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What’s Your Lifetime Wealth Ratio?


In case you weren’t aware, last week was the second National my Social Security week. Heh heh, I didn’t know either until I saw J. Money’s post at Budgets Are Sexy – Do You Know Your Lifetime Wealth Ratio? I have a my Social Security account, so I received an information email about it, but it was filtered to Gmail’s “Promotions” tab. My junk email to useful email ratio is very high so once in awhile, I miss those important messages. I’ll take this opportunity to apologize to anyone who sent me an email and didn’t hear back. You might need to send an email a couple of times if I don’t respond. Ok, here’s the email from Social Security.

July 19th through 25th marks the celebration of our second National my Social Security Week.  Since you have an account, you are aware of what a great financial planning and benefit management tool it is! We hope that you take this opportunity to spread the word to your colleagues, friends and family, about the benefits of signing up for a my Social Security account at www.socialsecurity.gov/myaccount. Let them know that with their account, they can verify their earnings and get estimates of their future benefits to help them make important financial decisions. If they are already receiving benefits, they can get a benefit verification letter, check benefit and payment information, change their address or direct deposit information, and get a replacement Medicare card or SSA-1099 for tax season.

A my Social Security account is convenient, secure, and FREE!

It’s never too early or too late to plan for retirement.

That’s right. Everyone should make a plan for retirement and save more. It is a good idea to check your Social Security statement once in a while to make sure there aren’t any mistakes. If you don’t correct an error within 3 years, your social security benefits will be permanently affected.

The problem is I haven’t been able to log in to my Social Security account for a long time. If you need to get your password reset, you need to call in during working hours. I’m usually busy during those time so I haven’t had a chance to call in until recently. I also asked Mrs. RB40 to sign up so we can see her statement. She tried to sign up at 11 pm on Monday and my Social Security was closed down. She finally signed up during working hours and we can now access her statement. Why have a website if you can’t get anything done during off hours? I guess that’s the government for you.

Check out my projected Social Security benefit:

  • At full retirement age (67): $2,227 a month
  • At age 70: $2,761 a month
  • At early retirement age (62): $1,568 a month

Wow, that’s pretty good. This should be relatively accurate because they use my last year’s income to project the amount I’d make in the future. Previously, the estimated benefit was wrong because they used my higher engineering income to calculate the benefit. Before I left, my social security benefit projection was around $2,600/month.

Here is Mrs. RB40’s estimated benefit:

  • At full retirement age (67): $2,222 a month

That’s pretty good too, but it’s probably not going to be accurate if she meets her goal of retiring by 2020. Her income would be reduced and the benefit amount would drop quite a bit.

Social Security benefit projection

Let’s dig into how social security benefits are calculated.

Social Security benefits are typically computed using “average indexed monthly earnings.” This average summarizes up to 35 years of a worker’s indexed earnings. We apply a formula to this average to compute the primary insurance amount (PIA). The PIA is the basis for the benefits that are paid to an individual.

That’s from Social Security. Basically, they will take your highest 35 earning years and average them. If you have some years with 0 earnings, then your benefit will be less. Let’s take a look at our earnings.

Lifetime Wealth Ratio

Wow, I made a lot of money as an engineer. My total lifetime earning so far is $1,822,282. That’s a lot more than I thought! Check out that big spike in 2012. I only worked full time for 6 months, but I sold a bunch of stock options that year. That inflated my earned income for that year to $200,000. Big drop after I retired from engineering, but life is much better now. What can I say? *shrug* Money isn’t everything.

As for Mrs. RB40, she joined the Peace Corps for 2 years after college so she got a later start than I did. She also took another 2 years off to get her Master degree and made very little income during those years. Her total earning is $698,728. (Holy moly, together we earned over $2.5 million so far. Where did all that money go?) We’ll need these numbers for the Lifetime Wealth Ratio next.

So for my social security benefit to be accurate, I’d need to make about $40,000 for 17 more years.  I don’t know if that’s going to happen because I plan to take some very long trips in the future. I could continue to work a little bit on the road, but I probably won’t make much income. Actually, the benefit would not drop that much even if my earned income decreased over the next 17 years. The social security calculator shows that my benefit would be about $2,000 even if I earned $10,000 per year for the foreseeable future. Basically, I’ve passed the second bend point and the benefit curve has flattened out for me.

social security benefit lifetime wealth ratio

Anyway, the extra $4,500 income would definitely come in handy when we turn 67. Social Security is looking a little iffy and we probably won’t get the whole thing. Even 60% would be helpful, though. It’ll probably be just in time to help pay for those expensive hospital bills and prescription drugs.

Back to the Lifetime Wealth Ratio

Once you have your lifetime earning total, then you can figure out your Lifetime Wealth Ratio. What’s the Lifetime Wealth Ratio? It’s basically how much wealth you have generated from the money you earned. (Invented by J. Money, of course.) The higher the ratio, the better you have been at saving, investing, and building wealth. You will need your net worth for this, too. The formula is very simple.

Lifetime Wealth Ratio = Net worth / Total Income Earned

I’m going to look at this as a team because the numbers look better that way. Our Lifetime Wealth Ratio is now at: 77%. That’s not bad at all according to J’s chart.

  • 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?

Okay, this is geared toward single people, so I’m going to change “Marry me” to “Stay married, we’re a great team!”   :)

We are doing fantastic at 77% and I’m pretty sure this ratio will increase as we continue our journey. When Mrs. RB40 retires, we won’t be earning much income, but our net worth should keep increasing because we are invested in stock and real estate. I’m very confident we’ll surpass 100% eventually. I think this ratio should naturally increase for everyone once they start saving and investing regularly. That’s why it’s essential to start investing as early as you can.

Here is your home work this weekend – check your social security statement and calculate your ratio. How does it look? Can you beat J. Money (54%) and the RB40 household (77%)?

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