Are You Worth More Than You Earned
Are You Worth More Than You Earned
Have you ever wonder how much money you earned over the years? I mean, it has to be a sizeable sum if you’ve been working for a while. I was thinking about this and came up with a natural follow-up question. Are we worth more than what we earned? After all, wealth is what you keep, not what you earn. We have been maxing out our 401k and investing for years. Our net worth is much higher than the average US household. However, I don’t know if it is higher than what we earned over the years. Let’s answer that question today.
This answer isn’t that difficult to find out, but you might be disappointed. It is extremely difficult for your net worth to exceed your cumulative earnings, especially when you’re younger. It gets a little easier as you age because of compound interest, but I’m sure only a small percentage of households can achieve this impressive feat. That’s because saving and investing aren’t enough. You need a lot of time and luck as well. It is not impossible, though.
Savings
For most of us regular employees, it is very unlikely to be worth more than we’ve earned. First, taxes take a big bite out of our paychecks. After that, we all have bills to pay. Money gushes out every month to pay for housing, healthcare, transportation, food, clothing, travel, entertainment, techs, and all kinds of stuff. It’s tough to save when you add up all the expenses of the modern lifestyle. In addition, we need to invest those savings. It is mathematically impossible for your net worth to surpass your cumulative earnings if you simply save it. Even if you save 50%, your net worth will only be 50% of what you made. You need to invest and grow those savings to even have a chance.
Generally, financial advisors recommend saving 10-15% of your income for retirement. This might be fine if you plan to retire at 67, but 15% won’t cut it here. Your net worth will never catch up to your total earnings by saving 15%. You’d need to save and invest at a much higher rate to win this one. Let’s look at our household as an example.
Income
First, we’ll look at how much we’ve earned over the years. The easy way to figure this out is to head over to socialsecurity.gov and check your Social Security statement. Here is a graph of our household earned income.
This graph is actually pretty neat to go over. My earnings shot up sharply when I graduated college and started working full time in 1996. It kept rising and peaked at $200k in 2012 when I quit working full time. The zenith was an anomaly because I worked just 6 months and sold a bunch of stock options. Part of the gains was counted as earned income. As expected, my earned income took a sharp dive after I retired from my engineering career. However, I continue to generate some income from blogging after early retirement.
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