Defining Rich in America

[ERD50]

It's not practical to define "Rich" by a particular income or net worth number without taking into account age, ...

You can stop right at age. Anything looking at household averages w/o regard to age won't tell us much at all about sho is or is not 'rich'.

... I still think we should have a reasonable inheritance tax (one that would effect me) - once we solve the pesky family farm thing.

Not just 'the farm thing', any small business with assets to keep the business going. And how about someone with a (or more) special-needs child or grandchild? Some kind souls have adopted several special-needs children. Leaving millions could really help provide a lifetime of needed support. And before you start talking about special trusts or anything - those will be used by clever lawyers and rich clients to provide for the 'special-needs' of their heirs (poor darling gets depressed w/o Dom Perignon with dinner!).

... No doubt this contributes to the perception gap between the populace and the people they elect to represent them. Once the representative gets into the big-time, the big-time gets to feel like the norm. ...

I just don't see that as a major issue. It's like saying that very few people would contribute to the Red Cross when there is a disaster, because they personally never experienced a typhoon, hurricane, or tsunami. Or that a well-fed person just doesn't understand that it is bad to be starving, or that someone who is cancer-free can't understand that having cancer can be a very bad thing. The problems with our reps go far beyond that, but I'll stop there.

I wonder if the OP will drop by and share anything - or did he just throw some gas on a fire to watch people run?

-ERD50

 

[nash031]

Spot on. Most of us don't see the lower class on a day to day basis, so we don't feel as well off as we are.

Agree with this. By this article, we qualify for the top 10% (and then some) in our mid-30s by both income and net worth. But we don't feel rich, and we don't live lavishly, particularly compared with the area in which we live.

That said, we're from Indiana and Alabama respectively, attended public schools, and have been around enough to know that we're very fortunate to be in the financial position we're in.

It's easy to cast stones and say "others could be here too if they just behaved differently," but that's not the case for everyone. There are many who are scraping by that don't overspend.

I've said before in wealth disparity/redistribution discussions that the primary driver for the growing gap between the "rich" and "everyone else" in this country is not income disparity; rather, it is that one group has compounding interest working FOR them, and the other generally has debt (interest) working against them. Hence, one group's wealth is growing "exponentially" while the other group's wealth is relatively stagnant.

 

[engprodigy]

I don't think rich should be defined by income as much as level of financial independence.

And any time the numbers are done and age is not factored the results are useless.



At 32 and having a NW around $600k I don't feel rich because I'm not close to FI but I do feel fortunate for the good start.

 

[CaliforniaMan]

I don't think rich should be defined by income as much as level of financial independence.

And any time the numbers are done and age is not factored the results are useless.

At 32 and having a NW around $600k I don't feel rich because I'm not close to FI but I do feel fortunate for the good start.

+1 Good Points. The numbers don't mean much if you don't take age into account. If you are at the 95th percentile when 95% of your life is over it is much different than being there when younger. BTW, 600k at 32 is a great start!

 

[Andre1969]

I don't think rich should be defined by income as much as level of financial independence.

And any time the numbers are done and age is not factored the results are useless.

At 32 and having a NW around $600k I don't feel rich because I'm not close to FI but I do feel fortunate for the good start.

I think age can be sort of a catch-22, though. For instance, having a NW of $600K at the age of 32, you're well ahead of the curve for your age group. However, you can't afford to retire right now, unless you want to live a very modest life, because that $600K has to possibly last 50-60 years, even more. Also, SS wouldn't kick in for another 30 years, and you wouldn't get very much, because of your short work history.

But, if you were 65-70, with $600K, you could probably retire pretty easily, because that money would most likely only have to last 25-30 years, if that. And your SS would be more substantial to help out, because you could take it right away, and you'd have a longer earnings history, which would give you a bigger payment.

In my opinion, it's a hard call as to which person is better off. While the 65-70 YO could retire now, the 32 YO, having amassed so much money at such a young age, will be able to let it keep compounding, and it won't be long before they can retire...and at a much younger age than 65-70!

