How Much Money Do You Need To Be In The Upper 25%

[Midpack]

Just a fairly current benchmark/metric FWIW - no claim that it's "right," accurate, etc.

If you're alarmed at the size of the "magic number," the last two columns probably apply to many more people - and pensions and other sources of income aren't included (too variable to include).

How much money do you need to be in the upper 25%? | Dallas Morning News

Quote:

The cost of being independently upper middle class declined a bit in the last year. But just a bit. So don’t expect any shouts of joy in this year’s Life of Riley Index update — just an ongoing assessment of how much money we would need to be better off than most. The magic number this year: $4,363,503. The index, which goes back to 1985, measures the amount of income you need to enter the top 25 percent of households in the United States. This year, the estimate is $77,234. From that, I calculate how much you would need in a 50/50 portfolio of stocks and bonds to provide that income.

[W2R]

Well, I was surprised to discover that I don't make the cut. That's OK though - - I am perfectly content as is.

[dunkelblau]

So does this mean when we cross into negative interest rates that the guys who owe billions are the only ones who can afford to retire?

[ERD50]

Quote:

Well, I was surprised to discover .... .

Well, I was not surprised to discover that the number is the typical journalistic meaningless babble.

pensions and other sources of income aren't included is like saying" I got 50 mpg on my last trip, if you don't count the times I stopped to top off the tank - it's too hard to calculate those variable sources of gasoline"

"FWIW"? - nothing really, IMO. About the only thing we can determine is that he figures a $4,363,503 investment pays 1.76999 % in dividends.

I didn't even see a derivation for "top 25%" - is that the threshold AGI of Federal tax filers in the top 25% of AGI? Heck, someone can be selling off assets that have no gain, and truly be living the "high life", and have an AGI of zero. Maybe instead of "FWIW", this one deserves a "WTF?"

-ERD50

[easysurfer]

Surprised that Mr. Howell from Gilligan would be considered a pauper. I guess a million doesn't go far these days.

[stepford]

Quote:

Originally Posted by Midpack The magic number this year: $4,363,503. The index, which goes back to 1985, measures the amount of income you need to enter the top 25 percent of households in the United States. This year, the estimate is $77,234. From that, I calculate how much you would need in a 50/50 portfolio of stocks and bonds to provide that income.

Yet an immediate annuity starting at age 55 which provides $77,234 per year costs about $1.34M - far less than the $4M+ figure given. Sounds like fishy assumptions to me (or maybe it's just that I'd like to think I make the 25% cut but don't have $4M either).

[W2R]

Quote:

Originally Posted by ERD50 Well, I was not surprised to discover that the number is the typical journalistic meaningless babble. pensions and other sources of income aren't included is like saying" I got 50 mpg on my last trip, if you don't count the times I stopped to top off the tank - it's too hard to calculate those variable sources of gasoline" "FWIW"? - nothing really, IMO. About the only thing we can determine is that he figures a $4,363,503 investment pays 1.76999 % in dividends. I didn't even see a derivation for "top 25%" - is that the threshold AGI of Federal tax filers in the top 25% of AGI? Heck, someone can be selling off assets that have no gain, and truly be living the "high life", and have an AGI of zero. Maybe instead of "FWIW", this one deserves a "WTF?" -ERD50

Also, my guess (based on what I read here), is that expenditures are at least a little bit less for one person households than for multi-person households. So, statistics based on "households" may not be as meaningful as one might wish.

[MichaelB]

Quote:

Originally Posted by Midpack Just a fairly current benchmark/metric FWIW - no claim that it's "right," accurate, etc.

This Scott Burns column is a different way to frame and discuss something that many people want to talk about but don't always know how to approach. I'll send it to my kids..

[ERD50]

Quote:

Originally Posted by W2R Also, my guess (based on what I read here), is that expenditures are at least a little bit less for one person households than for multi-person households. So, statistics based on "households" may not be as meaningful as one might wish.

Good point as well. I'm still looking for that family with 2.6 kids!

-ERD50

[gauss]

Quote:

Originally Posted by stepford Yet an immediate annuity starting at age 55 which provides $77,234 per year costs about $1.34M - far less than the $4M+ figure given. Sounds like fishy assumptions to me (or maybe it's just that I'd like to think I make the 25% cut but don't have $4M either).

My interpretation of the information presented is that the $4M+ portfoloio assumes that you never spend the principal (ie the income is from interest/dividends only) and that interest rates/dividends will always be at the low levels of today.

This may be obvious, but it took me a minute or two to resolve the difference between the 50/50 portfolio and the 4% columns.

-gauss

[MichaelB]

Quote:

Originally Posted by gauss My interpretation of the information presented is that the $4M+ portfoloio assumes that you never spend the principal (ie the income is from interest/dividends only) and that interest rates/dividends will always be at the low levels of today. This may be obvious, but it took me a minute or two to resolve the difference between the 50/50 portfolio and the 4% columns. -gauss

Right, and agree not obvious. It does lead to an interesting discussion regarding what our expectations are (and shy) if we think the 4% withdrawal is still safe.

