June 1, 2021

Lifetime Wealth Accumulation Quotient

How Much Money Have I Made?

How Many Jobs You Got? (From The Show “In Living Color”)

Do you have any idea how much money you have made over your working life and how that compares to your actual wealth? I never really thought too much about this until recently. My working life has spanned over three decades. So it got me thinking about how much money I have made over that time and how much I have left. Over that time, I have held many jobs. They include paperboy, pizza maker, can counter (recycling), cashier, and now a Physical Therapist. Obviously, the pay spectrum varied greatly with each job. Most of those jobs were part-time while I was in school. For the last twenty years, I have worked full-time as a PT, so the bulk of my earnings came then. However, the decade or so before was just as important, as I will explain later in this post.

As nerdy as I am when it comes to money, I was not always that way. I am a spender by nature. It took a lot of work on my mindset to shift into being a saver and investor. When I was a paperboy, I stored my money in my sports trophies. I do have some vague memories of getting CDs (certificate of deposit), but that was the extent of my investing. The reason I mention this is because I never tracked my earnings from that job. It was also a non W2 job, so there is no record of it that I can pull up. Those earnings are lost forever. But all of my other jobs have been normal W2 jobs so that I can access those records. I’ll explain how to do this next.

Thank You Big Brother

This is one case where big brother comes in handy. The government, specifically the Social Security Administration, keeps records for every year of reportable income employment you have completed. If you are reading this, click the link I just gave you and create an account with the SSA. Make it an annual practice to check your wages on this site against your reported wages. The accuracy of these wages is crucial as the SSA will use them to determine your social security payments. After you log in and go to the section “full earnings record,” you will see something like this:


As you can see in the photo (not my earnings, BTW), you get the reported earnings for every year you had a job that reported your income for tax purposes (not under the table). If any are missing or wrong, you can and should correct them. From here, the rest is easy. Add up these numbers to see how much money you have made over the course of your working life. The easiest way to do this is to copy and paste the columns from the site into an Excel or Google sheet and use Auto Sum. Once you have that number, write it down and hold it for now. We will come back to it.

One important thing to note here is that the SSA will use the 35 years you earned the most to determine your payout. If you only have reported earnings for 30 years and have no other reported earnings, you will get a 0 average for the remaining 5 years. This is just something to remember if you plan to retire early. In our case, I started working in 1993 and my wife in 1994. We have reported earning for every year since then, which gives us 28 and 27 years respectively. To avoid having zeroes averaged in, we will have to report wages for 7-8 more years.

What Is My Net Worth?

As I mentioned in a prior post, net worth is a tally of your assets (savings, investments, house, cars, etc.) minus all of your liabilities (debt, home and auto loans, student loans, other money owed). Another way to say this is what you own minus what you owe. No matter how you say it, it is an important number to know.

To make some use of the number we calculated using the SSA, you will now have to calculate your net worth. You can do this quickly with pen/paper or by using an app like Mint or Personal Capital. Don’t get to stuck in the weeds with this. Focus on the big assets and liabilities, and not on revolving items like credit cards you pay in full each month. I would also not calculate all of your personal items. Focus on the big items like your house and car. Ignore the smaller items like furniture, electronics, etc.

The Fat and Broke Podcast

Lifetime Wealth Accumulation Quotient

This is where the fun is, kind of. There is really no good data on what a good ratio is between what you have made and what you are currently worth. I do this as more of a thought experiment and a little bit of a game. Once I know this number, I can now work hard to improve it. It is just another trackable item to set goals around. To get the number, this is the equation:

Total Net Worth / Lifetime Wages = Lifetime Wealth Accumulation Quotient(LWAQ)

To give an example, if your current net worth is 1 million dollars and you have earned 2 million dollars, then your LWAQ would be .50. If you could grow your net worth to 1.5 million dollars without earning another dime through a paycheck, then your LWAQ would be .75. The closer to 1 or higher would be the end goal. In a way, this is a form of savings rate. It is not direct, but in my head, that’s how I see it.

My wife and I currently have an LWAQ of .48, which I think is good. As I mentioned, I can now set goals around it. We are both working and earning, but we are also aggressively saving and investing. My goal right now is to have my investments outpace my earnings to get an LWAQ >.5. When we do, I will get a bumper sticker that says .5, like the 26.2 marathon stickers I see on cars.

Here is a link to another blog, Retire By 40, where Joe (blogger) discusses this concept and gives some context as to what he views as good and bad LWAQ’s.

Reader Challenge!

I challenge all of our readers to do this thought experiment and report your LWAQ and how that makes you feel. As I did it, I kept coming back to .5 as a number to beat. What do you think? Is that too low? Please post your number and your goal in the comments below. As we have mentioned in a prior post, the key to making change and to achieving your goals is by tracking. Tracking and, in this case, gamifying a goal can sustain motivation and the likelihood of success.

The post Lifetime Wealth Accumulation Quotient appeared first on The Fat & Broke Podcast.