Are you a Millionaire

[Rustic23]

I was wondering how many on this board are Millionaires. OK, here how I figure it. If you have a cola'd pension you divide it by 3.5%. You could use 4% but with current economic conditions, it seems like a SWR of 3.5% is a good number. If you have a non cola'd pension I would divided by 5% to 6%. This too could be a number up for a challange. But I figure it is a good bond rate. Add to this the equity in your house, some allowance for furniture and other goods, and savings.

Social Security of $1,500 a month is equal to about $515,000. So if you are already take SS, then it does not take much in the other catagories to be a millionaire. However, I sure don't seem to live like what I thought a millionaire would!

 

[REWahoo]

I've heard a number of people say the answer to this question changes from one day to the next based on market movement...

 

[bssc]

Less of a millionaire than two years ago.

 

[Moemg]

I've heard a number of people say the answer to this question changes from one day to the next based on market movement...

or the housing market !

 

[Grep]

If only a million still meant what it used to, say when I got out of High School.

 

[DangerMouse]

depends on which currency you use ...

 

[Robert the Red]

To be what a "millionaire" was when my impressions of money were formed (1970 or so), I'd have to have about $8 million now -- adjusting for inflation. More if adjusting for percentile in the wealth category -- to put me in the same relative socioeconomic class as a millionaire then I'd need maybe $25-30 million. In either case, NOT EVEN CLOSE.

 

[Grep]

depends on which currency you use ...

Indeed, once I move to Zimbabwe, I'll have more money than there are atoms in the universe. You haven't really licked a stamp until it has the number 100 Trillion on it.

On that point, when I was a kid I had a little stamp collection. One of my prized possessions was a stamp whose indicated postage was 10,000,000 Deutschmarks. It blew my mind with wonder and scared me at the same time: Either I was rich, or money isn't worth the paper it's printed on, and at 8 years old, I understood it was probably the latter!

 

[ProspectiveBum]

Not any more.

 

[mickeyd]

Still am, but I'm less close to being a billionaire that I once was.

 

[ziggy29]

Not nearly as close as I was a little more than a year ago.

 

[FIRE'd@51]

I was wondering how many on this board are Millionaires. OK, here how I figure it. If you have a cola'd pension you divide it by 3.5%. You could use 4% but with current economic conditions, it seems like a SWR of 3.5% is a good number. If you have a non cola'd pension I would divided by 5% to 6%. This too could be a number up for a challange. But I figure it is a good bond rate. Add to this the equity in your house, some allowance for furniture and other goods, and savings.

Social Security of $1,500 a month is equal to about $515,000. So if you are already take SS, then it does not take much in the other catagories to be a millionaire. However, I sure don't seem to live like what I thought a millionaire would!

The problem with this valuation method is that when you use Firecalc, there is a large average ending balance. In the case of SS, that ending balance is ALWAYS ZERO. For example, if you run the standard Firecalc with a 75/25 stock/bond mix, and use a 3.5% SWR, it is 100% successful. However, the average ending balance is 2.1 times your starting amount. This can never happen with SS. It's an apples to oranges comparison.

IMO, the proper way to value a SS payment stream is to use your life-expectancy and calculate the present value of the payment stream using the real rate on the TIPS which most closely matches this life-expectancy.

As an example, assume your life-expectancy is 20 years. From Bloomberg, the 20-yr TIPS yield is 2.2%. The present value of 20 one dollar payments discounted at 2.2% is 16. So if your SS is $18,000 per year, it would have a present value of 16 x 18,000 = 288,000, which is equivalent to a 6.3% SWR. To have the present value equal to 515K, you would need to have a life-expectancy of 46 years.

 

[Khan]

Yes, if doing the pension imputing thing.

 

[haha]

The problem with this valuation method is that when you use Firecalc, there is a large average ending balance. In the case of SS, that ending balance is ALWAYS ZERO. For example, if you run the standard Firecalc with a 75/25 stock/bond mix, and use a 3.5% SWR, it is 100% successful. However, the average ending balance is 2.1 times your starting amount. This can never happen with SS. It's an apples to oranges comparison.

IMO, the proper way to value a SS payment stream is to use your life-expectancy and calculate the present value of the payment stream using the real rate on the TIPS which most closely matches this life-expectancy.

As an example, assume your life-expectancy is 20 years. From Bloomberg, the 20-yr TIPS yield is 2.2%. The present value of 20 one dollar payments discounted at 2.2% is 16. So if your SS is $18,000 per year, it would have a present value of 16 x 18,000 = 288,000, which is equivalent to a 6.3% SWR. To have the present value equal to 515K, you would need to have a life-expectancy of 46 years.

