schildi
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3718 and no text
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Post by schildi on Feb 22, 2011 0:36:30 GMT -5
Even line 22 is off by $30K from the real gross. Actually, using line 22 for this method here would not make much sense imo, because it includes investment income, and not only "earned" income. The > $30K between my W-2 (Box 1) income and my "real" gross is nowhere to be found on the tax return. It comes from three main sources: 401(k), HSA & a good sized employer contribution to my retirement account. There are a few bucks from a couple other items also, but those are insignificant.
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formerexpat
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Post by formerexpat on Feb 22, 2011 0:42:37 GMT -5
I'm sorry Schildi, I wasn't thinking for a moment and was thinking that box 1 included 401k, premiums paid on health care, etc. Whoops.
I use gross income [salary / bonus] but do exclude the 401k match from my employer. I might have to think about that and change my process a bit.
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MN-Investor
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Post by MN-Investor on Feb 22, 2011 1:51:43 GMT -5
"...but ask a 50 year old: most won't remember how much they made 20 or 30 years ago, and would have a hard time coming up with the sum of earnings number." Get a statement of earnings from the Social Security Administration. Look at your 401(k) statement to see your contributions to that and add that figure to what the SSA has for earnings. You'll be close to total wages.
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Deleted
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Post by Deleted on Feb 22, 2011 8:14:01 GMT -5
I've always used box 1 of the W2, but then again, I haven't had rental or business income come through my 1040. I guess if your situation warrants, line 22 of the 1040 [total income] might be a more appropriate metric. Personally though, I'm a fan of allowing the compounding impact from reinvested interest and taxable gains / dividends positively impact your ratios. It's the reward for saving. [/size][/quote] I always use my actual gross income.
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formerexpat
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Post by formerexpat on Feb 22, 2011 9:48:04 GMT -5
Yeah, I corrected myself in post 32. I too use actual gross income. I was thinking for a moment that box 1 was the gross income. Guess you can tell who hasn't done their taxes yet! [/size]
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schildi
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Post by schildi on Feb 22, 2011 10:17:03 GMT -5
I think for this calculation gross *earned* income should be used. If you include investment income, then you'll probably never be able to reach 100% (where your net worth is equal to or greater than the sum of all your income). Unless your house is the majority of your net worth, and appreciated significantly, or something like that .... It's not easy anyway to get to that 100% mark. I did a quick spreadsheet last night (didn't save it), and I think it was like 11% that was needed to reach that goal in 30 years with 20% of income saved / invested, and an annual pay increase of 5%.
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The J
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Post by The J on Feb 22, 2011 10:46:12 GMT -5
Since my net worth is still negative, I can't really give you a multiple. If I were to exclude my student loans, I'd be at .81
The reason I would omit student loans for this purpose is that my student loans were acquired prior to working, so I can look at what I've managed to accumulate, in relation to my current salary, since I started working. If I maintain my current pace, I should have a positive net worth by early next year, sooner if the market has another really good year.
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formerexpat
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Post by formerexpat on Feb 22, 2011 10:52:05 GMT -5
I may use more aggressive variables for my base case return than you 80/20 stock/bond, 10/7% return and that puts us at 100% around the age of 50. I assume 5% pay increase until 2020 [when I'm 40] and then 3% until I'm 55 and 2% thereafter. These seem pretty conservative to me right now.
I also use a savings rate of 50% of gross until I'm 35, 35% of gross until 45, 30% of gross until 55 and 20% thereafter. I want to build the $1m invested asset base by 35 and then cut back the savings rates a bit. [/size]
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