Tally Up Your Lifetime Earnings

In the classic personal finance book Your Money or Your Life, authors Vicki Robin and Joe Dominguez outline 9 steps to “transforming your relationship with money and achieving financial independence.” The book is outstanding.

One of those 9 steps is an important reality check for all of us to take: 

  • First, tally up every dollar you and your spouse have earned in your lifetimes. 
  • Second, compare the cumulative amount you have earned with your current net worth (assets minus debt).

The easiest way to figure out your lifetime earnings is to review your most recent Social Security statement, which contains a year-by-year record of your earnings. You can obtain your most recent statement online at www.ssa.gov. For self-employed individuals, calculating your lifetime earnings can be more nuanced, but we can help you with those calculations.

Below is a sample earnings record from the Social Security website:

 
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When you tally up your lifetime earnings, you might be surprised at just how much money you have earned in your lifetime. While payroll taxes (7.65%) and income taxes certainly take a bite out of our earnings, the net amount of earnings a person earns over a multi-decade career is impressive.

It’s not uncommon for people to wish they earned more money, or to think they don’t earn much. Yet even a person with average annual earnings of $50,000 will earn $1,000,000 in the span of 20 years.

Let’s consider an example of a 40-year old married couple that has $750,000 in their retirement portfolio and a $1,000,000 net worth. This couple has earned a combined $2,400,000 in their careers. Thus, their net worth as a percentage of earnings is about 31.25% -- a respectable result.

For high income earners, this analysis can be sobering. If a man has earned millions of dollars during his working career, yet only has several hundred thousand dollars of accumulated wealth, there is very clearly a disconnect between income and wealth (as we like to say: Big Hat, No Cattle). 

You might now be wondering: how do I know if my percentage (of net worth to earnings) is a good one? There really isn’t a one-size-fits-all answer to the question. We can help you interpret the results based on your personal financial situation. But most of all, it’s simply an enlightening exercise to see how much money has passed through your hands in your lifetime.