When a Million Dollars was serious wealth

[unclemick]

I remember about 15 years ago when a friend laughed and said she and her husband were 'nega-millionaires'. They had invested in several rental or development properties and owed more than a million bucks. The idea was shocking to me, but I liked her attitude.

Fwiw - she pulled the plug and retired in her mid 50's. They've sold or paid off the properties they still own. Her husband still works - but choice. So owing that million, being nega-millionaires, was a good financial move for them.

Grin. Several years ago DW's Brother talking about a local farmer said he was rich cause last year he borrowed $4 million in petty cash to pay his help and other costs til the crops were sold.

Heh heh heh - In the years since starting investing (1966) crossing $1 million was fun. BUT crossing $1 million in the negative direction - REALLY got our attention.

 

[friar1610]

I worked with some people who were almost certainly 1%ers, at least income-wise. They were retired military/government who'd jumped to defense contracting. With a clearance and a little STEM knowledge, their salaries were easily 3X what they'd been making before retirement (I know this because I dealt with contracting at one point, and saw what their salaries plus overhead were costing us!)

Most were in their 60's, some older. They seemed (based on how they talked) to be living quite large, yet here they were, in a dingy government office. Some seemed happy, but many were grumps.

I was one of the retired military, as were many of my friends, who made nice money in the contracting world. I was never anywhere remotely near the kinds of numbers you describe but I have friends who made it to those levels and higher. But my decent salary plus my pension put me at income levels I’d never expected.

My problem was that I really disliked the work and I broke the code that I might be doing it forever if I “lived (too) large” and began to depend on the big bucks to maintain a too high standard of living which needed those bucks. So, I kept living on something close to my military income, banked/invested the rest and once I’d accumulated the amount on which this thread is based i was outta there (before becoming either grumpy or 60.)

 

[ejman]

About 10 years ago someone posted on a personal finance board that if they had $1 million they'd be set for life. They could invest it at 8% and withdraw $80K/year forever. I pointed out to them that (a) an 8% rate of return, even if that were a realistic expectation, would have some volatility and require a very high % of equities and (b) $80,000 may sound good to them now but in 20 years it will buy a lot less, so you have to withdraw a smaller amount so that some can grow to allow for inflation in expenses.

Not happy news to them, I'm sure.

I remember Peter Lynch of Magellan fund fame writing many years ago that a 7% withdrawal rate was perfectly reasonable.

 

[youbet]

I remember Peter Lynch of Magellan fund fame writing many years ago that a 7% withdrawal rate was perfectly reasonable.

If you knew apriori that market returns going forward would be similar to what they have been this past decade, and you were my age, I do believe 7% would be just fine. But, but, but...........

 

[GravitySucks]

I remember Peter Lynch of Magellan fund fame writing many years ago that a 7% withdrawal rate was perfectly reasonable.

That was common pre-Bengan/Trinity advice. I had an old timer FA type tell me I should be sure to be conservative since I was only 54 I should take only 6%

A Million may not be what it was but it's still freakin' sweet!

 

[aaronc879]

I remember Peter Lynch of Magellan fund fame writing many years ago that a 7% withdrawal rate was perfectly reasonable.

If you are old enough for SS then that is probably true. If you retire then have a bear market right away then you could be in trouble. If you retired in 2010 you could have a 7% WR and still increase your net worth.

 

[F.I.R.E User]

We can live on $40k easily on the $1M today.

 

[cyber888]

When the 'Millionaire Next Door was Written" in 1996 - was he talking about $1 Million Dollars Overall Net Worth (including the House, less mortgage), or was he talking about $1 Million only in Investments and Liquid Assets ??

Because that translates today to around $1.7 Million. So, if being a Millionaire then in 1996 was Net Worth (include the house) - then if you have a $400,000 home with no debt or mortgage, your liquid investment would need to be around $1.3 Million.

 

[Koolau]

When the 'Millionaire Next Door was Written" in 1996 - was he talking about $1 Million Dollars Overall Net Worth (including the House, less mortgage), or was he talking about $1 Million only in Investments and Liquid Assets ??

Because that translates today to around $1.7 Million. So, if being a Millionaire then in 1996 was Net Worth (include the house) - then if you have a $400,000 home with no debt or mortgage, your liquid investment would need to be around $1.3 Million.

