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Every year, you get a statement from the Social Security Administration that lets you know the contributions to your account. Most of us ignore it, but one of the great things about this statement is that it tells you exactly how much you've earned from your first summer job all  the way to the most recent W-2 they have on record. And what’s sobering is that when you add it all up, you probably have no idea where all that money went. We're not talking about a few hundred grand, if you are in a dual income family or been working for more than a decade or two, your total earnings might very well be north of a million dollars. But how much of that million plus have you actually saved? Here's how to calculate how much you have earned, where you spent it, and how to keep more of you next million in earnings.
Now if you've never bothered to read the Social Security report, find your most recent statement and get out a calculator to discover your big number. Find the column that says, "Your Taxed Medicare Earnings" and add it all up. Congratulations, you probably made more than you thought - I know I did. That's the good news; the bad news is what you did with all that money and what you have to show for all your hard work.
Can you honestly account for how you went through all that money? This is no idle exercise. It’s the best way to plan for what you intend to do with your next million. It’s not about lamenting what you would’ve, should’ve, could’ve done - it’s about taking stock of what you actually did?
There’s nothing you can do about the past. As the great economist Keynes once observed “the past is fixed cost” - you can’t get it any cheaper and you won’t have to pay an extra dime for it. But the future has a price you can negotiate.
Looking back, I realize my problem is I never realized I was managing a million dollar account. If I did, I would have been much more thoughtful about what I did with all that loot.
I’ll tell you where a lot of that money went - taxes. Chalk up 7.65% of that big number to Social Security and Medicare and another 20 to 25% for federal and state taxes. Add to that sales taxes and property taxes and if your lifetime earnings rings around a million, you probably paid around $300,000 in taxes. If that makes your ears boil, then you should start working on reducing your taxes. If you want to save a serious amount of money from what you earn on your next million, cut your own taxes. How? Well, there are four basic approaches: move to a state with low or no income taxes, maximize all your deductions, contribute the maximum allowable amount to your 401K and your IRA and run your income through a small business where you can shelter it from taxes. If you want to make a big impact on your next million dollars, that last one is crucial. But outside of taxes, we still have a whopping 70% of your gross income that we need to account for.
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