What You Can Learn From 1,000 Millionaires

[Nords]

Desperate for content, Fidelity put out a "10 best articles of the year" article this week. One of them is a Marchan interview with Jim Trippon, who wrote "How Millionaires Stay Rich Forever". (I haven't read it yet, but I think it has something to do with not spending all their money.) The key was savings & tax-sheltered accounts.

His 1000 millionaires were chosen for liquid assets, not including home equity. Their secret belongs in the "well, duh" category: "If you look at the studies, more than 80% of the millionaires in the United States did not inherit their wealth but are self made. The 1,000 millionaires I interviewed all had savings plans, and made regular contributions into an investment account of some type. Whether it's $25 or $300 a month, they do it month-in, month-out."

Here's a scary quote: "More than 20% of retired millionaires are forced back to work within five years. The major reason is uninsured health care costs. People retiring in their 50s don't realize that they have until 65 before Medicare insurance becomes available. Unless they're picking up health care benefits from their company, they could have huge expenses in buying insurance. In some cases, they may not even be able to find it, because of pre-existing conditions. Unless you are a multi-millionaire, long-term care insurance is a basic requirement to help protect your assets."

 

[REWahoo]

...a Marchan interview with Jim Trippon, who wrote "How Millionaires Stay Rich Forever". ...People retiring in their 50s don't realize that they have until 65 before Medicare insurance becomes available.

Which proves either you don't have to be intelligent to be a millionare or you can spend every waking minute working, saving and investing and be clueless to the reality of RE. Or both...

 

[Spanky]

It's amassing that millionares cannot afford medical insurance and are therefore returned to work for that purpose.

There are other ways to protect your assets without long-term care insurance:
1. Stay healthy by taking care of yourself.
2. Transfer all your assets to people you can trust.

 

[Mr._johngalt]

It's amassing that millionares cannot afford medical insurance and are therefore returned to work for that purpose.

There are other ways to protect your assets without long-term care insurance:
1. Stay healthy by taking care of yourself.
2. Transfer all your assets to people you can trust.

I agree with Spanky. No one in our immediate family has LTC insurance.
There are ways to work around it with a little thinking
and creativity.

I will go further. I think most folks are overinsured in general.
I have no data to back this up, but believe there are many ways
to protect against an economic disaster other than traditional
insurance.

JG

 

[Outtahere]

So millionares go back to work because of the cost of healthcare? If they are millionares can't they afford it? Sounds to me like they didn't really want to stop working in the first place and use that as an excuse.

 

[maddythebeagle]

So millionares go back to work because of the cost of healthcare?  If they are millionares can't they afford it?  Sounds to me like they didn't really want to stop working in the first place and use that as an excuse.

I think that is probably it. The quote seems to be written in a way to jump to the conclusion. The guy lost me at LTC insurance.

 

[Spanky]

More generally, an entry-level millionaire is independently lower-middle-class today

Huh? Lower-middle class?

 

[Martha]

The insurance issue is really a big issue for some. Depends so much on what state you live in and the status of your health. Say you retire healthy at 45. You buy an inexpensive health insurance policy. You live in a state where premiums can increase if you become ill or as you age. Those premiums can become huge. I have heard of situations where the premium increases to a couple of thousand dollars a month. That sure cuts into the $40,000 SWR.

Another situation. You retire. Get insurance through COBRA for 18 months. You have a chronic condition. You can't even find affordable insurance in your state. HIPAA may require insurance plans be offered to you but there is no limit on cost. It could be several thousand a month. You buy insurance instead that excludes your condition. You get sicker and the costs are not covered by insurance.

One possible solution short of returning to work is to move to a state that has better and cheaper health plans available to you.

 

[Dawg52]

My definition of "rich", from a financial stand point, is one who can spend their savings without any concern of running out of money. Now for many, that is almost impossible on 1 million. I do have health insurance, therefore I feel I could easily budget the rest of my life on 1 million. Just not rich. 

 

[Tadpole]

Back in the 50s there was a program "The Millionaire". It represented a gift, tax-free, of instant wealth. Based on this benchmark, you need 7-8 million dollars to be wealthy today.

 

[SteveR]

Back in the 50s there was a program "The Millionaire". It represented a gift, tax-free, of instant wealth. Based on this benchmark, you need 7-8 million dollars to be wealthy today.

I think this was the topic of a thread not too long ago. How much $$ makes you wealthy?

If you make $3k per year, $1Millon looks rich.
If you make $30,000 per year $10 million looks rich.
If you make $300,000 per year $100 million looks rich.

It all comes down to perspective of what you can afford to purchase at the various income (new worth) levels without depleting your net worth doing so. For some it would be a McMansion for others it might be a private jet. How much wealth does it take to be rich? It all depends on what you believe rich people can do that you cannot.

 

[RockMiner]

Assuming a SWR of 4% or less, I don't think anyone 50-ish is completely "bulletproof" without $2MM or so Yet I'd bet that $1MM liquid looks rock solid to most people...and it should be! This health insurance situation has to change, so eventually it will.

 

[Spanky]

Instead of focusing on affordability of health insurance, how about providing adequate health care for all? The questions: what is adequate? who will fund it?

 

[Mr._johngalt]

It all depends on what you believe rich people can do that you cannot. 

My position is that I can do anything rich people can do, just for a shorter time and on a much smaller scale.    