I think this is a good method. However, I believe that it undervalues SS as it functions in the retirees life. It would be tricky to match this income stream in any way other than buying an inflation adjusted fixed annuity, due to the longevity risk. And even in this case the company risk factor suggests that the private annuity should be discounted relative to SS.

But since this thread is about bragging rights, why not just use a discount rate of 1%. It's not going to be audited is it?

Ha

 

[kumquat]

But since this thread is about bragging rights,

OK, if it's bragging rights only, I am.

I've also lost enough in the last year to let 2 more of you join the club.

 

[aaronc879]

If only a million still meant what it used to, say when I got out of High School.

A million dollars is still a lot of money. I will never hit that mark even 15-20 years from now when I retire. I won't need anywhere near that even then.

 

[Amethyst]

Add to this the equity in your house, some allowance for furniture and other goods, and savings.

Shouldn't the definition of millionairity be limited to assets you can spend, or convert to spending money?

You can downsize your home, but you still have to live somewhere. You can sell some of your goods, for a fraction of their "worth," but you still have to have something to sit on and sleep on.

Something else that occurs to me: Is a person who sells a $1,000,000 home, invests the money, and rents, richer than someone who lives in a $1,000,000 home and doesn't have money in the bank?

 

[Bestwifeever]

Add to this the equity in your house, some allowance for furniture and other goods, and savings.

Shouldn't the definition of millionairity be limited to assets you can spend, or convert to spending money?

You can downsize your home, but you still have to live somewhere. You can sell some of your goods, for a fraction of their "worth," but you still have to have something to sit on and sleep on.

Something else that occurs to me: Is a person who sells a $1,000,000 home, invests the money, and rents, richer than someone who lives in a $1,000,000 home and doesn't have money in the bank?

Re your first question, the "should you include your home in your net worth?" discussion ranks just behind "should you pay off the mortgage?" in impossible-to-resolveness.

We don't include the home just for the reasons you've stated, except when there needs to be an official net worth calculation, such as for credit reasons.

Your second question about the person who owns the $1MM home vs. the person who sold the $1MM home, invests the money and now rents? They're both rich

 

[Rustic23]

In my first post, I add the equity of the home.

Many of us do not have 1M in assets or IRA's, however, we do have pensions, and SS. I chose to value those is a simple capitalization formula as it was quick and easy to do. We have a certain income from these assets. I was not concerned with the residual, as most have none. (That's for my kids to lament) I was looking at how much you would have to have in some form of savings to get the same amount of income out. If you had 1m you could take 35-40k out and live 30 to 35 years. You might have 2-4m left, or you might have considerably less, based on the market. So if you were a millionaire, you would live like someone with a 40k income.

 

[shotgunner]

Using your definition yes

I thought the standard definition of a millionaire was net value of assets not including principle residence. However a SS income stream is worth something and it is possible to use one principle residence for income via a reverse mortgage.

Under the standard definition I'm 90 something percent there ie real close. Using your definition I'm a millionaire.

I liked thinking about this better last year when no matter what definition was used I could say yes.

In my neck of the woods 40K income, especially if net, provides a very nice living for single person who owns their home outright.

 

[Caroline]

I was two years ago. For about eight and a half minutes.

oh well.

 

[guest]

As has been said in many different ways and for everyone that is "there".....a million just doesn't seem like what it should feel like....but it IS better than not having the $ !

 

[Sparky]

Not no mo.

 

[FIREd]

No, not there yet. No pension, and too young to take social security into account, so basically it's only my savings at this time. But I have good hope to reach the $1M milestone by the time I turn 40 (a little help from Mr. Market would be appreciated).

A million dollars still represents a lot of money to me (and to most non-millionaires I know). It's funny, it's always the millionaires who bemoan the reduced worth of a million dollars. Perhaps they are the only ones who understand that, if you want that million to last, you can only live a very middle class lifestyle.

But, for most of us, there is still a certain "je ne sais quoi" about the million dollar milestone that separates the rich (you'all) from the rest of us.

 

[Nords]

If you have a cola'd pension you divide it by 3.5%. You could use 4% but with current economic conditions, it seems like a SWR of 3.5% is a good number.

Well, the DoD just bumped my pension check 5.8% to $3281/month, so by that math I'm at $1.1M. By the 4% divisor it's not going to happen this year. By current spending it's never going to happen!

But, for most of us, there is still a certain "je ne sais quoi" about the million dollar milestone that separates the rich (you'all) from the rest of us.

I'd say that it's darn near undetectable, especially from our lifestyle. But maybe Jed & Jethro would feel at home...

As for the net worth/home equity question, let me [-]throw more gas on the fire[/-] add a new query: If I refinance my mortgage and keep my home, will my net worth increase?