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How to Calculate Your Lifetime Wealth Ratio

How to Calculate Your Lifetime Wealth Ratio

It's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.

So I first heard of the Lifetime Wealth Ratio via a recent post from Othalafehu. Despite all of the books and blog posts I've read relating to personal finance, this was a new term to me. Just goes to show you how much we all have to learn. So of course, after reading about it, I went immediately to the Social Security website to get my numbers. I had just recently reset my SSA account when I was doing my research for this article so was confident that I could calculate this number pretty quickly, but no, after a few tries, I had locked out my account and had to wait for a paper mailing with a security reset code. Fail!

 
 

In the meantime, I went through a few other articles relating to this and found the source of this calculation: Budgets are Sexy and J. Money. J. Money introduced this number back in 2015. So what exactly is the Lifetime Wealth Ratio? Well, it is an eye opening number that looks at your earnings vs. your savings.

Lifetime Wealth Ratio = Net Worth / Total Income Earned

The interesting to note about this ratio is it takes into account your total net worth which is fairly good criteria for rating your financial health. With net worth being assets minus liabilities. While the Lifetime Wealth Ratio is just a number and still depends on many factors, it's an interesting look at how it all relates to how much you've earned and saved.

So where does accessing the Social Security site come in? Well, the ssa.gov site will provide a history of your taxable earned income since you've started earning in. I pulled my numbers and noted that it included income from my first job when I worked at a movie theater all of senior year in high school, but did not include any of my income from when I worked in college. This is strange. I didn't realize or notice that it wasn't taxed and I definitely should have done more with that money looking back instead of spending it on needless crap (and alcohol). (Side note: I've apparently worked since 2000 so that's great news as I've met the Social Security credit threshold. This is important to consider for those women that leave the workforce and don't earn enough to get credits for retirement benefits should there still be money left in the pot when we retire.)

 
 
 

It looks like I have enough credits to quality for disability too, but I hope I never have to use it. Additionally, if I choose to start withdrawals at 67, I would be getting $1,856 a month, something that might be worth factoring into future calculations should SS continue to exist down the line.

My total income since high school until my lay off was around $900K, almost to the $1M mark. Using my current net worth (which mostly just includes my investment assets + car loan), my Lifetime Wealth Ratio is around the lower end of "You're on fire, baby! Give me your number."

 Historical earned income for calculating Lifetime Wealth Ratio

Historical earned income for calculating Lifetime Wealth Ratio

Suggested rankings by J. Money 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?

So not bad, but I could have done better. The lesson here folks is that while you can't change the past, it's good to look back, gauge where you are and plan for the future.

In a later post, I want to break this down by year and life events. It think it would be interesting to see where that money went. While the numbers are good to see, I'm also curious what kind of memories, opportunities and lessons were learned each year.

Are you interested in calculating your Lifetime Wealth Ratio? If not, I would still recommend logging on to the Social Security website to verify and review that all of your numbers are correct especially if you are relying on this income down the line.

 How to Calculate Your Lifetime Wealth Ratio

How to Calculate Your Lifetime Wealth Ratio

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