Morning hustlers! Got a piece of juicy mail come my way over the weekend, and thought I’d hit you with it to further encourage your voyeurism ;)
This letter came courtesy of the Social Security Administration, and was a stark contrast from the other notice I received at the same time pretty much telling me I’m getting kicked out of my health insurance plan by the end of the year, ugh… Looks like it’s finally time to check into Obamacare and see what the fuss is about (double ugh?).
Anyways, the more positive piece of awesomeness I’m referring to is of course the Social Security Statement that sums up all your reported (taxable) earnings over the course of your lifetime. I’m not too sure why I’m still receiving it via printed mail when I thought you could only get it online nowadays (www.ssa.gov/myaccount) but in either case my inner nerd was doing back flips. It’s not every day you’re reminded of all your income here on Earth! Or, perhaps more accurately, all of your income that you’ve since SPENT!
(BTW, I highlight “taxable” here as it’s not really how much you’ve earned your entire life (which would be *gross* income), but how much you’ve paid taxes on. Which could vary drastically depending on your sources of income/set up/etc. Still, it’s pretty damn interesting to know.)
The last time I shared my total earnings was back in October of 2010, and by that point I had earned a tidy sum of $489,400.
Here’s What My Total Earnings Look Like Now:
I added in a column there to the right to put things in better perspective… A million dollars sounds good, but does it change when you know it covers almost 20 years? Or that incomes may not be totally stable? Or that you’ve been living in an expensive part of the country where salaries are higher?
You’ll remember from Friday’s post that the important part is what’s saved vs. what’s earned. So that’s the real telling point to fully appreciate the achievement or not (though of course you could still give yourself a pat on the back for managing to get someone to pay you so much over the years regardless ;)). It may be sexy to earn a hot million or two, or even 10, but if your bank account’s showing $15 in it something else is certainly going on… like, you’re having a helluva time pretending to be a rock star!
Introducing the “Lifetime Wealth Ratio”
Since the Social Security Administration would have no idea how much you’re saving in comparison to this income, we’re left to come up with our own means of figuring how good we’re doing or not. So today I introduce to you the newly coined term – and future buzzword – the “Lifetime Wealth Ratio™”
Which is calculated like this:
Net Worth ÷ Total Income Earned
We’ll use my pal Jacob from iHeartBudgets.net as our first example. You may recall a post he shared on this site back in January where he divulged his total lifetime earnings over the years too. He went all the way back into childhood which isn’t included in these S.S. Statements (you know, like gift money, lawn mowing hustles, inheritances, etc), but to this best calculations he figured out he had received a staggering $601,600 by the time he hit 27. Nothing to sneeze at by any means. His total net worth at that time? $55,000.
This would give Jacob a Lifetime Wealth Ratio™ of approximately 9%. Is that good? Bad? I dunno. I’m just the guy who makes up terms on the fly ;) (And then fake trademarks them) But, I can tell you it’s a helluva lot better than 0%! And if you’re really forcing me to come up with some sort of ranking system here, and, well, I know you are, then twist my arm no longer.
I would suggest rankings as so:
- 0%-10% – Meh
- 10%-25% – Now we’re cooking!
- 25-50% – You’re on fire, baby! Give me your number!
- 50-100% – Marry me.
- 100%-1,000% – How do I get into your will?
(You probably couldn’t tell, but it took me all but 15 seconds to make that up)
What you’re shooting for, of course, is to have as high a ratio as possible. This would show how good you are at saving/investing/blowing up your money/etc. And if you’re asking yourself how it’s possible to get a return of more than 100% with this calculation, well, Google “compounding.”
J. Money’s L.W.R.
(Look at that! It already has its own acronym!)
To put this ratio to an even better test, let’s see where I personally stand myself…
At the same age of 27 like my boy Jacob, I made a total of $232,495 according to this same S.S. department when added all up. Almost 2/3rds of what Jacob had earned by that point – so far not good. Since this was right around the time I started tracking my net worth too, I can also tell you that it was exactly $58,769.65 at that point. Almost exactly the same as Jacob – we’re twinsies!
Running the ratio, however, paints a different story. If you divide 58,769.65 by 232,495 you’re left with an LWR of 25%. More than double Jacob’s 10%, and barely into the zone where I ask for my own number! Ow ow!
Now of course I jest in fun as Jacob’s a good friend of mine and has already acknowledged he was horrible with money years ago (if you’re a follower of his blog you’ll know that’s definitely no longer the case) but this should help put things in better perspective. And surely the ranking system could use a little fine tuning based on your own judgement.