I can't lay my hands on my (mainland) copy of the book right now. I was thinking NW included home equity. YMMV

 

[John Galt III]

I was about to post to say how salaries have inflated so much lately, but I checked first, and discovered that the median salary for a computer programmer in 2020 was only $85,000, with a max of $120,000. That makes me feel better. I was sure they were all making north of $105K per year these days. I maxed out at $80K per year as an experienced programmer in 2001. Not resenting the current crop of $85k per year programmers. That's lower than I thought it would be. Way to keep those wages down, megacorp, lol!

 

[jkern]

Inflation in the 70s was rampant. The value of $1M in 1980 is only $3.3M today.

I would take official inflation numbers with a large grain of salt. I can't think of anything from 1980 that is only 3.3 times more expensive than today (other than maybe TVs and electronics).

In the SF Bay Area, housing about 15X, college about 20X, medical about 20X, utilities about 10X, even golf is about 10X.

 

[cyber888]

I can't lay my hands on my (mainland) copy of the book right now. I was thinking NW included home equity. YMMV

Ok Thanks.
I thought so too, because I think he said something like most millionaires own a home and have a substantial home equity.

 

[CSdot]

When the 'Millionaire Next Door was Written" in 1996 - was he talking about $1 Million Dollars Overall Net Worth (including the House, less mortgage), or was he talking about $1 Million only in Investments and Liquid Assets ??

Because that translates today to around $1.7 Million. So, if being a Millionaire then in 1996 was Net Worth (include the house) - then if you have a $400,000 home with no debt or mortgage, your liquid investment would need to be around $1.3 Million.

The authors consider $1 million (the difference between a person’s assets and liabilities) as the wealth threshold. In other words, millionaire is defined by the authors as Net Worth (including the home equity).

That said, I believe much of the authors' emphasis was more on the concept of wealth accumulation (saving and spending) than solely the acquisition of the eponymous number, as explained further by this cut and paste from Wikipedia:

UAWs versus PAWs[edit]
Under Accumulator of Wealth (UAW) is a name coined by the authors used to represent individuals who have a low net wealth compared to their income. A doctor earning $250,000 per year could be considered an "Under Accumulator of Wealth" if their net worth is low relative to lifetime earnings.[1] Take for example a 50-year-old doctor earning $250,000. According to the authors' formula he should be saving 10% yearly and should have about $1.25 million in net worth (50*250,000*10%). If their net worth is lower, they are an "Under Accumulator". The UAW style is based more on consumption of income rather than on the method of saving income.

A Prodigious Accumulator of Wealth (PAW) is the reciprocal of the more common UAW, accumulating usually well over one tenth of the product of the individual’s age and their realized pretax income.

The authors define an Average Accumulator of Wealth (AAW) as having a net worth equal to one-tenth their age multiplied by their current annual income from all sources. E.g., a 50-year-old person who over the past twelve months earned employment income of $45,000 and investment income of $5,000 should have an expected net worth of $250,000. An "Under Accumulator of Wealth (UAW)" would have half that amount, and a "Prodigious Accumulator of Wealth (PAW)" would have two times. This metric has been criticized since,[citation needed] for example, a 20-year-old making $50k a year should have a net worth of $100k to be considered an "average accumulator of wealth". That makes little sense since it would take a new graduate years of strong savings and investments to accumulate that amount. Critics[who?] further argue that formula fails to take into account compounding interest; younger people up to age 45 or so will generally have much less as a percentage of income than older wealth accumulators due to compounded growth.

Most of the millionaire households that they profiled did not have the extravagant lifestyles that most people would assume. This finding is backed up by surveys indicating how little these millionaire households have spent on such things as cars, watches, clothing, and other luxury products/services. Most importantly, the book gives a list of reasons for why these people managed to accumulate so much wealth (the top one being that "They live below their means"). The authors make a distinction between the 'Balance Sheet Affluent' (those with actual wealth, or high-net-worth) and the 'Income Affluent' (those with a high income, but little actual wealth, or low net-worth).

https://en.wikipedia.org/wiki/The_Millionaire_Next_Door

 

[CSdot]

How long until someone can reissue the book and un-ironically title it, The Billionaire Next Door, or at the very least (for 2021) The Deca-Millionaire Next Door? Ten years? Twenty years? I personally know the two legitimate billionaires in my area (have been to lunch with both), and they are very down to earth. You wouldn't recognize their extreme level of wealth by merely meeting them.

