyW wrote:'
A fun exercise, but not really all that informative.

If you earned $1 in 1973 and are still worth $1 today, you've saved 100% of your cumulative earnings, but your savings will only buy 1/5th of what they would've bought if you'd spent that dollar in 1973.

Also, being worth $1 million today doesn't mean you saved $1 million; it means that you saved X and it grew to $1 million due to inflation, interest, capital gains, etc.


Not quite. In my case, I didn't realize a substantial portion of earnings until the last 5 years or so, nor were all of those funds invested in high or medium octane investments, a good portion is tied up in low-earning(some could argue negative earning and I would not disagree with them) home equity and a liquidity buffer earning piddly interest and returns. My $200 in earnings from my paper route when I was a teenager hardly morphed into anything substantial enough to move the dial.
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Re: What % of your income have you saved?

Postby KWu » Thu Feb 21, 2013 11:36 am

Using the formula of the OP, 31%.
Factoring in my savings and checking accounts, 98%.

My results may have been a little skewed since I'm 25 years old and 65% of my lifetime earnings occured last year. :wink:

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Re: What % of your income have you saved?

Postby MnD » Thu Feb 21, 2013 12:25 pm

WendyW wrote:'
A fun exercise, but not really all that informative.


Compared to what?
It accounts for savings or not, the value of saving early and compounding, income level, investment acumen or lack thereof, large variations in savings rates over time, large withdrawals from savings or not etc. A very high earner with a high net worth but with sub-par savings patterns and a poor investing approach is not going to fare well at all using this metric.

I consider the "what's your savings rate", "what was your annual return last year", "what's your net worth" type polls to be _vastly_ less informative, but it's still fun to "see" and I generally participate.

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Re: What % of your income have you saved?

Postby MnD » Thu Feb 21, 2013 12:31 pm

Grt2bOutdoors wrote:Not quite. In my case, I didn't realize a substantial portion of earnings until the last 5 years or so, nor were all of those funds invested in high or medium octane investments, a good portion is tied up in low-earning(some could argue negative earning and I would not disagree with them) home equity and a liquidity buffer earning piddly interest and returns. My $200 in earnings from my paper route when I was a teenager hardly morphed into anything substantial enough to move the dial.


Same here and interesting we ended up with nearly the same percentage.
5 years ago my wife went back to work at a much better rate of pay than expected and I got a substantial raise right around the same time.

The funniest thing was redoing the retirement calculators pre and post income change. They had indicated for years that we were "right on track" and suddenly they indicated that we were woefully underfunded for retirement, when if fact our capacity to save for retirement had just gone up dramatically and our costs hadn't changed. :mrgreen:

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Re: What % of your income have you saved?

Postby nodenuff2 » Thu Feb 21, 2013 12:54 pm

Using Social Security earnings as basis I have been blessed to be worth 120% of my life time earnings. With just savings figuring into the equation no real estate I am at 75%. How in the world did that happen? I am 63 going to start withdrawls in less than one year. Scary days ahead.
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Re: What % of your income have you saved?

Postby Call_Me_Op » Thu Feb 21, 2013 12:58 pm

nodenuff2 wrote:Using Social Security earnings as basis I have been blessed to be worth 120% of my life time earnings. With just savings figuring into the equation no real estate I am at 75%. How in the world did that happen? I am 63 going to start withdrawls in less than one year. Scary days ahead.


Doesn't that approach potentially underestimate earnings?
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Re: What % of your income have you saved?

Postby Grt2bOutdoors » Thu Feb 21, 2013 1:05 pm

MnD wrote:Same here and interesting we ended up with nearly the same percentage.
5 years ago my wife went back to work at a much better rate of pay than expected and I got a substantial raise right around the same time.

The funniest thing was redoing the retirement calculators pre and post income change. They had indicated for years that we were "right on track" and suddenly they indicated that we were woefully underfunded for retirement, when if fact our capacity to save for retirement had just gone up dramatically and our costs hadn't changed. :mrgreen:


Same here - I was well above normal compared to Farrell's ratios and other prognostications by Fidelity,TRowe Price, Wade Pfaus and my own calculations then suddenly I was a UAW by MND standards and could possibly still pass the other standards but that is contingent on accumulating a heck of a lot more between now and then. I really haven't upgraded my lifestyle at all since but now am upgrading the plant and equipment (home) and starting a family has added a bit to the burden (well worth it).
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Re: What % of your income have you saved?

