How Much Do You Need to be Rich?

This article from the NY Times is interesting for a few reasons:

1. It equates being "rich" with your annual income (at least in part), a frequent mistake by the mainstream media.

2. It verifies something we've addressed frequently here: the more you have, the more you think it takes to be rich.

3. It shows that even those who likely are rich (higher net worths), don't think they are.

It lists what people at various incomes think is needed (in net worth) to become rich as follows:

• Annual income under $25,000 -- Need $293,000 to be rich
• Annual income $25,000 to $60,000 -- Need $394,000 to be rich
• Annual income $60,001 to $120,000 -- Need $426,000 to be rich
• Annual income greater than $120,000 -- Need $501,000 to be rich

So, that's America's opinion. What's yours? If you had to list a net worth at which someone becomes "rich", what would that be?

Or can it even be done?

Sure, we can go by averages and the like and look at the top 5% or even the infamous top 1%, but do things like expenses come into play?

And "rich" is a tough word to define anyway, isn't it? Does it mean wealthy enough to care for yourself or wealthy enough to buy a small country?

Personally, I think if you have enough assets to provide for yourself and those you care for, then you are rich. That could be $200,000 or $200 million. But maybe that's too simplistic of a view.

What's your take?

Comments

[Liquid]

I think $1,000,000 in net worth is considered rich if one lives in the U.S. Using the 4% rule one could easily live a modest lifestyle on $40,000 a year and retire forever :)

[SJ]

I think the article is showing the annual earnings these people think is required to be rich (not the net worth) which I think is probably the right way to think about "rich" (making lots of income a year that allows spending well above the average lifestyle, whether that income is earned income or investment income).

Definitely different than "wealthy" which leads me to either think about 1) absolute net worth (which definitely can lead to one being "rich" as well if high enough) or 2) net worth relative to expenses (which has nothing to do with being 'rich' and I guess is more of a degree of FI, but a number I find the most interesting).

[Kiat]

I totally agree with you, I will also feel rich if I got enough money to provide for my love ones through their life. For my, now I am 40 yrs old, let said I need $5000 month till the 80 yrs old and I want to retire at 60 yrs old. Then I would need to earn $120,000 a year from now till 60 yrs old for me to feel rich.

[T]

Wow, those numbers seem surprisingly low. Especially for people earning $120k+.

[elb]

Believe the survey was annual income, not NW.

"I asked survey respondents to tell me how much money the people in their household would have to earn in a year for them to consider themselves rich. I evaluated answers that began at $10,000 and went through $4 million. In households in the lowest quartile of income, those earning less than $25,000 a year, people thought they needed about $293,000, on average, to consider themselves rich. And in households earning between $30,000 and $60,000 of annual income, the magic number was closer to $394,000. As people earn more, the multiplier on current income goes down, but the absolute number goes up in a somewhat linear fashion."

[elb]

To the substance of the question a $1m+ net worth is enough to be rich. Not fabulously wealthy, but definitely well-off.

Whether you feel rich day-to-day is more a function of income, cash flow and liquidity IMO. Most of our NW is illiquid (2/3 in investment RE and 1/3 retirement accounts and some home equity). But we definitely feel rich when we get the rent check!

[Erik]

What I take away from this is that almost no one thinks they are 'rich'. The more one makes, the more that person moves the goal so they are not considered rich and likely never will be.

[Big-D]

The problem is feeling rich also goes with many things outside of salaries. I am in the 60-120k range and have greater than $426,000 net worth. Do I feel rich? Yes and no. I feel comfortable, and when compared to people who have no money, yes I feel rich. When compared to my goals in terms of retirement, and long term financial stability, No. I think the issue becomes simple. Rich is defined by the person and you can statistically find out what people think rich is .. and it will change based on how much net worth and salary they make. However, the generic terms are simple. Where are you on Maslov's hierarchy of needs? Are you worried about your shelter, food, etc? I would say if you are in the self actualization zone, you are "rich".

I told my son there are 4 levels of money management:
1) The money rules you. I.e. you are living paycheck to paycheck and have to make bad long term financial moves just to make ends meet.
2) Grabbing control. You realize what is what, and you can save a little, maybe pay off debt, but don't have any savings, you cannot absorb a huge financial issue (such as losing a job or medical/car expense).
3) You are living on a plan. You are by no means comfortable, but are starting to create basic financial understandings (paying down debt, have an emergency fund, etc.) and can better take what life dishes out with out going down a level.
4) You are living the plan. You have no debt (or debt you voluntarily take on), you have savings accounts stocked, you are saving for retirement and investing. You can absorb large losses and it won't affect your day to day activities.

