Rich VS Wealthy

[scrabbler1]

I try to keep my life simple. Do I do not worry about the difference between the two, if there even is one. I just know DW and I are living very comfortably without either of us having to work, and that our money will outlive us. We are enjoying the moment, whether it be "rich" or "wealthy".

I was struggling to find a way to add to this fine thread. Then I read your post and it very much fits my situation. Thank you.

I have enough money to live off my money (just the investment income, not the principal) while maintaining my comfortable (and simple) pre-ER lifestyle, with a cushion to cover unforeseen expenses. And this is without SS, without unfettered access to my IRA (although I can now access it, having just turned 59.5), and without access to my frozen company pension. So, it will surely outlive me, too.

 

[easysurfer]

I always thought wealthy meant more than rich. Maybe because the word rich is more commonly used so it's value gets watered down.

But I guess doesn't really matter. Tomayto, tomatto, pop or soda.

 

[Car-Guy]

We are barely Millionaire's.... But only If we count the value of our pensions, but depending on who you ask, they don't count towards net worth... LOL

So again, two people, with a net worth of 100k each today, will retire from the same company tomorrow. Person #1 takes the lump sum retirement settlement that is worth 1m. Person #2 takes the annuity that is calculated to be an equivalent that's paid out over his retirement.

So person #1 is now worth 1.1m on the day he retires but person #2 is still only worth 100k when he retires?

 

[Gumby]

Why do you care? Are you able to live the life you want now? If you are, then that's what counts, not the precise definition of net worth.

 

[marko]

So again, two people, with a net worth of 100k each today, will retire from the same company tomorrow. Person #1 takes the lump sum retirement settlement that is worth 1m. Person #2 takes the annuity that is calculated to be an equivalent that's paid out over his retirement.

So person #1 is now worth 1.1m on the day he retires but person #2 is still only worth 100k when he retires?

Some folks here calculate their SS "4%" into their net worth. Cheating IMO.

 

[Car-Guy]

Why do you care? Are you able to live the life you want now? If you are, then that's what counts, not the precise definition of net worth.

If that comment was directed to me, I don't care... Basically both amount to the same NW to me.

 

[Car-Guy]

Some folks here calculate their SS "4%" into their net worth. Cheating IMO.

Not IMO.

 

[easysurfer]

I've considered that wealth has more prestigious connotation than rich.

Go to a bank and you don't see a "Rich Management Services" department but maybe a "Wealth Management Services"

But I guess it's just semantics. Janitor or Custodian. The same difference as they say .

 

[Car-Guy]

I've considered that wealth has more prestigious connotation than rich.

Go to a bank and you don't see a "Rich Management Services" department but maybe a "Wealth Management Services"

But I guess it's just semantics. Janitor or Custodian. The same difference as they say .

Now that makes sense.

 

[Jerry1]

So again, two people, with a net worth of 100k each today, will retire from the same company tomorrow. Person #1 takes the lump sum retirement settlement that is worth 1m. Person #2 takes the annuity that is calculated to be an equivalent that's paid out over his retirement.

So person #1 is now worth 1.1m on the day he retires but person #2 is still only worth 100k when he retires?

That’s correct. Net Worth is an accounting term the comes from the Balance Sheet with a very specific meaning. Basically, if everything was liquidated on a particular day, what would be the outcome. If Person #1 died, his estate would be $1.1m and that money would be available to his heirs. Person #2 would only have an estate of $100K.

The concept of how well off they are at that moment is better captured by a projected Income Statement. Conceptually, both Person #1 and #2 should have about the same net income and be able to support the same lifestyle. Of course there’s a lot of variables like the return on Person #1’s portfolio and in the longer term, inflation.

What one considers for retirement planning is often different than the textbook definition of net worth. For example, many people don’t include their house. That’s fine. I do the same thing. And of course in retirement planning, you’re going to count things like pensions and SS (annuities) that will provide income going forward. But, that’s not Net Worth.

 

[Car-Guy]

^^^^
So another scenario... Just curious of your POV.

Person #1 has 1 million in his NOW bank account
Person #2 has 1 million in a tIRA.

How do you count their NW? The same? Or subtract the tax liability of person #2, and at what rate?

 

[Rianne]

Tax liability is a future liability like anything else. Future groceries, purchases, spending. That's how I look at it. When I input spending in Firecalc I include any and all expenses I foresee for the future. Not just inflation.

The definition is total assets - total liabilities. Why shouldn't your paid-for house be considered? If I owned a $1M house and had nothing else, wouldn't that be considered my net value? Then if I took loans from that house to live on, those would be my liabilities as would property taxes. If the house appreciated enough to cover those loans, and property taxes, then my net worth would be back to $1M.

 

[Sojourner]

In other news...single millionaires are the new middle class:

https://finance.yahoo.com/news/not-wealthy-worried-grant-cardone-174832707.html

What a ridiculous, vacuous, clickbait article. Some guy named Grant Cardone is quoted as saying single-digit millionaires are "middle class people worried about money", and that people should instead "go for broke" investing in real estate. The article also helpfully includes links to his real estate crowdfunding platform.

