Human Capital Calculator

Their present value: each year's expected pay, discounted back to today. That figure is your human capital. Early in a career it is most of what a person owns. By the late 50s it is a smaller, shrinking asset, but it is the one you can still reshape, by working longer, stopping sooner, or stepping down to part-time or consulting work.

With the defaults, a 58-year-old earning $185,000 with 2% raises works full-time to 62, then consults at $60,000 a year (in today's dollars, growing at the same 2%) until 67. That is $1,100,479 of pay still to come. Discounted at 5%, it is worth $915,434 today: $675,129 from the four full-time years and $240,305 from the five consulting years. Beside a $2,000,000 portfolio, human capital is 31.4% of the household's total wealth.

More than most people expect from part-time pay, because consulting years replace years the portfolio would otherwise fund. Holding everything else at the defaults:

The value of each extra year is only half the story. Every year of work, full or part-time, is also a year the portfolio is not drawn down, a year of Social Security delayed if you choose, and often a year of contributions. The Can I Retire Now? calculator tests whether the portfolio can carry your spending without any pay, and the guide to how much you need to retire sets out the arithmetic behind that question.

Salaried workers aged 60 to 63 can put up to $35,750 into a 401(k) in 2026, including the higher catch-up for those ages (if last year's wages from that employer topped $150,000, the catch-up has to go in as Roth), so a final full-time year can do more for the portfolio than its salary alone suggests.

Treat your future pay as part of your total wealth, and set the portfolio around it. Roger Ibbotson, Moshe Milevsky, Peng Chen and Kevin Zhu made this case in Lifetime Financial Advice: Human Capital, Asset Allocation, and Insurance (CFA Institute Research Foundation, 2007). What matters is not only how large your human capital is but how it behaves:

• Bond-like earnings. A salary that does not rise and fall with markets, as in government, health care, education or long contracts. It works like a bond you already own, so the portfolio can hold more stocks while it lasts.
• Stock-like earnings. Bonuses, commission, equity pay, a business you own, or an industry that sinks with the market. A bad year can hit the paycheck and the portfolio together, so the portfolio should hold fewer stocks, and less of your employer's stock in particular.

The calculator makes this concrete. It counts part of human capital as stock (20% for steady pay, 50% mixed, 80% market-linked; these are working assumptions, not measurements), then finds the portfolio stock share that keeps total wealth at your target. At the defaults, with steady pay and a 50% target:

With mixed earnings the answer is 50% at every age, because human capital already matches the target. With market-linked earnings it starts at 36.3% and rises to 50% as the risky paycheck ends.

There is a strong counter-argument for the steady earner. The years just before and after retiring are when a market fall does the most lasting damage, because withdrawals begin while the portfolio is down. Many planners hold more bonds and cash around the retirement date and let the stock share recover later. Read the calculator's figure as the most risk your earnings can support, not as advice to add stocks at 58. The guide to asset allocation from 55 to 75 and the asset allocation worksheet take the mix from there.

Taxes, benefits and Social Security all work differently for the self-employed. Four things to plan for before the first invoice:

• Self-employment tax. You pay both halves of Social Security and Medicare tax, 15.3% of net earnings, once net self-employment earnings reach $400 (IRS Topic 554).
• Retirement contributions. A SEP-IRA or solo 401(k) can shelter part of consulting income. The SEP limit is 25% of compensation up to $72,000, but for the self-employed compensation is figured after the self-employment tax deduction and the contribution itself, so the effective percentage of net profit is lower (IRS Publication 560).
• Social Security timing. Claiming before full retirement age while consulting triggers the earnings test: in 2026, $1 withheld for every $2 above $24,480 (SSA). At $60,000 of net earnings that is $17,760 withheld for the year. Withheld months are credited back from full retirement age, but most consultants do better simply delaying; see the guide to claiming Social Security.
• Health insurance before 65. Leaving an employer plan early means COBRA, which can cost up to 102% of the full premium (U.S. Department of Labor), or a marketplace plan. The Medicare guide covers enrolling at 65 and the income-related surcharges consulting income can trigger.

Because there are only a few years to discount. Early in a career, moving from a 5% to a 7% rate can cut human capital by a quarter. At 58, with nine working years at the defaults, the same change moves it by about 7%:

The inputs that matter more at this stage are the end dates. Two extra years of full-time work change the answer by far more than any reasonable discount rate. Choose a higher rate for income that is less certain, such as consulting without clients yet, and a lower one for a salary you are confident of. Raises matter a little too: at 0% raises the default case falls to $869,713; at 3% it rises to $939,552.

• Taxes. Figures are before income and payroll tax.
• Pensions and Social Security. They are income you have already earned, not future work, so they are not in human capital. They still act like bonds; the guide to pension lump sums and annuities covers how they fit.
• Benefits. Employer health cover, 401(k) matches and paid leave are not counted, so leaving a job costs more than the salary alone.
• The chance work ends early. Layoffs, health and caring for a parent or spouse end many careers before the planned date. Treat the result as an upper bound.
• Portfolio growth. The stock-share table holds the portfolio at today's value, so it isolates the effect of shrinking human capital.

"Human capital" also has a business meaning: HR teams measure the return a company earns on its workforce. This calculator measures the personal version, the economic value of one person's remaining ability to earn.