Postby MnD » Fri Feb 22, 2013 11:02 am

I've suggested this simple calculation to a few friends that have approached me about what's a good savings rate and how to monitor progress.
The automatic response is to recoil in horror - "NO WAY - I DON'T WANT TO KNOW!"
I guess that's why none of the financial gurus have latched onto this one. :mrgreen:

I wonder what the national median value is for households?

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Re: What % of your income have you saved?

Postby Default User BR » Fri Feb 22, 2013 6:36 pm

I have no idea, and can't imagine why I would care.


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Re: What % of your income have you saved?

Postby paper200 » Fri Feb 22, 2013 7:05 pm

Calculated same way as OP - kept track of income;early 50's saved ~50% of the income excluding investment gains. Well Bogleheads seem to get it!
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Re: What % of your income have you saved?

Postby Rager1 » Fri Feb 22, 2013 7:36 pm

It's interesting to me that other people also track this metric. In our case, it's 60%. We're both in our 60s and retired.

In addition, we track total taxes paid as a percentage of lifetime earnings. For us, it represents 34%. Taxes include income, property, social security, medicare, household help, and personal property. It excludes sales taxes, utility bill, gasoline, and other "nuisance" taxes that creep into our lives. So, at this point in our lives, we've "consumed" 6% of our lifetime earnings.

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Re: What % of your income have you saved?

Postby Aptenodytes » Sun Feb 24, 2013 4:55 pm

I happened to be looking at my SS history so went ahead and calculated this.

Our household number is 41%.

I presume others have already pointed out that if you follow the directions on how to calculate the number you aren't answering the question in the title.

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Re: What % of your income have you saved?

Postby jollystomper » Wed Mar 20, 2013 6:37 am

I've kept track of our earnings for a while (since 1982, and Megacorp has earnings history since I started working for them) and used that as the denominator. We came out at 45%.

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Re: What % of your income have you saved?

Postby feh » Wed Mar 20, 2013 1:05 pm

Back-of-the-envelope estimating puts our net worth at about 80-90% of lifetime income. My wife and I are both 47.

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Re: What % of your income have you saved?

Postby MathWizard » Wed Mar 20, 2013 1:23 pm

livesoft wrote:It would probably be too disappointing to adjust for inflation, too. :)


I went back and accounted for inflation (so lifetime earnings are higher) using the SS weighting multipliers.
I'm down to about 33%.

I'm not long past the "tipping point" where annual investment income becomes greater than annual savings,
so I'm surprised it is even this high.

Of course, this is not what I have saved, since that is only between 15 and 25% since that is my normal
range of savings if you don't count mortgage principal payments.
This is really what yuo have saved,and what it has earned, otherwise you can't even approach 100%
unless you get to count gifts, inheritance or winning the lottery as adding to net worth, but not to earnings.

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Re: What % of your income have you saved?

Postby careytilden » Wed Mar 20, 2013 4:50 pm

MnD wrote:The funniest thing was redoing the retirement calculators pre and post income change. They had indicated for years that we were "right on track" and suddenly they indicated that we were woefully underfunded for retirement, when if fact our capacity to save for retirement had just gone up dramatically and our costs hadn't changed. :mrgreen:


Makes you wonder why they base it on income in the first place. I think it makes a lot more sense to focus on covering expenses instead of replacing income.

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Re: What % of your income have you converted to wealth?

Postby MnD » Wed Mar 20, 2013 9:02 pm

Aptenodytes wrote:I happened to be looking at my SS history so went ahead and calculated this.

Our household number is 41%.

I presume others have already pointed out that if you follow the directions on how to calculate the number you aren't answering the question in the title.


I renamed to title to (hopefully) something more in line with what I meant and described.

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Re: What % of your income have you converted to wealth?

Postby BHCadet » Thu Mar 21, 2013 1:12 am

80.12%
We live in a good neighborhood, vacation at least once a year, two cars, two kids, one is a college senior and the second one will be in college next year.

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Re: What % of your income have you converted to wealth?

Postby LH » Thu Mar 21, 2013 1:47 am

MnD wrote:Our current household net worth represents 58% of our lifetime cumulative earnings.
I used investment net worth plus home equity for net worth, and the lifetime sum of our "medicare taxed earnings" from our Social Security earning statements for the denominator.

We are 50, not frugal, two kids (with us paying college), big old "money pit" house, travel etc. No regrets about our balance between the past, now and the future.


this ignores tax shelter savings then, like a 401k or Money purchase plan? I would include that, even if you do not have 401k, for others, otherwise really skews the results.