(Keep in mind everyone tallies their own net worths differently too, and that there’s much more to it than just “saving money.” All the usual suspects to growing wealth will play a part here – investing returns, real estate, business ownerships, etc)
Let’s run my numbers again, only this time with current totals. At the ripe age of 34 (another variable to consider) I’ve made $829,783 of taxable money as shown above, and have a net worth of $456,140.18 as of September (new net worth comes out this week).
According to this trending new ratio everyone’s talking about, I’m now hovering at around 55% – double the growth! And now apparently time to marry myself, haha… As you can see, I’ve been getting smarter with my money :) And *that* is something I can be proud about.
Here Are Other Interesting Facts S.S. Shared With Me:
- If I continued working until full retirement age (67), my payment would be $2,314/mo
- If I worked until 70 it would shoot up to $2,870/mo
- And if I cut out early at 62 it would drop to $1,625/mo
(No mention of what you get if you retire early ;))
They also stated I’ve received “enough credits” to quality for disability benefits. I never really consider what would happen if I got disabled, because, well, it’s horrible to think about (and thus disability insurance has been on my to-do list for years now, bad blogger!), but God forbid something does happen, it looks like I could start receiving paychecks of $2,278/mo right this second. Which is almost exactly what I’d get if I started pulling money at 67!
That’s pretty crazy…. And probably why there’s so much fraud with this stuff, eh? If people could collect pretty much the same amount of money but 30-40 years earlier for gaming the system?
It also looks like I’ve earned enough credits for my family to receive “survivor benefits” too should I pass away at any point. And that I have thought about before, as I poured my heart out to everyone in my “If I die I’d be a happy man” post of mushiness the other week :) I also made sure years ago to pick up life insurance policies for both the wife and I as soon as we bought our first house so we’d always have enough to pay it off. Something for you guys to consider too when large events happen in your life (homes, kids, marriages, etc).
Here’s what my family would get if/when that fateful day comes:
- My child (#1 since #2 wasn’t born yet as of 2013): $1,836/mo
- My wife who’d be caring for this same kid: $1,836/mo
- My wife if I die when she’s 67: $2,448/mo
All of which can’t surpass $4,286/mo total a month for my family. That’s a $52,000/year salary! Wow… For pretty much doing nothing besides just working like you’re supposed to do anyways…
While that’s all fine and dandy, of course I’m not counting on any of it. My wallet would greatly welcome it in, but we all know the system’s flawed so we continue hustling away and stashing that money as if it were us against the world. I would much prefer a nice surprise later in life than a nasty one if you know what I’m sayin’. Can’t get caught with your pants down!
All interesting stuff to learn about though… never know what types of freak blogging incidents could be around the corner ;)
Your Homework This Week…
Your homework this week is to do yourself a solid and find out what your own Lifetime Wealth Ratio™ is. And for that you’ll need your two numbers:
- Total lifetime earnings (you can find it here if you don’t have a recent statement nearby)
- Your net worth (if you’ve never run it before, here’s a quick and dirty spreadsheet I use w/ my money coaching clients… extra credit for filling out the budget part while you’re at it too)
Run the calculations (worth divided by earnings) and then see how it makes you feel. You can share it with us below if you’d like, but really it’s just a number for you personally to stew on. And the silly rankings I made up don’t matter that much either. What does is that you know where all your money’s going and you’re consciously applying it to reach your goals. If the ratio makes you happy – then great! Keep going! And if it pisses you off, well, time to do something about it.
At the end of the day, all that matters is that you’re on top of it and continuously working towards better financial lives. Now go grab your L.W.R.™!
UPDATE: Many astute readers have mentioned that it’s more accurate to calculate your ratio with “taxed medicare earnings” vs “taxed SS earnings” due to capping that goes on with SS earnings. My numbers are the same in both sections so it doesn’t make a difference, but if you’re a baller and make a lot more where you’d be capped, consider running w/ the medicare earnings number instead.
UPDATE #2: Our wealth ratio just got mentioned in a NY Times article! Look what my new favorite journalist said about it ;)
“This number represents one of the best ways I’ve seen to close the gap between our past and future selves.”
UPDATE #3: This should help with motivation: Proof you can live off 50% of your income!
PS: Anytime I share my numbers with y’all please know it’s for educational purposes only. I don’t divulge any of this to brag or compare myself to others, yada yada yada , it’s all in the name of transparency and to show you real-life numbers from a real-life person. Even if my name really isn’t J. Money (how’s that for ironic? Being secretive to be more transparent!). The one thing that drew me to blogs years ago was open discussions with money, so this is why I share my entire financial life with y’all. It’s my favorite way to learn, and hopefully it helps you guys in the same way.
[Photo cred: FDR Presidential Library & Museum]
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!