 

[Sunset]

I try to keep my life simple. Do I do not worry about the difference between the two, if there even is one. I just know DW and I are living very comfortably without either of us having to work, and that our money will outlive us. We are enjoying the moment, whether it be "rich" or "wealthy".

There you go.... throwing another term in the mix: rich, comfortable, wealthy

From the movie Rich Asians there is a quote about "comfortable"

 

[Jerry1]

^^^^
So another scenario... Just curious of your POV.

Person #1 has 1 million in his NOW bank account
Person #2 has 1 million in a tIRA.

How do you count their NW? The same? Or subtract the tax liability of person #2, and at what rate?

The tax liability would need to be subtracted. Asset - Liabilities = Net Worth. There's no doubt that the tIRA has a tax liability. When and how it gets paid is another matter. New Worth is calculated on a date certain. You could make assumptions as to what the tax liability would be, but I don't see how you could ignore it.

 

[finnski1]

So again, two people, with a net worth of 100k each today, will retire from the same company tomorrow. Person #1 takes the lump sum retirement settlement that is worth 1m. Person #2 takes the annuity that is calculated to be an equivalent that's paid out over his retirement.

So person #1 is now worth 1.1m on the day he retires but person #2 is still only worth 100k when he retires?

That's correct.
Person 1 gets hit by a bus the next day. His heirs get 1.1 million
person 2 gets hit by a bus the next day. His heirs get .1 million
note: this would be assuming single with no spouse getting a JS annuity.

 

[Major Tom]

In other news...single millionaires are the new middle class:

https://finance.yahoo.com/news/not-wealthy-worried-grant-cardone-174832707.html

A million dollars can generate income of around 25-40K a year, which doesn't strike me as very middle class. If you have 2 or 3 million, with a paid-off house, then you're talking. YMMV, of course, depending on which area you're living in.

 

[Car-Guy]

A million dollars can generate income of around 25-40K a year, which doesn't strike me as very middle class. If you have 2 or 3 million, with a paid-off house, then you're talking. YMMV, of course, depending on which area you're living in.

Yep, and add SS to that and you should be in pretty good shape. You can easily make 50k/yr per million "these days" and keep ~40k of that after tax. So if you have 2 million, you can double those numbers. Etc.

 

[Sojourner]

A million dollars can generate income of around 25-40K a year, which doesn't strike me as very middle class. If you have 2 or 3 million, with a paid-off house, then you're talking. YMMV, of course, depending on which area you're living in.

Ehh, I don't know. $40k/year is pretty solidly middle-middle class in large parts of the rural U.S., and even in many medium-sized cities and suburban areas. Not so much in larger urban/suburban areas. Regardless, though, the article was talking about the slightly ridiculous scenario of someone 30 years old with $1 million, trying to live solely off that—in perpetuity—with no other income. The article completely discounted investment returns and passive income (dividends, etc.)., as it clearly had an agenda of pushing the real estate crowdfunding business of this particular "investment guru".

 

[scrabbler1]

A million dollars can generate income of around 25-40K a year, which doesn't strike me as very middle class. If you have 2 or 3 million, with a paid-off house, then you're talking. YMMV, of course, depending on which area you're living in.

Two points: (1), are you referring to per person or household? $30k for one person is surely enough to live middle class, especially if, (2) there is an incentive to keep one's income low to receive an ACA premium subsidy. Three years ago, I changed the stock portion of my taxable portfolio to keep my income down so I could qualify again for a good sized subsidy. And I live in a HCOL.

 

[Car-Guy]

The tax liability would need to be subtracted. Asset - Liabilities = Net Worth. There's no doubt that the tIRA has a tax liability. When and how it gets paid is another matter. New Worth is calculated on a date certain. You could make assumptions as to what the tax liability would be, but I don't see how you could ignore it.

Agree with that.

 

[Midpack]

Why do you care? Are you able to live the life you want now? If you are, then that's what counts, not the precise definition of net worth.

+1. I have no interest, but whatever generates clicks…

 

[Major Tom]

Ehh, I don't know. $40k/year is pretty solidly middle-middle class in large parts of the rural U.S., and even in many medium-sized cities and suburban areas. Not so much in larger urban/suburban areas.

I think my perspective is skewed by the fact that I live in a HCOL area (from the housing point of view, at least).

Two points: (1), are you referring to per person or household? $30k for one person is surely enough to live middle class, especially if, (2) there is an incentive to keep one's income low to receive an ACA premium subsidy. Three years ago, I changed the stock portion of my taxable portfolio to keep my income down so I could qualify again for a good sized subsidy. And I live in a HCOL.

I tend to think of things in terms of one-person households, as that is what I am. I live in a HCOL area (SF Bay area). My annual spend is $27,600, and I don't think of myself as anywhere near the middle class.

 

[marko]

Two points: (1), are you referring to per person or household? $30k for one person is surely enough to live middle class.

In our area you need $30k just to rent a somewhat decent apartment. $2500 a month doesn't get you much in Boston. Needing a roommate or three isn't what I'd call middle class.

 

[ncbill]

My in-laws retired on FIL's modest (but COLA) pension of ~$15k, almost 30 years ago.

Paid-off home, free retiree health insurance, traveled the country for their first decade or so (had traveled internationally during his working years)

Slowed down now that they're in their 80s.