 

[Andre1969]

Spot on. Most of us don't see the lower class on a day to day basis, so we don't feel as well off as we are.

That's a really good point. Also, often it's material things that make people look wealthy, even if those things are actually keeping them poor. And sometimes, things that make people look poor are the reason they're actually wealthy.

For instance, in my neighborhood, the Maryland suburbs of DC, most of the new single family homes are fairly big, 3000+ square feet colonials that are big and pretentious. People buy those big houses, put expensive furniture in them, put the BMW and Benz out in the driveway (can't get them in the garage because there's too much junk in there), etc, and they go deep into debt over it.

And then these people drive past my run-down 98 year old farmhouse with its rusty '85 Chevy pickup and currently-non-running '79 New Yorker in the driveway, and probably think I'm poor! Inside, they would find the leather sofa and loveseat that I recently bought, from a friend of a friend, for $500...I think they were about $1500-2000 new. First time I've ever actually BOUGHT furniture. The previous couches, chairs, etc, were all free hand-me-downs. They would probably sneer at the fact that my house only has one bathroom, no dishwasher, and no ice maker in the fridge.

And yet, because I didn't splurge on those things, and delayed gratification, I became better off financially because of it. I could afford to retire if I really wanted to, but these others have become slaves to their possessions and will have to keep on working.

I have to confess though, that sometimes I even sneer at the fact that my house only has one bathroom...

 

[FIREd]

That's a really good point. Also, often it's material things that make people look wealthy, even if those things are actually keeping them poor. And sometimes, things that make people look poor are the reason they're actually wealthy.

For instance, in my neighborhood, the Maryland suburbs of DC, most of the new single family homes are fairly big, 3000+ square feet colonials that are big and pretentious. People buy those big houses, put expensive furniture in them, put the BMW and Benz out in the driveway (can't get them in the garage because there's too much junk in there), etc, and they go deep into debt over it.

And then these people drive past my run-down 98 year old farmhouse with its rusty '85 Chevy pickup and currently-non-running '79 New Yorker in the driveway, and probably think I'm poor! Inside, they would find the leather sofa and loveseat that I recently bought, from a friend of a friend, for $500...I think they were about $1500-2000 new. First time I've ever actually BOUGHT furniture. The previous couches, chairs, etc, were all free hand-me-downs. They would probably sneer at the fact that my house only has one bathroom, no dishwasher, and no ice maker in the fridge.

And yet, because I didn't splurge on those things, and delayed gratification, I became better off financially because of it. I could afford to retire if I really wanted to, but these others have become slaves to their possessions and will have to keep on working.

I have to confess though, that sometimes I even sneer at the fact that my house only has one bathroom...

We tend to worship the millionaire next door on this forum. But there are people out there for whom a 3,000 sqft colonial and a BMW are still well below what they could afford. Sometimes people look rich because... they are rich, richer than most us millionaires next door ever will be!

 

[daylatedollarshort]

I don't think rich really matters as much as financial security. We have former co-workers who have high incomes compared to most people but they are continually worried about finances and job security. I think they might actually worry more so than lower income households, because if they get laid off jobs like theirs are less plentiful than minimum wage jobs, especially at their ages, they would be overqualified for minimum wage, and future SS can't cover all their expenses.

We know people who hate their jobs and drive $100K cars. They ether don't get or don't care that one car could provide 2 years of median household income living.

If they each work and commute 3,000 hours a year one car could buy them 12,000 hours of free time over 2 years and still live a normal, middle class life.

 

[jjquantz]

That's a really good point. Also, often it's material things that make people look wealthy, even if those things are actually keeping them poor. And sometimes, things that make people look poor are the reason they're actually wealthy.

For instance, in my neighborhood, the Maryland suburbs of DC, most of the new single family homes are fairly big, 3000+ square feet colonials that are big and pretentious. People buy those big houses, put expensive furniture in them, put the BMW and Benz out in the driveway (can't get them in the garage because there's too much junk in there), etc, and they go deep into debt over it.

