Feeling rich ?

[bbbamI]

Feeling Rich?

I hope it's just Mrs. Rich!

 

[laurence]

The article uses mean versus median, which is somewhat misleading. If you look at the Federal Reserve Report linked to the article at footnote 1, you can see that the mean for all households exceeds the median by a factor of four. Even among the top 10% in net worth, the mean is double the median. This is caused by a very few, incredibly wealthy people (think Buffet, Gates and Ellison) skewing the curve to the high end.

But your conclusion remains valid -- the top 25% are not doing all that badly

Thanks for clearing that up, I was trying to figure out the conflicting numbers. Gee I've missed the mean/median thing before, duh! Yeah, that's pretty decieving of him to use mean, it makes the numbers and his arguement look so much better. Everybody has got an agenda.

 

[Donzo]

Do I feel rich? I go back and forth - if you told me I would have my current net worth when I was 25..I would have rung my hands and smiled profusely. But now that I am here.....I believe the "you never have enough" or the "if I had double dollars vs. now" mindset exists to feel truly RICH.

But, that said I feel very fortunate and glad to be where I am....free....and on budjet!

 

[audreyh1]

I think $5M is the point where interest on safe investment (5-6%) lets you live easily without having to work or worrying too much about money. Having an annual income of $250-300k for doing nothing seems about right.

How do you figure you can safely pull 5-6% on $5M nest egg? You still have to worry about inflation and long-term portfolio survival.

And then you've gotta pay taxes out of that withdrawal - spending money shrinks some more.

Still plenty though....

Audrey

 

[LRS]

I feel rich now that I know I need less stuff, not more. Got enough of what I need and a lot of what I want. Don't need more than that. We have the stash necessary to support our modest lifestyle indefinitely and we will be able to retire in a few years. So we are rich!! Rich!! (manic laughter).

I wouldn't mind having a giant room full of gold dubloons to dive into, a la Scrooge McDuck, but, eh, I can live without it.

 

[laurence]

How do you figure you can safely pull 5-6% on $5M nest egg? You still have to worry about inflation and long-term portfolio survival.

And then you've gotta pay taxes out of that withdrawal - spending money shrinks some more.

Still plenty though....

Audrey

Annuities! Just kidding.

 

[kjpliny]

How do you figure you can safely pull 5-6% on $5M nest egg? You still have to worry about inflation and long-term portfolio survival.

And then you've gotta pay taxes out of that withdrawal - spending money shrinks some more.

Still plenty though....

Audrey

I was thinking not touching the principle unless necessary. Laddered CDs should do it...just the inflation thing ya gotta worry about. Then again, even adjusting the withdrawal for inflation, it would still take some time to draw down $5M to zero. A sum that large leaves lots of wiggle room for adjusting the withdrawal amount as things change.

 

[Zipper]

$C4000/mo. net is good for us.

Mrs. Zipper is working 2 more years until she is 60.

5% of $C500 000 ~ $C25 000 from portfolio.

CPP for me $C8000 and OAS for me @ 65 $C6 000

Mrs. Zipper pension + CPP @ 60 ~ $C10 000 and OAS @65 $C6000.

Handyman $cash jobs for me ~ $C9000.

Canadian Health Care system cost! Priceless.

 

[rockyj]

I guess you can "feel rich" without being rich, but that seems too "deep" for me...............

I guess one also can be rich without feeling rich - along the lines of
rich is always "something more than I've got now".

In my personal semantics, "fortunate circumstances "or "financial independence" are are very different conditions from "rich" - which has a couple of connotations

1) The "rich" have sufficient means that money needn't be taken into account for most lifestyle choices and related expenditures. Rich people can pretty much buy or do anything they want without thinking about cost. I'd call it something like a "sustained capacity for extravagance". I'm not saying that the capacity for extravagance need or should be exercised, just that it exist. But that's a shaky metric. Extravagance is relative. On one extreme is the pathological extragavance that couldn't be satisfied by any amount of wealth. Toward the other end are those with more limited means, but who have everything they want due to their more modest lifestyles and desires. They may indeed be rich in spirit, but I'm not sure I'd call that "rich", in the spirit of the original question.

2) Perhaps a better metric is that the "rich" have the resources to make things happen within their spheres of influence
- via investments in development, substantial charitable contirbutions, legacy gifts, etc. - along the lines of the "rich" give their names to medical clinics, museum wings, campus buildings, etc., while the rest of us collectively support the general scholarship and acquisitions funds.

If you had asked me 20 years ago would what we have now constitute being "rich", I might very well have said yes. Now I'd say fortunate in circumstance, not quite financially independent, probably rich in spirit, but not really "rich".

For the record, I checked $5M for when *I'd* feel rich, a number that can be qualified by our LBYM orientation, and I realize we won't be naming many buildings from that kitty.

 

[Texas Proud]

STY...

Your definition of rich would need a few zeros after the numbers listed... I would not think you would be there with less than $100 mill... and even then you would have to be careful if you owned your own jet and 100 ft or 150 ft yacht.. you can burn through money quickly

And as others have mentioned... if you were in NY or London, a $10 million penthouse might not seem very big to you... so there is 10% of your money just for a place to live...

