Lifetime Wealth Ratio

Have you ever wondered how much you have made (from W-2 income) in your life? If you started as a teenager like me, it can be hard to remember allllllll the way back to the stone ages (1990s – before the iPhone was invented and every teenager dreamed of crafting the perfect AIM away message)…

One clever hack is to enroll in the Social Security Administration website at ssa.org/myaccount to take a look at your taxable income history. This comes in two flavors: Taxed Social Security Earnings and Taxed Medicare Earnings. Some of you might wonder: Aren’t those the same amounts?! And you’d be mostly right, most of the time. But as my buddy J.D. Roth points out, Social Security earnings are capped and Medicare earnings are not. Also, I’ve worked in some “temporary” positions in local and state government that did not participate in Social Security, so I have whole years of income with $0 in the column for Social Security Earnings.

So once you have your total taxed Medicare Earnings, what do you do with that info? Well for J-Money and others, you calculate your Lifetime Wealth Ratio! The LWR is a simple fraction: current net worth on the top, and lifetime Taxed Medicare Earnings on the bottom.

If you’re early in your career, the LWR number is probably small, like 1/10^th or 1/5^th of your lifetime earnings being the dollars that you’ve kept and added to your own personal bottom line. It might even be negative for a while if you are carrying student loan debt or consumer debt from cars to credit cards. But the important thing to realize is this is just a starting point!

As your career takes off, and you pay off debt and accumulate wealth, your LWR might pass the 50% mark. At this point, you have half of every dollar you’ve earned to show for your years and years of effort in the workplace.

Admittedly, the Lifetime Wealth Ratio is a pretty useless metric, in terms of actually providing a rigid comparison tool. But since you should only be comparing yourself to Past-You, it’s a great measuring stick to see how far you’ve come!

Downsides: The Net Worth number you use is in the Numerator is comprised of all the money choices you have made over your lifetime, not just a reflection of your day job income. This includes investment accounts (which hopefully grow over time), loan balances, house equity (if you’re someone who includes the house, since not everyone does), and the cash you’ve saved from your lifetime of paychecks. If you had great luck with a house appreciating or a stock shooting to the moon, you have a LWR that could be considered artificially high, but that’s your number and you own that Net Worth, regardless of how it was earned.

So have you calculated your LWR? As of January 2019, mine was 44.9%, up from about 25% when I first heard of this metric in 2015 from J-Money’s blog BudgetsAreSexy. My income increased 3 times in those 4 years, but my net worth has increased at a faster clip since I started maxing out my 457 and Traditional IRA, seeing some increase in my home value (after the huuuuge drop from 2007-2010), and generally getting better with my money. Isn’t that what it’s all about, anyway?

UPDATE: As of the end of 2020, my LWR is up to 57.84%. This nearly-13% jump in 2 years was because my net worth increased more in 2019-2020 than I earned in my W-2 job. For example, my 2020 net worth increase was 41.7% MORE than my earned income in 2020! Part of that was a recovery in housing prices (remember, I bought at the peak in 2006 and spent 12.5 years underwater on my mortgage), and of course a lot was the bonkers stock market in 2019-2020.

We all work too hard to earn those paychecks… shouldn’t you have something left at the end of the month or year to show for yourself?