How Much Will You Earn in Your Lifetime?

Here's an interesting question that most people don't consider:

How much will you earn in your lifetime?

If you think about it and add it up, it's a pretty big number.

For instance, let's assume that a person's career spans 40 years. And let's say they average $50,000 a year (less in the early years, more in the later years). That means they will have earned $2,000,000 in their lifetime. Someone with an average of a six-figure income ($100,000) will earn $4,000,000.

That's a lot of money. If you can earn $4,000,000 and live on "only" $3,000,000, you can be wealthy (you'll need to save and invest the $1,000,000 and allow it to compound and thus multiply). Even if you "only" make $2,000,000, if you can live on $1,500,000, that extra $500,000 can grow into a sizeable chunk in a 40-year period. (No, you won't have it all up front, but you will have some of it early on.)

So, what's the point? None really -- I'm just feeling a bit philosophical today and wanted to have a bit of fun with numbers. Take it for what it's worth and draw your own conclusions.

Comments

[Rhea]

I did this exercise once and it made me depressed to think how much of that money I didn't have.

[Barry Barnitz]

The point to which we are arriving, in your number, is a central axiom of finance.

The task of an investor is to convert a portion of their "human capital" which is their lifetime earnings capacity (very large for a young personal, who has a long working life in front of them) to "financial capital" of which a young person frequently has very little.

An elderly person is in the opposing camp. She has very little human capital available in her autumnal years(not many years of earnings capacity left). At this point, her living standard depends on the reserves of financial capital saved, invested and accumulated over the working life.

The optimal financial capital accumulation can be attained by:

1.) Early and regular saving;
2.) Earning as much as possible of the return given by the financial markets.
3.) In order to attain (2), one must reduce to a minimum the frictional intermediation costs of investing. These include investment management fees, total transaction costs, and tax costs.

[TJP]

Your tax bracket also cuts into your net earnings as well. Simply put, the more you make, the more uncle sam takes. Anyways, everyone knows this, but few take it into account. An investor who earns $200k a year will be forced to save more than his friend who earns $50k a year. Assuming their living costs correlates equally to their income range, the $200k investor must save more since he's giving awway 30% to Uncle Sam and probably incurring larger expenses (bigger house, expensive car, etc). This phenomeon is why many high salary adults end up in heavy debt situations.

TO quickly touch on the Rhea posts before, early and regular saving is sooo key!