I put $5 mill down.. that is a level where I would not have to worry about anything... less than that I could easily get by, but there could be a worry crop up if something strange happened...

 

[CRABBY JERRY]

Wahoo, I'm rich, rich, rich, I tell you, RICH!!!!

What are you doing friday night? :

 

[audreyh1]

I was thinking not touching the principle unless necessary. Laddered CDs should do it...just the inflation thing ya gotta worry about. Then again, even adjusting the withdrawal for inflation, it would still take some time to draw down $5M to zero. A sum that large leaves lots of wiggle room for adjusting the withdrawal amount as things change.

Say you have it all in 6% CDs. $300,000 in interest. At 2006 rates you'll pay $75K in federal income tax - so $225K left over.

But you are doing NOTHING to grow the principal or help it keep up with inflation! Say the portfolio has to last 50 years? You can pull a little out of it each year to make up for inflation - but then you are earning interest on less and less principal.

[Darn it - I can't get FIRECALC to run - it brings up the donation page and won't go to the next step. Is there a bug?]

I just know that there is a limited term portfolio survival for a 6% inflation-adjusted withdrawal from an all fixed income portfolio. Firecalc could tell you exactly how long a portfolio would last.

If you think that you can really ignore inflation - well, after 24 years with your spending power cut in half, you might decide you were wrong.

Generally, people who wish to live off a "no-risk" fixed income portfolio are advised to only withdraw 3%! I.e. - have 33x your needs in the portfolio! If you really want "no-risk" investments, then the trick is to have a large enough portfolio such that you can withdraw only 3% and still have plenty left over for spending after paying taxes.

Interest income is the least tax efficient investment income there is.

Audrey

 

[W2R]

What are you doing friday night? :

Going out with Frank, a dear man who wants to retire early too, and who is perfectly happy with my insistance on keeping our finances completely separate.

I'm sure you are joking, though, as I was! $185K isn't very much for someone with ER on their minds. At an SWR of 3.5%, that would only give me about $540/mo BEFORE taxes, assuming that I am renting so none of it is tied up in a house. Luckily, my net worth is greater than that (otherwise, I'd be cultivating a taste for dogfood).

 

[retire@40]

Say you have it all in 6% CDs. $300,000 in interest. At 2006 rates you'll pay $75K in federal income tax - so $225K left over.

But you are doing NOTHING to grow the principal or help it keep up with inflation! Say the portfolio has to last 50 years? You can pull a little out of it each year to make up for inflation - but then you are earning interest on less and less principal.

[Darn it - I can't get FIRECALC to run - it brings up the donation page and won't go to the next step. Is there a bug?]

I just know that there is a limited term portfolio survival for a 6% inflation-adjusted withdrawal from an all fixed income portfolio....

If you are earning 6% on your $5M investments, then the most you should withdraw is about 3%. So you can live safely on $150K to $175K (including taxes) over 50 years.

 

[cute fuzzy bunny]

Going out with Frank

So when you have your financial discussions, have you ever said "Lets be frank and earnest. You be frank, i'll be earnest." ?

 

[W2R]

So when you have your financial discussions, have you ever said "Lets be frank and earnest. You be frank, i'll be earnest." ?

ROFL!! Frank is frank, it's true! I like that about him. I'm not Ernest, though... I'm (name edited out).

We don't compete in most areas, but I think we inspire each other with a friendly "size of nestegg" competition. So far, I'm winning but he's catching up fast so I'd better buckle down.

 

[cute fuzzy bunny]

Sorry. Thats one of my dads favorite jokes. Usually followed in short order by "Whats a honeymoon salad? Lettuce alone!" and frequently after that one "What does the mayonnaise say to the refrigerator? Close the door...I'm dressing!".

Sometimes when he's feeling frisky, its "How do you do the hula? Put on a grass skirt and rotate your crops!"

So its probably this sort of indoctrination during my youth that caused these problems...

The really sad part is that my son is due much the same treatment

 

[audreyh1]

If you are earning 6% on your $5M investments, then the most you should withdraw is about 3%. So you can live safely on $150K to $175K (including taxes) over 50 years.

Right.

Say all that money is in CDs in a taxable account. You withdraw 3% to live on, and return 3% to the portfolio - that's good, you'll keep the principle up with 3% inflation. But still have to pay taxes on the 6% of interest income your CDs earned. That'll be about 75K.

So you withdraw 150K, but 75K of it goes for taxes.

You're left with 75K spending money - not so hot for a $5M portfolio. Because you're paying 1.5% of your portfolio every year in taxes. Ouch! Half your withdrawal is going to income taxes!

Of course this wouldn't happen if the CDs were all in an IRA or 401K. Then you would only be taxed on your 3% withdrawal. Probably about $26K in federal income taxes - about $124K spending money - much better.

You can create a much more tax efficient portfolio than that and probably keep the tax rate to 0.5% or less of your total portfolio if you're wiling to hold at least 50% in equities and thus take a large portion of your distributions in qualified dividends and capital gains. And guess what - you can withdraw 4% instead of 3%. But, egad, that requires you to live with volatility!