To answer the question, When you reach level 4, you are Rich.

[SJ]

This does remind me of a person who told me that people will say "just enough" is whatever they happen to make, a "good" income is twice what they make and 'rich' is 3 times what they make.

[JeffinwesternWa]

I never considered what NW amount was "rich". I only knew that when I did the numbers last deccade, approx $2.65M was THE number where I could accomplish ALL my finaancial goals and the way the money was managed, live off it forever. Soon after (at about $2.8M) that was realized and I retired at age 47~. I've earned near 1/2M a year and today my taxable income is 1/10th of that, but, I am "richer" today (in MANYU terms) because of the freedom I have from the wealth accumulated. As far as income: it's interesting when politicians argue about it they consider annual income. I find that quite laughable as how many folks only have that income a year or two or perhaps longer but, squander it! Are they "rich"? Not in my eyes...

[Old Limey]

We have been retired since 1992, our ages are 79 and 81 and we have been married for 58 years.

We have a different concept of "How much do you need to be rich".

For example, our travelling days are over, our three children are all self sufficient and leading good lives, we have been debt free since 1992 and these days all we buy are the basic necessities. Our total income from all sources and the value of our investments is at the highest level it's ever been but we spend very little and yet we have, and buy, everything we need.

The most important issue in our lives is to stay as healthy as we possibly can and to enjoy a quiet life in the slow lane and in the comfort of the beautiful home that we have lived in since 1977.

Yesterday my wife had a health scare and we were very worried that it might lead to a hospital stay but fortunately it was just a recurrence of an old problem and with prompt treatment she's now on the mend. One of the most important things that you absolutely have to have in old age is the access to a really great medical facility, and fortunately we live in Silicon Valley and are members of the very best one. The ironic thing is that with medicare, and still being covered by my former employer's group insurance the total cost of a CAT scan, X-rays, and loads of tests was $20.

We are rich, but being rich doesn't mean a thing to us at our age - being happy and healthy is what really counts.

[Steve]

My Magic number is $4 million. Ideally, I would like to have a $4 million net worth by my mid 50s. This should carry me through a comfortable retirement while leaving something for my children. Will I make it?? Not quite sure at this point but anything can happen.

[Joe]

I think $5 million is rich. Under $5 million is very comfortable, but not quite rich. At $5 million, you can invest very conservatively and don't have to worry about money for the rest of your life.

[Apex]

Let's get some help from Webster:

rich
adjective
1. having a great deal of money or assets; wealthy.
synonyms: wealthy, affluent, moneyed, well off, well-to-do, prosperous, opulent, silk-stocking.

2. plentiful; abundant.
synonyms: plentiful, abundant, copious, ample, profuse, lavish, liberal, generous, bountiful.

Let's review some of those synonyms: opulent, abundant, copious, profuse, lavish.

Now when we look at that list of synonyms does having $1 million dollars and being able to live what has been described above by different comments as "modest" and "comfortable" lifestyles qualify as rich. Are modest and comfortable words we would interchange with opulent, copious, profuse, and lavish?

No, they most certainly are not. So $1 million definitely cannot qualify one as rich. It may be enough but enough is not compatible with opulence and lavish.

Rich is a high bar. I think too many of us are thinking rich = financial independence. While financial independence is not that common, simply achieving it still does not make you rich. When you consider words like opulence and lavish simple financial independence does not go far enough to ensure that.

When I consider the words describing rich it almost certainly requires 8 figures of wealth and I would say if that figure started with a 1 it is probably a little light.

The truth of the matter is very few aspire to be truly rich and I think that is why the numbers are coming in where they are. Most of us have desires that are too ordinary to require true riches.

[Nguyen]

@Old Limey, thank you so much for the words of wisdom. You always put things in perspective. Thanks.

[Chris]

Rich to me means 25 x [your annual expenses] so that you're financially independent (using a 4% SWR). For example, if you spend $50,000 a year when you have $1.25M then you're rich. While that doesn't meet the Webster definition or rich as Apex points out, does money really equate to richness or is it only a part of it?

[jnew]

I think that, as usual the comments on this blog are great. And kudos to FMF for the thought provoking blog post.

Old Limey, as Nguyen points out, puts it in perspective quite well. its not all about money. Health is so sacred.

Apex also makes a good point. Rich can often mean opulent.