Many ways to look at it of course. But if you shelter a lot in a 401k, or MPP, and just act like that money does not exist as income, just does not seem very accurate.


But anyway, by that metric, which is pretty easy. I hit 50 percent net worth to medicare taxed earnings basically on the nose. which actually surprises me that its that high.

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Re: What % of your income have you converted to wealth?

Postby MnD » Thu Mar 21, 2013 6:26 am

LH wrote:this ignores tax shelter savings then, like a 401k or Money purchase plan? I would include that, even if you do not have 401k, for others, otherwise really skews the results.
Many ways to look at it of course. But if you shelter a lot in a 401k, or MPP, and just act like that money does not exist as income, just does not seem very accurate.


401-k's are included in net worth (unless prematurely tapped) and are in medicare taxed earnings. 401-K's are at least, I don't know about "money purchase plans".
What isn't included in medicare taxed earnings but would end up as net worth depending on how much saved are things like inheritances, and people working in partnerships that are "paid" mostly with dividends.

I think it's a good "lifetime to date" aggregate score for most people. For ~60% of households, this % is zero or nearly so. It's not so heavily linked to age and income like $ net worth and implicitly adjusts for investment acumen. You could have an impressive net worth, but if you made a huge amount of money over the years, saved at a below average rate and invested poorly, your % wealth conversion could be pretty low.

I like the fact that it points out that of all the money we've earned, we still have 58% of it. We didn't blow it all or even the vast majority of it, and since our savings rate was/is no-where remotely close to 58%, we must have done something at least OK in the investment department.

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Re: What % of your income have you converted to wealth?

Postby red5 » Thu Mar 21, 2013 6:45 am

51% if I include student loan debt. 67% if I don't. Note that I used the Medicare income from My Social Security. This does not include a fairly large chunk of money such as low income refundable tax credits and various military and VA "pay". If I included that then my %'s would obviously be less, perhaps 20% less.

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Re: What % of your income have you converted to wealth?

Postby NateH » Thu Mar 21, 2013 9:15 am

49%, which is higher than I thought it would be.
Last edited by NateH on Wed Apr 03, 2013 9:36 am, edited 1 time in total.
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Re: What % of your income have you saved?

Postby NateH » Thu Mar 21, 2013 9:17 am

Default User BR wrote:I have no idea, and can't imagine why I would care.


Brian


thank you for your valuable input, Brian. :oops:
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Re: What % of your income have you converted to wealth?

Postby dad2000 » Thu Mar 21, 2013 9:50 am

~80%, not adjusted for inflation, over about 25 years of earnings. ~70% adjusted for inflation.

68%/59% if I net out anticipated future child college expenses.

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Re: What % of your income have you saved?

Postby Default User BR » Thu Mar 21, 2013 10:32 am

NateH wrote:thank you for your valuable input, Brian.

You're entirely welcome.


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Re: What % of your income have you converted to wealth?

Postby truenorth418 » Thu Mar 21, 2013 7:05 pm

I happened to do this calculation last week, after completing my tax returns and downloading my 2012 Social Security statement:

Of all the wages I have earned since college, I have paid about 35% in work-related taxes (income taxes, SS, MC, not including employers' share), spent about 20%, and saved 45%.

My current total net worth (investable assets and primary residence) is about 55% of all all the wage income I have ever earned.

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Re: What % of your income have you converted to wealth?

Postby rnitz » Thu Mar 21, 2013 7:52 pm

Just did a quick back-of-the-envelope using the SS Medicare taxed earnings record and net worth is about 160% of aggregate earnings. I'm guessing this is due to some capital gains early on, I'm currently in my mid-50s and I sold some rental property and company stock early on and invested it into the market (and a small inheritance). Still trying to get my head around what this means (if anything).

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Re: What % of your income have you converted to wealth?

Postby Candor » Thu Mar 21, 2013 8:43 pm

45 single and currently at 45% (44.6). Hopefully they will both continue on the northern path.

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Re: What % of your income have you converted to wealth?

Postby letsgobobby » Fri Mar 22, 2013 2:01 am

I'm going to guess about 60%, based on the OP's formula. That's for a married couple, 38.5 years old, 95% of lifetime income in the last 9.5 years.

Then tomorrow I'll sit down and calculate it, just to see how close my guess was.

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Re: What % of your income have you converted to wealth?