And then these people drive past my run-down 98 year old farmhouse with its rusty '85 Chevy pickup and currently-non-running '79 New Yorker in the driveway, and probably think I'm poor! Inside, they would find the leather sofa and loveseat that I recently bought, from a friend of a friend, for $500...I think they were about $1500-2000 new. First time I've ever actually BOUGHT furniture. The previous couches, chairs, etc, were all free hand-me-downs. They would probably sneer at the fact that my house only has one bathroom, no dishwasher, and no ice maker in the fridge.

And yet, because I didn't splurge on those things, and delayed gratification, I became better off financially because of it. I could afford to retire if I really wanted to, but these others have become slaves to their possessions and will have to keep on working.

I have to confess though, that sometimes I even sneer at the fact that my house only has one bathroom...

+1000!

As we return to time and again on this forum, it's time vs. things. I live in a Lexus/BMW/etc. neighborhood and have a 12 year old Hyundai in the driveway. Furniture has only recently surpassed "graduate student" (as a younger co-w*rker of mine once described it) levels, and not by much.

BUT, I AM RETIRED! My use of time is no longer dictated by others. My time is my own for the first time ever. For me and, I think for many of us, that is worth more than an awful lot of things. Not that things can't have worth - I have some very nice musical instruments, for instance. But when it comes to balancing time vs. things, time is the winner for me.

So, I am "richer" than my relatives, who have nowhere near my assets, but I am also "richer" than my neighbors who have many more toys and almost certainly higher incomes. My relatives already think that I am rich, my neighbors almost certainly don't.

For me, this is the definition of "rich" that matters. Do you have the financial assets (savings, pension, SS, inheritance, etc.) to live the life that you want independent of employment status? If the answer is "yes" then you are rich. This won't help people who want to group us according to monetary measures, whether those groupings are intended as some kind of competitive measure, for taxing us, or whatever.

 

[jjquantz]

I don't think rich really matters as much as financial security. We have former co-workers who have high incomes compared to most people but they are continually worried about finances and job security. I think they might actually worry more so than lower income households, because if they get laid off jobs like theirs are less plentiful than minimum wage jobs, especially at their ages, they would be overqualified for minimum wage, and future SS can't cover all their expenses.

We know people who hate their jobs and drive $100K cars. They ether don't get or don't care that one car could provide 2 years of median household income living.

If they each work and commute 3,000 hours a year one car could buy them 12,000 hours of free time over 2 years and still live a normal, middle class life.

This is what dawned on me - there is a conversion factor between $ and time that is, if you only consider the present, your hourly wage. However, the conversion also needs to include the $$ you need to live on after the laboring years are over. Once I realized that spending money is actually a commitment of my time, both present and future, I started to look at purchases a little differently.

 

[Amethyst]

Very well said!

For me, this is the definition of "rich" that matters. Do you have the financial assets (savings, pension, SS, inheritance, etc.) to live the life that you want independent of employment status? If the answer is "yes" then you are rich. This won't help people who want to group us according to monetary measures, whether those groupings are intended as some kind of competitive measure, for taxing us, or whatever.

 

[Willers]

If you're really defining rich you've got to count pensions in that too. There are plenty of people with pensions that create more cash flow than a $1.3 million portfolio will spin-off.

+1

About 15 years ago my parents retired and asked me for investment advice. It was right before the Internet bubble so thankfully I didn't tell them to load up on tech stocks...

DM was talking about the amount of money they had saved and how she wished she was a millionaire. They both had pensions (one COLA'd) so I did a back of the napkin calc and was happy to inform them that the PV of their investments and pensions was well over $1M. I could tell that neither had ever thought about it that way.

DM looked at DD and said "we're rich". DD looked back at DM and said "no, you are and I have a rich wife." Still makes me laugh.

 

[Andre1969]

We tend to worship the millionaire next door on this forum. But there are people out there for whom a 3,000 sqft colonial and a BMW are still well below what they could afford. Sometimes people look rich because... they are rich, richer than most us millionaires next door ever will be!