[Midpack]

Quote:

Originally Posted by gauss My interpretation of the information presented is that the $4M+ portfoloio assumes that you never spend the principal (ie the income is from interest/dividends only) and that interest rates/dividends will always be at the low levels of today. This may be obvious, but it took me a minute or two to resolve the difference between the 50/50 portfolio and the 4% columns. -gauss

Yep, though I tried to explain that and point to the last two columns, it appears some folks didn't get much further than seeing the $4MM+ and jumping to the conclusions. I really didn't think it would come as a surprise to anyone that you'd need $4.3MM+ to retire in the "upper 25%" without touching principal and no pension, no Soc Security in today's low yield environment.

Quote:

Originally Posted by ERD50 Well, I was not surprised to discover that the number is the typical journalistic meaningless babble. pensions and other sources of income aren't included is like saying" I got 50 mpg on my last trip, if you don't count the times I stopped to top off the tank - it's too hard to calculate those variable sources of gasoline" "FWIW"? - nothing really, IMO. About the only thing we can determine is that he figures a $4,363,503 investment pays 1.76999 % in dividends. I didn't even see a derivation for "top 25%" - is that the threshold AGI of Federal tax filers in the top 25% of AGI? Heck, someone can be selling off assets that have no gain, and truly be living the "high life", and have an AGI of zero. Maybe instead of "FWIW", this one deserves a "WTF?"

WADR It's hard to believe you actually read the link based on these comments. How on earth could someone write an article to provide a broad metric and build in pensions - when those amounts/terms vary wildly?

I was about to start another thread on Vanguard's Personal Advisory Services, but I've lost interest...

[Bestwifeever]

I think the 50/50 column assumes Riley has no income whatsoever and that the $4+ million will provide the $77k annual amount to sustain ol' Riley without diminishing the principal (unlike the 4%, which could leave a $0 portfolio after 25 or 30 years)

I really want another column, though, for how many people have ever seen The Life of Riley television show (raising my hand).

[bclover]

darn it, miss the mark again.
better go cancel that Jag order

[bclover]

Quote:

Originally Posted by Bestwifeever I think the 50/50 column assumes Riley has no income whatsoever and that the $4+ million will provide the $77k annual amount to sustain ol' Riley without diminishing the principal (unlike the 4%, which could leave a $0 portfolio after 25 or 30 years) I really want another column, though, for how many people have ever seen The Life of Riley television show (raising my hand).

Me, Me, Me.

although it was in reruns. we were more of a lone ranger household

[Bestwifeever]

Reruns count! That's what I remember circa midfifties:

[gauss]

Another critique of the $4M+ number is that is seems to assume that there will be no further growth/capital gains in the investment markets going forward.

Perhaps this is implicitly offset by the fact that future inflation does not seem to be accounted for.

-gauss

[gauss]

Midpack,

Thank you for posting this. Even if the magic number has some assumptions baked into it, I find it enjoyable to back out those assumptions and to see the summarized data.

I would encourage you to go ahead and share it over at Vanguard too.

-gauss

[fritz]

Interesting logic to say the least.

Scott Burn's (article's journalist and creater of the Couch Potato Portfolio) conclusion that the independently wealthy need $4,363,503.00 (50/50 stock/bonds) to join the upper 25% income bracket - actually requires you to be in the 1% of US household net worth (used two people for an early retired couple). I posted the Wealthometer link where I plugged in the required $4,363,503.00 household net worth for the required $77,234 annual (1.75% dividend only) income per Scott's article.

Wealthometer: USA

[ERD50]

Quote:

Originally Posted by Midpack ... WADR It's hard to believe you actually read the link based on these comments. How on earth could someone write an article to provide a broad metric and build in pensions - when those amounts/terms vary wildly? ...

And my point is/was - if a writer can't come up with the significant and relevant data, then it is pointless to publish numbers down to the dollar ( $77,234), and not stress the caveats. As I said, it is just typical journalistic meaningless babble.

Did he mention pension in the article? Did he mention how this might affect the numbers? And his only comment about ' I’d like to say I was scientific about it, but I wasn’t. ' seemed to be more geared towards the human nature aspect of what % we need to obtain to feel comfortably 'above the rest'.

So can I turn it around the other way? What value do you see in these numbers? What can it say about whether I'm better off than 3/4 of the public if it is AGI alone (if that is even what it is?)? No mention of wealth, debt, age, etc. If I have a steady $100,000 coming in for the next 30 years, I might be better off than the $1M a year athlete who might only make that for 5 years. Yet, his/her AGI is higher than mine for 5 years.

There is a tendency for people to want to boil down a complex scenario into a single number. That's great when it is meaningful, but often it just makes things worse. I saw it in my career, and you can see it in product reviews. For example, is a 17" screen 'better' than an 11" screen on a laptop? Depends, is viewing more important to you than portability. One number, but it doesn't tell us anything about the suitability/applicability of that number.

-ERD50