Postby tphp99 » Fri Mar 22, 2013 5:13 am

MnD wrote:I used investment net worth plus home equity for net worth, and the lifetime sum of our "medicare taxed earnings"


Does that mean you include investment earnings into part of your networth? If so, I suspect as you near retirement the ratio should exceed +100%. Kind of like school, if you are nearing retirement and this number is not up there, you flunk? :oops:

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Re: What % of your income have you converted to wealth?

Postby letsgobobby » Fri Mar 22, 2013 8:53 am

This is an interesting approach to gauge how efficiently one converts income to wealth, but the inflation issue needs to be considered somehow.

It is probably better reflective of something useful over long periods of time of low inflation.

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Re: What % of your income have you converted to wealth?

Postby investingdad » Fri Mar 22, 2013 9:20 am

After 17 years of working, our net worth is roughly 57% of our combined total earnings since college graduation.

Do I pass?

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Re: What % of your income have you converted to wealth?

Postby bogleblitz » Fri Mar 22, 2013 9:33 am

So if I earn 100k a year and work for 10 years, I should have 1 million saved at 100%.
Is that how to calculate?

I rather use formular from your money ratios book or millionaire next door book.

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Re: What % of your income have you converted to wealth?

Postby reggiesimpson » Fri Mar 22, 2013 11:03 am

160% of medicare earnings.

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Re: What % of your income have you converted to wealth?

Postby MnD » Fri Mar 22, 2013 11:29 am

investingdad wrote:After 17 years of working, our net worth is roughly 57% of our combined total earnings since college graduation.
Do I pass?


Wow - same %. Quite a number of the responses are in this range.
I'm also not surprised that some very high rate savers could exceed 100% with some good investment returns.

I don't really see this metric as pass/fail but rather "it is what it is".
57% of households have saved less than $25,000 and that survey doesn't subtract consumer debt from that figure.
I wouldn't be surprised if 50-60% of household would score a near zero, zero or a negative number on this measure.

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Re: What % of your income have you converted to wealth?

Postby letsgobobby » Fri Mar 22, 2013 11:52 am

meaningful sources of non-Medicare income include inheritance, non-reinvested dividends and capital gains, alimony, student stipends (such as medical resident income), maybe some military pay, refundable tax credits, etc. Not to mention parental support (ie, in college or beyond), sizable gifts from family, etc.

If there were an easy to capture all of that this metric could be more useful.

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Re: What % of your income have you converted to wealth?

Postby Meg77 » Fri Mar 22, 2013 11:58 am

I'm 29 and my ratio is 81%. However I started out with no debt and a couple hundred thousand dollars leftover in my college fund that I used to buy real estate and max retirement accounts before I could otherwise "afford" to.

This is an interesting exercise though. The older you are I suppose the less valuable it may be due to inflation and compounding of investment gains (or losses). In addition it can be easily skewed if you started off with gifst like I did - or if you started off with student loan debt to fight out of. But it's a nice extension and summary of the "what percentage of income do you save" version.
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Re: What % of your income have you converted to wealth?

Postby MathWizard » Fri Mar 22, 2013 12:11 pm

NateH wrote:0.49%, which is higher than I thought it would be.



Do you mean 49% (about half) or do you really mean 0.49%, one dollar of net worth for every $200 of
lifetime earnings? On this board, I'd guess the former.

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Re: What % of your income have you converted to wealth?

Postby investingdad » Fri Mar 22, 2013 12:25 pm

It feels like for a given percentage of X over multiple people, X is going to be more impressive for somebody making less money.

Let's assume X is 50%.

If our friend had an average income of 40K over 20 years, that would mean he accumulated 400K. Assuming our friend got 8% a year, he'd have to put away 20% of his income. That's 8K out of 40K, leaving him 32K for taxes and living expenses.

Now we have our other friend making 100K on average over 20 years. So that would be 1000K accumulated. Assuming our other friend got 8% a year, he'd have to put away 20% of his income.

That's 20K out of a 100K income, leaving him 80K for taxes and living expenses.

Easier for friend two, assuming my math is correct.

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Re: What % of your income have you converted to wealth?

Postby MathWizard » Fri Mar 22, 2013 12:30 pm

Sans gifts/inheritances, this is really a measure of how long a person has been investing, since
as the length of time of investment gets large:
the numerator is exponential in time, and
the denominator is linear in time.

Eventually this would surpass any fixed percentage.


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