Admittedly reaching the Billion Dollar threshold (the three comma club) is not a level many of us will ever experience, but unless the many "How am I doing so far" posts I have read on this website are BS, Deca-Millionnaire is certainly within reach for some percentage of the participants on this forum.

 

[ejman]

If you are old enough for SS then that is probably true. If you retire then have a bear market right away then you could be in trouble. If you retired in 2010 you could have a 7% WR and still increase your net worth.

Yes, I actually have a hard time wrapping my head around the thought that 4% WR is a worst case scenario and actually takes into account both the great depression of 1929 and the stagflation of the 1970's. In reality my personal WR rate has been below 3% as I have such a hard time psychologically ramping that up.

 

[MRG]

Yes, I actually have a hard time wrapping my head around the thought that 4% WR is a worst case scenario and actually takes into account both the great depression of 1929 and the stagflation of the 1970's. In reality my personal WR rate has been below 3% as I have such a hard time psychologically ramping that up.

We're retired 8 years now and have kept our expenses like the little less than the 3% you mentioned. Last year I decided to BTD and took out 8%, bought a 65k vehicle, and we still are living from last years withdrawal. DW is planning an Icelandic cruise for next year to help spend it. In 5 years I start SS. Our budget for 2014, first full year of retirement, would be covered by our SS.

 

[ncbill]

3% works for a long (50 year) retirement even if you have to pay for a full decade of LTC out-of-pocket:

https://earlyretirementnow.com/2021/08/18/when-to-worry-when-to-wing-it-swr-series-part-47/

 

[ncbill]

The authors consider $1 million (the difference between a person’s assets and liabilities) as the wealth threshold. In other words, millionaire is defined by the authors as Net Worth (including the home equity).

That said, I believe much of the authors' emphasis was more on the concept of wealth accumulation (saving and spending) than solely the acquisition of the eponymous number, as explained further by this cut and paste from Wikipedia:

UAWs versus PAWs[edit]
Under Accumulator of Wealth (UAW) is a name coined by the authors used to represent individuals who have a low net wealth compared to their income. A doctor earning $250,000 per year could be considered an "Under Accumulator of Wealth" if their net worth is low relative to lifetime earnings.[1] Take for example a 50-year-old doctor earning $250,000. According to the authors' formula he should be saving 10% yearly and should have about $1.25 million in net worth (50*250,000*10%). If their net worth is lower, they are an "Under Accumulator". The UAW style is based more on consumption of income rather than on the method of saving income.

A Prodigious Accumulator of Wealth (PAW) is the reciprocal of the more common UAW, accumulating usually well over one tenth of the product of the individual’s age and their realized pretax income.

The authors define an Average Accumulator of Wealth (AAW) as having a net worth equal to one-tenth their age multiplied by their current annual income from all sources. E.g., a 50-year-old person who over the past twelve months earned employment income of $45,000 and investment income of $5,000 should have an expected net worth of $250,000. An "Under Accumulator of Wealth (UAW)" would have half that amount, and a "Prodigious Accumulator of Wealth (PAW)" would have two times. This metric has been criticized since,[citation needed] for example, a 20-year-old making $50k a year should have a net worth of $100k to be considered an "average accumulator of wealth". That makes little sense since it would take a new graduate years of strong savings and investments to accumulate that amount. Critics[who?] further argue that formula fails to take into account compounding interest; younger people up to age 45 or so will generally have much less as a percentage of income than older wealth accumulators due to compounded growth.

Most of the millionaire households that they profiled did not have the extravagant lifestyles that most people would assume. This finding is backed up by surveys indicating how little these millionaire households have spent on such things as cars, watches, clothing, and other luxury products/services. Most importantly, the book gives a list of reasons for why these people managed to accumulate so much wealth (the top one being that "They live below their means"). The authors make a distinction between the 'Balance Sheet Affluent' (those with actual wealth, or high-net-worth) and the 'Income Affluent' (those with a high income, but little actual wealth, or low net-worth).

https://en.wikipedia.org/wiki/The_Millionaire_Next_Door

Don't forget many of the MND discussed got that way from owning a privately-held business.

