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Are You Worth More Than You Earned?

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.


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.


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 and check your Social Security statement. Here is a graph of our household earned income.

Household earnings 2020

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.

My online income was uncertain. Some years were better than others. Fortunately, we don’t need to use it so I invested almost everything. Currently, I spend 10-15 hours per week on the blog. It started off higher, but I’ve been gradually cutting back. Eventually, I plan to spend just 5-10 hours per week on this. That’s fine for now because I enjoy blogging and I have time. Once our son goes off to college, I will travel more and cut way back. That’s 9 years away, though.

Now, let’s see Mrs. RB40’s graph. She graduated at the same time I did, but went off to the Peace Corps for a few years. When she got back, she started working and gradually increased her income. In 2005, she took time off to get her Master’s degree and interned for a few years. Her earnings shot up after that and it is still rising at a good clip. She is doing very well with her current career and she isn’t ready to retire early yet. She plans to take a year off in 2022. We’ll see where it goes from there.

Overall, our household income graph looks great and we’ve been able to save a sizeable amount every year. Here is what surprised me. Our cumulative income since 1991 is around $3,360,000! Wow, that’s a ton of money. I can’t believe we earned over 3 million dollars over the years. That’s pretty amazing. You rarely notice how much money flow through your hands.

Net worth

Below is the chart of our net worth VS our cumulative earned income. The RB40 household started off at $0 in 1996 and we’ve done relatively well over the years. As you can see from the graph, our net worth is consistently below our cumulative earnings. This is expected because we have expenses. Also, we never received any large windfalls such as an inheritance or lottery winnings. Everything we have, we built from our income.

*Hooray! Our net worth finally crossed the cumulative earnings in 2020. It was a crazy year, but it worked out very well for investors.

RB40 Lifetime Wealth Ratio

Unfortunately, I didn’t keep close track of our finances until about 2005 so we’re missing some early years. The interesting thing here is how much 2007 and 2008 set us (along with everyone else) back. Our net worth curve took a detour, but it finally caught up to the cumulative earnings curve. The last few years have been excellent for investors. The net worth is steadily catching up to than the earnings.

It took a long time to get here, but we finally did it. However, this isn’t permanent. The stock market can be volatile and nobody knows what will happen next. Our investment might perform poorly and the lines would cross again. We’ll have to be vigilant and keep investing to stay ahead. Anyway, while this is a difficult metric to achieve, it is possible with high saving rate and consistent investing over many years. We made it!

Saving Rate and Compound Interest

The best way to reach this point is to increase your saving rate. I used our data to plot 10% to 50% saving rates. The portfolio is the standard 60/40 split between stocks and bonds. I used real historical data for the S&P 500 and U.S. Treasury bond to be more realistic. Check out the graph below.

Saving Rates

If we had invested 50% of all our earnings since we started working, our net worth would have surpassed the cumulative earnings in 2015. The 50% curve really shoots up in the latter years. That’s compound interest at work.

We saved and invested when we were young, but not at that rate. It’s hard to save 50% when you don’t know about FIRE. There was no motivation to save. In those early years, money flow through our hands like water. Well, it wasn’t that bad. We saved and invested when we were young, just not as much as now.

Anyway, it’s a long journey so don’t get discouraged. It will get easier as your investment grows. If you keep at it, your investment gains and passive income should outpace your earnings. This is especially true after retirement. Your earnings curve will flatten out and most of the income will be passive at that point. You can see the bend point in our earning line in 2012. Once Mrs. RB40 retires in 2022, it will flatten out even more.

Why is this so hard?

Now please take my poll below.

Note: There is a poll embedded within this post, please visit the site to participate in this post’s poll.

I suspect we’ll only see a few affirmatives here. This one is very difficult because you have to be in a sweet spot to achieve this.

  • Lower income workers can’t save much because almost everything goes to cover the cost of living.
  • High income earners pay a ton of taxes and their earnings curve rises too fast. Their net worth can’t catch up.

You’d need to be in a sweet spot where you can save and invest consistently over many years to have a chance. Another way to achieve this is to earn outsized returns on your investments. Earning big returns on your investment will push your net worth curve up fast. Investing in real estate might be another short cut because rental income is not earned income. A big inheritance probably would help a lot as well.

Ultimately, this is just a thought exercise. It’s a huge bragging point once you get there, but most people can probably retire comfortably without it.

Wow! 20% of our readers’ net worth surpassed their cumulative income. That’s fantastic! How did you do it? Please share your secret with us. Is it due to time in the market as I outlined? Or something else?

If you need help keeping track of your finances, try using Personal Capital to help manage your investment accounts. It is very easy to check on your net worth and investment with Personal Capital. Check it out if you don’t have an account yet. It’s free!

Disclosure: We may receive a referral fee if you sign up with a service through the links on this page.

Image credit Jingming Pan

The post Are You Worth More Than You Earned? appeared first on Retire by 40.

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