True, but those kinds of rich people usually move out to a nicer county than mine. Or, at least a nicer part of it.

 

[nash031]

In my opinion, it's a hard call as to which person is better off. While the 65-70 YO could retire now, the 32 YO, having amassed so much money at such a young age, will be able to let it keep compounding, and it won't be long before they can retire...and at a much younger age than 65-70!

So why would this be a hard call? Money in your 30s is "more valuable" than money in your 60s, IMO. Thus equal amounts at those different ages points towards the 30s being better off than the 60s, regardless of proximity to retirement.

 

[dallas27]

I've said before in wealth disparity/redistribution discussions that the primary driver for the growing gap between the "rich" and "everyone else" in this country is not income disparity; rather, it is that one group has compounding interest working FOR them, and the other generally has debt (interest) working against them. Hence, one group's wealth is growing "exponentially" while the other group's wealth is relatively stagnant.

But our system heavily taxes those working the hardest for their money, and taxes very little of the "compounding"money. The growing disparity you speak of is magnified by this system favoring capitalist wealth at the expense of labor income. This ultimately means we have very low class mobility, in fact we have one of the lower rankings for the 1st world.

Let's say it a different way - the idea that anyone can achieve anything in america is not a false statement, but it is very far from being the truth too. It just makes a good sound bite.

Sent from my iPhone using Early Retirement Forum

 

[Bestwifeever]

We tend to worship the millionaire next door on this forum. But there are people out there for whom a 3,000 sqft colonial and a BMW are still well below what they could afford. Sometimes people look rich because... they are rich, richer than most us millionaires next door ever will be!

We grew up being told those people might be wealthy but they weren't really happy (as if we were happy but oh well). Having met a few of them, I am sorry to report that they are no unhappier than anyone else.

 

[Hamlet]

A man is rich if he makes more than his sister-in-law's husband.

 

[CaliforniaMan]

A man is rich if he makes more than his sister-in-law's husband.

It is all relative.

 

[youbet]

We tend to worship the millionaire next door on this forum. But there are people out there for whom a 3,000 sqft colonial and a BMW are still well below what they could afford. Sometimes people look rich because... they are rich, richer than most us millionaires next door ever will be!

+1. Absolutely!

 

[braumeister]

The most recent Census Bureau number I could find is from 2010 when they counted 114,800,000 households in the U.S.

So if the top 5% have a net worth of $1.3M, that would be 5,740,000 households at that level.

So being in that select group means that you're just one in nearly six million. Somehow that doesn't sound quite as elite as the OP's article seemed to imply.

 

[nash031]

But our system heavily taxes those working the hardest for their money, and taxes very little of the "compounding"money. The growing disparity you speak of is magnified by this system favoring capitalist wealth at the expense of labor income. This ultimately means we have very low class mobility, in fact we have one of the lower rankings for the 1st world.

I don't disagree with any of this, but I also don't have a good idea of how to fix it other than to encourage others to "create wealth" rather than just "make money." I certainly wouldn't advocate estate/wealth taxation.

 

[nun]

I'm rich by the article's criteria of earned income and net worth, but I can't identify with the people on the yacht and if you were you use my annual spending of $36k you might consider me something other than affluent.

 

[nun]

I don't disagree with any of this, but I also don't have a good idea of how to fix it other than to encourage others to "create wealth" rather than just "make money." I certainly wouldn't advocate estate/wealth taxation.

I'd consider dividends and capital gains as just regular income that would be taxed at your marginal income tax rate.

 

[Walt34]

Although I still think we should have a reasonable inheritance tax (one that would effect me) - once we solve the pesky family farm thing.

Why?

I've always thought an inheritance tax was inherently unfair.

Person A earns many millions in his life, saves/invests most of it and wants to give it to his relatives. His choice.

Person B earns the same amount and blows it all on fast boats, fast cars and fast women. Also his choice.

Why should person B get a pass while person A has to have what he wants to do lessened?

 

[dtbach]

All this just makes politicians think about a wealth tax. Add up what you have every year and tax it at X%. And won't that encourage people to save LOL!