JG

 

[Spanky]

Wealth is a moving target. Someone may say if I have X, I would consider myself rich. However, when X is achieved, he/she will establish another goal, say Y. When Y is attained, another goal is set.

 

[Mr._johngalt]

Just in a financial sense -- less than $30,000 per year.  Where would this put a person (who was still working) on the economic ladder?  Not rich by any stretch of the imagination  . . .

I wish I had real numbers, but you will get my drift. Of those who post
here (FIREed or close), I would guess my net worth is in the bottom 5%
easily. However, if you look at the whole country, I am pretty sure I am
in the top 5%. It's all perspective.

JG

 

[Mr._johngalt]

JG -- in terms of net worth, maybe.  In terms of income, I doubt it.

Two totally different things, not necessarily any connection at all
between them.

JG

 

[Jay_Gatsby]

Not to hijack the thread too much, but we all know that insurance premiums are calculated by spreading the risk among large numbers of people. I really resent the fact that my insurance premiums are based in part on the voluntary conduct of others. Smoking, drinking to excess on a regular basis, not exercising 2-3 days a week, eating artery-clogging junk food, etc... are all voluntary behaviors that contribute to substantial health problems later on in life.

 

[Spanky]

Top 10% holds over 71% of wealth.

http://www.faculty.fairfield.edu/faculty/hodgson/Courses/so11/stratification/income&wealth.htm

Mean and Median Wealth and Income in 2001 (according to the article):
The amount in 2001 dollars.
median Mean
Net worth: 73.5K 380.1K
Income: 42.2K 58.2K

Number of millionaire households in 2001: 106,494K.
1 Mil: 5,892K
5 Mil: 1,067.8K
10 Mil: 338.4K

Net Wealth Distribution in 2001 (in 2001 dollars):
Top 1% = 13 mil
Next 4% = 2.45 mil
Next 5% = 937K
Next 10% = 490K

Top 20% = 1.6 mil
4th 20% = 215K
3rd 20% = 75K
Bottom 40% = 2.9K

 

[Spanky]

It is so difficult to live without insurance nowadays. We have medical, dental, vision, life, auto, and house insurances. It's about 10% of our household expenses. It will be more expensive when both of us leave the workforce. I am still debating whether to buy LTC insurance also. Life was much simpler when we were poor in Hong Kong. We had no insurance of any kind since we had no assets and medical care was covered by the government.

 

[MJ]

My position is that I can do anything rich people can do, just for a shorter time and on a much smaller scale.

I guess the dumpsters, rich folk search in for those hidden treasures, are much larger than the ones you frequent.

 

[ESRBob]

It is so difficult to live without insurance nowadays. We have medical, dental, vision, life, auto, and house insurances. It's about 10% of our household expenses.

One approach to insurance you might consider: only insure those items which have the potential to become really expensive if bad luck hits you. Don't buy insurance (in other words, self-insure) things that crop up which you just have to pay for, but which are unlikely to result in catastrophic damage to your net worth.

By that measure, we have dropped dental and vision insurance, preferring to just pay those expenses when they come up. We keep homeowners, auto and medical (and a boat loss policy and umbrella liability) in order to dodge a catastrophic loss should bad luck come. Wherever possible, we crank premiums down by using high deductibles, again only trying to insure against major losses, not everyday expenses.

For Life insurance, I had the kids' trust buy a cheap term policy on me, scheduled to expire around the time they reach maturity. The thought there was that they wouldn't suffer financially from my death after that. Also, since we have our ER nest-egg already, we don't own life insurance for our surviving spouse because again, there is no financial loss from either of our deaths, so why insure?

This thinking may seem simple and logical, but it is surprising how much insuracne people buy just 'to feel safe' and how they don't always need it.

 

[brewer12345]

Just to amplify ESRBob's comments: consider dropping auto and boat too, at least for property coverage. Naturally, you'd have to figure out if this made sense, but if you are carrying comprehensive and collision for $750 a year on a $2000 car, it isn't hard to see how the insurer is making money...

 

[deserat]

Insurance is just paying someone else to cover your risk - one needs to assess what they believe that risk will be and then act according to their level of risk tolerance. For example, life insurance may not be necessary if you have enough to cover your debts and pass on (if you wish and aren't of the Die Broke philosophy) what you wish to your heirs.

In business, many just insure for catastrophic loss, unless the insurance industry has pushed through laws mandating minimal levels of insurances (case in point, auto insurance). Day to day swings in operating costs can be covered in the cash flow and financial planning. If you are able to think of your finances as a business, then you too can think that way.

Deserat

 

[Honkie]

Life was much simpler when we were poor in Hong Kong. We had no insurance of any kind since we had no assets and medical care was covered by the government.

Not poor, and still in Hong Kong.

All we carry is life insurance on wife and I, sufficient to pay the mortgage balance on our home plus a bit extra. We also have a policy that pays out a lump sum in the event of critical illness (which we use to protect against loss of earning ability).

All health and medical issues, covered by the state, but we do have small coverage as a top up to provide private/specialist hospital care if we choose.

The apartment is covered by the buildings's umbrella policy. We carry no house contents insurance.

No car so no auto insurance. No boats either!

Employee insurance for the domestic helper to cover acccident, injury and death in service.

All up, it costs us less than US$1500 a year.

Cheers,

Honkie