How Much Money Does It Take to Be Rich?

He's an interesting question coming out of my post titled $1 Million Isn't What It Used To Be, But It's More Than Most People Have where there was general consensus that $1 million is a lot of money, but it doesn't really make anyone "rich." (or at least rich to the point of being able to retire/do whatever you'd like) So this begs the question:

How much money does it take before you're rich?

There needs to be some guidelines here or I'll get responses all the way from $1 million for those who want a frugal richness to $1 billion for those who literally want to be able to fly at a moment's notice on their own private jet. So let's go with these rules for setting your "rich number":

1. It's enough money that you won't ever have to work again if you don't want to.

2. It's enough money that you can have luxuries "within reason" (I'll leave that definition up to you) -- not over the top, but at a standard of living where you feel you've "got it made." (Hint: that's probably a standard above where you are now.)

3. It's enough that you have no money worries.

Given these parameters, I think my number would be $5 million. Even if I only invested it at 5% annually, it would still give me $250,000, which is well above my standard of living. It would certainly allow me to retire and do pretty much whatever I wanted (travel, volunteer, give, and so on.)

So, what is the amount of money you'd have to have to consider yourself rich?

Comments

[Jeffrey]

$4 million sounds good to me. This would be the investment portfolio only, however, not net worth. I'm not counting the value of my home or any other possession. On the other hand, I am figuring that I may properly maintain all the possessions I choose to have on the return from this $4 million.

[Rick]

I've been using the figure $10 million. That is, when I retire in 45 years, I figure that $10 million will be worth $2 million in today's dollars, and that $2 million, at a 4% rate of return, will give me 80K a year, a comfortable, if not extravagant, living. Maybe it's not that "rich", but I figure I certainly won't have to worry about money issues.

That's my thought anyway.

[Jesse]

$25M seems like a good number in 20 years. I have no idea what I would do with all of it, but I like the sound of it.

[majic]

$600 million or so. More than enough to do / buy / see / take part in anything you want. The world is your oyster.

[limeade]

I don't really look for a particular sum of money. I focus more on creating more and more passive cash flow.

You mention living off of $250,000 per year which breaks down to just under $21,000 a month. You could get this with 21 different rental houses at about $150,000 a piece. You'd only need $3.1M to do this.

Monthly income is our financial lifeblood and not some lump sum; that's why I focus on cash flow instead of account balance.

I also measure rich in "time", and not is "dollars".

-limeade

[zen]

I think I'm with you - 5 million @ 5% is more then enough to live comfortably.

And I mean, I can travel a little, I can drive a decent car, I can relax and invest if I want, or I can sit around and pick up obscure hobbies. I don't need the Benz and the Bel Air estate - I'll take a nice home in a quiet suburb with a Honda in the driveway, and the zen state of mind knowing I'm doing better than okay.

[plonkee]

My friends and I discuss this often, and the figure we came up with was £3m (about $4.5m-$5.5m depending on the exchange rate).

[Matt]

I've always considered one million to be a good starting point but I understand that with a million dollars I would probably be able to live my current lifestyle without working and not much more (for the rest of my life). But having that freedom to not work would allow me to determine exactly what amount I would need and let me explore ways to get there.

I think an amount of about 10 million would enough to consider myself well off. Rich is reserved for the ability to literally do whatever you want including buying houses and cars on a whim even if they cost a couple million a piece. I don't know if I'd ever want to get to that wealth but that is what I consider rich.

[Joey]

I like your thinking that 5 million would generate $250K each year, more than enough for you to live on. But what if you live to be 80? Will $250K per year be enough when you are 80 if you account for inflation? It depends on how old you are now.

Whatever number a person comes up with will need to be a number that can last as long as they do.

[Randy]

When I think about what "rich" means, I always go back to a Warren Buffett quote that he often uses during his talks:

"all of us live better than John D. Rockefeller"

By "all of us" he means Americans. I am already rich simply based on where I was born.

[cory]

ONE HUNDRED BILLION DOLLARS (raises pinky to mouth)

[FMF]

Joey --

That's a good point -- and I thought of it. I can actually live fairly comfortably on about $70,000 a year, so the $250,000 gives me lots of cushion to take into account a long life and the impact of inflation over time.

[Todd]

Here is the latest stats. Take them for what they are worth cause you don't know how much people have in their primary residence. That is the single biggest purchase most people make so they likely have a chunk in their home that is not represented in these numbers.

http://money.cnn.com/2007/04/17/pf/millionaires_spectrem/index.htm?section=money_pf

[Dave]

rich depends on time. An 80 year old with 500,000 might be richer than a 40 year old with 3,000,000 given that they may have 40 or more years left.
I am early retired with about 2,000,000 of which half is cash. I need about 100k for comfortable living and take about 40 k out of the 1,000,000 the other 60k is from investing in stocks. I use about 100k for the investing.
I count my social security as being worth about 300k as it provides 18 k a year.

[Samwise]

To me, rich means that your "comfortable" expense amount doesn't take enough away from your net worth to prevent it from growing considerably faster than inflation. Thus, a sustainable rising standard of living. This generally would mean spending no more than 2% of your net, which for someone used to upper middle class living would mean a total net worth of 2.5 to 7.5 Million. (based on 50k to 150k after taxes)

[Lord]

Actually spending 3% or slightly more of your portfolio is sufficient for your portfolio to maintain it's real value and the income to maintain it's real value, if it is invested largely in equities. (I dislike assets guaranteed to depreciate.) $5M is sufficient to provide at least two homes, one fairly expensive and would be rich to me, at least until I had that much and wanted more.

[Lord]

I understand the additional 1% provides for productivity increases though, allowing one to maintain one's position in society. Then again you might want only a 1% withdrawal rate so you can advance through society.

[Mark Anthony]

What is the deal with the fascination of real estate?
Real estate is a HORRIBLE investment long-term, generally not exceeding the rate of inflation by more than 1%. Obviously, if you bought before the bubble, you stood to make a lot of money...but only if you sold. With the housing market now tanking, it will be interesting to see how much of peoples' net worth disappears. Thus, I think having $5 million or more in liquid assets (in today's dollars) qualifies as being rich. Investment properties aren't investments...they're liabilities.

[Samwise]

Mark Anthony,

The thing about real estate is its much cheaper to obtain on margin than equities. You can get a mortgage right now for around 6%. Do you think a stock brokerage is going to lend you money at that rate? Probably not. So if you're willing to put the time in real estate can be a short cut. (right now I'm among the unwilling. At 24, I estimate its much more efficient for me to put the extra effort into my career)

[Lord]

Real estate is a HORRIBLE investment long-term, generally not exceeding the rate of inflation by more than 1%.

Location, location, location. In a desirable area it increases at a rate faster than incomes. Leveraged in such an area, it outperforms stocks. But a remote country house won't even exceed inflation, and leverage is negative.

[Lord]

Real estate can be an investment, or it can be a consumptive good. The point of money is not hoarding it, but spending it in the way to bring the most delight.

[mysticaltyger]

To Todd:

The link to the article you posted about net worth mentioned that these peoples' primary residence was not included in the net worth calculation.

[mysticaltyger]

For me $1 million may be enough, provided my government pension pays out when I'm 55, as it's supposed to. If the pension pays out, at least I'll be able to live frugally without starving.

[loooooooool]

i got about 24 Mil to be inherited so screw saving