But what I think is that being rich is subjective. Opulent is subjective too. Its different for everyone. It reminds me of a saying my father told me years ago. "An old person is someone 20 years older than you".

That might hold true for "rich" too. Is a rich person anyone who makes "X" more than you? Or who has a net worth "X" times greater than you?

The bottom line for me-- and yes, this is subjective,--- is that, assuming good health, attaining financial independence constitutes being rich. And that can be had with $1M in liquid assets assuming your cost of living is around $30-$40k/ year.

The older I get, the more I realize that a hug from my daughter is worth a whole hell of a lot more than having bigger numbers on a monthly Fidelity statement.

[DiverGal]

My perception of rich has changed radically in the last year. I moved from an average cost of living area to one of the highest in the country. I felt quite rich before the move since housing was cheap, had local friends, and a good job. I probably could have retired early had I stayed in that situation for a few more decades. I'm now living in an area where my support network outside of my husband is minimal, unemployed, and housing is insane. I'm not sure if I'll ever be rich here. If I had to put a number on it, it would be high 7, maybe low 8 figures.

[Mike H]

I agree with Apex... rich today means a 8 figure portfolio.

This portfolio, invested in stocks that pay and grow their dividend would yield about $300K of income, that can be used to live on and also reinvest.

At age 41 with a portfolio at 1/3 of that number, I can say that to run our household I will need to continue working although it may be possible to retire now without any savings buffer on investment income.

[Matt]

I can tell you the definition of rich in my dad. He grew up in the depression, his parents lost everything in the bank collapse of 1928. He and his brother would walk the railroad lines picking up coal that fell off the coal cars in Pennsylvania town to heat the house. He would go out in the woods and pick wild berries, asparagus and lettuce fo dinner. He inlisted in the Navy at the end of WW2. Went to U of D university on the GI bill and earned his chemical engineering degree. Met my mom, had 4 kids and sent us all to private school. We all went to college and my brother is a doctor, sister is a nurse and I am an architect. We are all successful contributors to this society. DId my father have a million dollars ever saved up. No. But he had a pension, raised a successful family and still alive today.

Money is only one thing, what you do with it is another.

[Old Limey]

As I described in my prior post, having fast access to a really great healthcare facility can make all the difference in the world as you reach old age. I often think back to my mother's experience back in England at a time when the National Health Service was in its infancy in the early 1950's. The problem then was that the demand for care was far greater than the supply and a person would have to wait many months to see a specialist unless they were wealthy enough to pay a huge amount to consult with doctors that were in private practice. Consequently by the time my mother's turn to see a specialist arrived her problem was too advanced and she didn't live very long after her surgery. Also at that time antibiotics were very few in number and the selection bears no comparison with what is available today. The efficacy of some of the modern products can knock out infections in a matter of days. What price do you put on healthcare that extends and greatly increases the quality of your life - in my opinion it is priceless and getting better all the time in the advanced countries in the world. We who live in the USA and are affluent enough to enjoy great healthcare when we need it will eventually realize just how important it is compared with some of the more pleasurable and far less important expenditures that we all make.

[Mike H]

Access to healthcare is important like Old Limey mentions above but we must also not forget the increasing frequencies of degenerative diseases caused by our lifestyles in the modern age. A diet of processed foods and factory farmed meats is not helping us and the number of people who are now obese, and facing diabetes and heart disease is quite staggering.

Ironically enough the diet of wild berries, asparagus and lettuce that Matt mentions above is actually much better than one of McDonalds and Lean Pockets, nutrition wise.

We are in a vicious cycle eating the wrong foods and treating the symptoms with more "medications".

Once we can get a handle on this along with building a foundation for steady income then we are truly rich.

-Mike

[Kenny]

Wealthy or Rich are really such subjective words that have lots of surveys being done every year by so many sources. After doing a lot of research and keeping up with the new information, it does not he a single answer.

More importantly, people talk about this as a goal, and confuse the data point. If you are talking about the single number as a goal, then you are clearly looking at the number for the future. If you are looking at is as what I have achieved today, it is a totally different scenario.

For example, for the 1990's the number was $1M for anyone who is retiring, and it would be considered as an achievement. As we got into the 2000's it stayed at $1M as a good number if you are retiring, but as the economy/market recovered, it started to become Penta-Millionaire ($5M) as the new Millionaire. It has pretty much stayed as the generalized 'achievement number' if one is to retire in the 2000's.