So even with a modest salary their business alone was probably valued at over a million, even back then in 1996.

 

[purplesky]

It seems 1 million dollars in 2021 is just a foundation. A sigh of relief.
It's only 30 to 40k of annual income but it's enough to survive on in a low cost area.

I like the Costco and REI test. If you can shop at Costco and REI and not worry at all about what you are spending you will need a minimum of 3 million dollars.

Yes 120k of annual income isn't serious wealth but moving forward that 3 million dollars should grow quickly to serious wealth using a 4% withdrawal rate.

This is assuming the tax payer funded stock market casino continues to deliver crazy returns. The amount of new 401k millionaires is going to be crazy.

Housing inflation alone is the real buzz kill if you only have 1 million dollars . lol.

 

[Closet_Gamer]

True, but there is still a ring to the phrase "a million dollars". It may no longer be worth what it was in past decades, but it still ain't chump change!

Looks like median income in the US in 2019 was $32k or so. (I'm guessing that's for an individual, all ages).

If you say to the average person "$1 million dollars" its 30x what they earn in a year...so yeah, still a lot of money.

 

[street]

3% works for a long (50 year) retirement even if you have to pay for a full decade of LTC out-of-pocket:

https://earlyretirementnow.com/2021/08/18/when-to-worry-when-to-wing-it-swr-series-part-47/

There is a lot of great information in that article.

One million is sill serious money. To most that is a number that is a dream.

As far as a WR of 4% I wouldn't know how I personally would want to spend that much money. It wouldn't make me any happier and would cause more stress with owning more stuff. Lol

 

[CSdot]

Check out this depressing, yet self-serving to the investment advisors who created it, definition of whether you are a millionaire.

According to 2020 data from Phoenix Marketing International, a firm that tracks the affluent market, 6.71% of U.S. households (or 8,386,508 out of 125,018,808 total U.S. households) have investable assets of $1 million or more.

Note well that to be considered a millionaire by the standards of wealth research, a household must have investable assets of $1 million or more, excluding the value of real estate, employer-sponsored retirement plans and business partnerships, among other select assets.

https://www.kiplinger.com/slideshow...you-must-know-becoming-millionaire/index.html

According to this definition, the only assets that count towards millionaire status are the ones a financial advisor can charge you a fee to manage. So tough luck to you wannabe millionaires with your paid for home, 7-figure 401k/Sep/Roth, paid for rentals properties, and successful business.

 

[calmloki]

Curses! and I thought we were doing ok. oh wait - household - whew. WE are a millionaire.

 

[Koolau]

Check out this depressing, yet self-serving to the investment advisors who created it, definition of whether you are a millionaire.

According to 2020 data from Phoenix Marketing International, a firm that tracks the affluent market, 6.71% of U.S. households (or 8,386,508 out of 125,018,808 total U.S. households) have investable assets of $1 million or more.

Note well that to be considered a millionaire by the standards of wealth research, a household must have investable assets of $1 million or more, excluding the value of real estate, employer-sponsored retirement plans and business partnerships, among other select assets.

https://www.kiplinger.com/slideshow...you-must-know-becoming-millionaire/index.html

According to this definition, the only assets that count towards millionaire status are the ones a financial advisor can charge you a fee to manage. So tough luck to you wannabe millionaires with your paid for home, 7-figure 401k/Sep/Roth, paid for rentals properties, and successful business.

I couldn't read the article. I wonder if "employer-sponsored retirement plan" isn't referring to a pension. I wouldn't think it would be a 401(k) or similar. Yes, companies set them up for empl*yees and they may contribute BUT I wouldn't think they are "sponsored" like a pension. I have no other insight on this as it's simply my opinion. Therefore, YMMV.

 

[Midpack]

I've noted this a few times before, but the current concept of a millionaire, especially in regard to various Millionaire Tax schemes, refers to someone with an income of $1,000,000 per year or more.
And there are a lot of them...

A millionaire is someone with a net worth of a million or more. Not sure what “current concept” means.

Lots of sources online, none credibly suggest income is the determinant. Just one https://www.thebalance.com/what-is-a-millionaire-453762