Assuming you withdraw 4% and 0.5% goes to pay taxes, you are left with $175K after tax spending on a $5M portfolio - much better!

Interestingly the IRA/401K case has a higher tax rate for this scenario. You withdraw $200K, but $40K goes to income taxes because you're at the higher tax rates again. $160K spending.

Audrey

 

[rockyj]

Your definition of rich would need a few zeros after the numbers listed... I would not think you would be there with less than $100 mill... and even then you would have to be careful if you owned your own jet and 100 ft or 150 ft yacht.. you can burn through money quickly

Yes, if the original question is framed as what will it take to feel that one has joined the ranks of "the rich", some options with more zeros could be in order. It was in that spirit that I offered my prior observations. The etymology of "rich" is associated with nobility, power, priviilege and the associated abundance that comes with the same. For me the idea of "the rich" today still has something of that connotation - a very wealthy and subsequently privileged class. Think "Lifestyles of the Rich and Famous". Not that I have aspirations of joining them, it's just the connotation it carries.

Private jets, for me, would fall under "pathalogical extravagance". Flying first class without a second thought would be more reasonably rich in my book. I guess it's whatever floats your (15 or 150ft) boat.

And as others have mentioned... if you were in NY or London, a $10 million penthouse might not seem very big to you... so there is 10% of your money just for a place to live...

Yes, counting oneself among the "rich" in NY or London seems a pricey affair.

On the other hand, if the poll is asking "how much would it take for you to feel you had
more than enough to meet any anticipated needs in your life?", an idea that I'd equate with "financial independence" as opposed to "rich", then the existing scale should suffice for most. But I'm sure there also are many folks in the world of an appreciative nature who could answer that question with a very low number - "rich in spirit" I suppose. That may or may not be what the pollster was after.

Mostly just playing with words.

 

[Texas Proud]

Private jets, for me, would fall under "pathalogical extravagance". Flying first class without a second thought would be more reasonably rich in my book. I guess it's whatever floats your (15 or 150ft) boat.Yes, counting oneself among the "rich" in NY or London seems a pricey affair.

As a small hijack of this thread... I saw the broo ha ha over Nancy Pelosi (sp??) asking for a larger plane... seems that a G5 that can hold 12 people and fly 4,000 nm is not big enough.... and she is #3 in the American system..

They were talking about other countries and their envy of America... seems that Tony Blair has to fly commercial to get over here... and so does the Prince of Wales... they even said that one time when he bought the tickets he bought coach tickets hoping to get upgraded!!!!

They talked about the leaders of a number of different countries and nobody has anything approaching the US... much less what Nancy has or is asking for..

 

[Khan]

As a small hijack of this thread... I saw the broo ha ha over Nancy Pelosi (sp??) asking for a larger plane... seems that a G5 that can hold 12 people and fly 4,000 nm is not big enough.... and she is #3 in the American system..

They were talking about other countries and their envy of America... seems that Tony Blair has to fly commercial to get over here... and so does the Prince of Wales... they even said that one time when he bought the tickets he bought coach tickets hoping to get upgraded!!!!

They talked about the leaders of a number of different countries and nobody has anything approaching the US... much less what Nancy has or is asking for..

Nancy Pelosi did not ask for a bigger plane.
Bill Livingood, the House's sergeant at arms asked for a bigger plane.
http://www.allheadlinenews.com/articles/7006412335

 

[audreyh1]

I know some folks who are worth >$100M. Now THAT is RICH!

Audrey

 

[audreyh1]

Private jets, for me, would fall under "pathalogical extravagance". Flying first class without a second thought would be more reasonably rich in my book. I guess it's whatever floats your (15 or 150ft) boat.

Owning a private jet is not very practical. The "super wealthy" I know simply charter one when they wish to travel. Why own when you can rent?

One of the many benefits of chartering a jet (besides the obvious) is that you completely bypass airport security and any hassles with getting to/from the airport. They bring your rental car or limousine directly to the plane!

Audrey

 

[CRABBY JERRY]

Going out with Frank, a dear man who wants to retire early too, and who is perfectly happy with my insistance on keeping our finances completely separate.

I'm sure you are joking, though, as I was! $185K isn't very much for someone with ER on their minds. At an SWR of 3.5%, that would only give me about $540/mo BEFORE taxes, assuming that I am renting so none of it is tied up in a house. Luckily, my net worth is greater than that (otherwise, I'd be cultivating a taste for dogfood).

Of course I was! : Who's this Frank guy anyway?

 

[Texas Proud]

Owning a private jet is not very practical. The "super wealthy" I know simply charter one when they wish to travel. Why own when you can rent?

One of the many benefits of chartering a jet (besides the obvious) is that you completely bypass airport security and any hassles with getting to/from the airport. They bring your rental car or limousine directly to the plane!

Audrey

From what I have seen on the TV shows, you still have to go through security if you charter... maybe I will ask someone at work who has flown on our mega corp jet...