I am not in either of the above category of being retired, and now I am hunting again for what a friend of mine and I call as the Magic Number at Retirement. He feels that $2M is really enough regardless of the study, and I feel that the number for 201x is $10M. Now, this is hard to achieve and attain since it seems each decade is moving the number up by an extent that is 'hard' to go after and achieve.

Bottom line, define a number in your head, and the year you will achieve in, and do ALL of the things to go after and achieve it.

There are ratios based on salary out there, there are Magic Numbers based on average expenses, and then there are the studies on Penta-Millionaire. Regardless, set a goal ABOVE what you can achieve, do enough research that you can believe in the number and then go after to achieve it. THIS is my belief.

In my case, my goal as $100K, and then $500K, and then $1M and then after I read many posts from Old_Limey, I started to move my goal beyond $5M, and I am hoping that I will achieve it in 10-15 years. But, this is going to take some 'working' and 'extra effort' burning the mid-night-oil while not giving up the early morning orange sky!

Goal setting by Harvard Business School talks about people who write their goals become part of the 3% Achievement Club leaving the 97% of the people behind. So, by writing here, and having a fully documented Macro Financial Plan, I hope to work harder to achieve it.

Thanks Old_Limey for your motivation, your efforts, and sharing your thoughts. Hope your wife springs back and you guys are off on your daily morning walk and routine activities.

Kenny

[Old Limey]

Kenny,
Thanks for your kind words. My wife is looking and acting like her old self again and our life is back to normal thank goodness.

As for retirement the thing is to try to generate as much annual income from investments during your retirement so that you can minimize the need to start burning through your capital. I read about these people whose plan is to retire early and then figure out what percentage of it they can spend every year based upon using it all up by the time they die. That sounds very stressful to me knowing that your capital is shrinking fast, that inflation is a factor that is always with you, and that the future is always uncertain.

I still see people standing at major intersections holding up their cardboard signs for money. I wonder what their life stories are that led them to this dire and depressing situation. However I also still see plenty of "Help Wanted" signs even though the jobs would be at minimum wage.

[Mark]

I think Erik nailed it. The more one earns and the wealthier one becomes, the more the goalpost of "rich" moves up. It's the way our brains are wired. They even have a name for it now. They call it "hedonic adaptation", which basically means we quickly get used to (and take for granted) any improvement in our material well being.

[Mark]

@Old Limey.

Consider that you belong to a top notch medical facility, and get the best possible medical care, at least partly, if not entirely, BECAUSE you're rich. Money alone doesn't guarantee or buy good health, but it usually helps. There's definitely a relationship between the two.

[Mark]

@Apex...you make a valid point. But at the same time, happiness levels off once you have your basic needs met. Opulence adds little or nothing to happiness because of above mentioned hedonic adaptation. However, financial independence, which gives a person enough money to have their basic needs met and the freedom to do what they want with their time without worrying about earning a living, at least has the potential to add a great deal to a person's happiness. Bottom line: aspiring to opulence as one's main goal in life is ultimately an unfulfilling pursuit, even if you attain it.

[Old Limey]

@Mark
The fact that we are members of what I believe to be the best medical facility in the SF Bay Area has nothing at all to do with our net worth or income.

What makes it very affordable for us is primarily because we are on Medicare, and secondly because we are part of a group insurance plan by United Healthcare that is provided by the large aerospace employer for which I worked for 32 years.

Medicare picks up a large part of the cost of all prescriptions that we need. The most expensive prescription we have is only $50 for a 3 month supply. A hospital stay is $1,000 max. that includes the cost of all services. When we visit our primary care physician we pay $20, and when we visit a specialist we pay $40.

Plans such as the one we are in are generally only available in large metropolitan areas. If we had retired out in the boonies somewhere or to some other state things would likely be quite different.

[Marie @ My Personal Finance Journey]

For me, if I have $1M on my savings account, $1M on my emergency fund and having some rental properties and stocks. If I think that I can live until my last day without working anymore and that can support my family.

[Mark]

@Old Limey....You say being rich didn't contribute to having great medical care, but I disagree. You had a good job that provided great medical retirement benefits. Those benefits are worth a lot of money. Not saying you didn't work hard to gt that good position with benefits....just that money does factor into it.

[Old Limey]

@Mark
The monthly deduction that my former employer takes from my pension is only $326/month for the two of us to be part of their health insurance plan. Only employees with greater than 30 years of service were eligible to join when they retired.

I think you are right, the plan is worth quite a bit these days. After I retired the employee pension plan was also dropped for new employees so my timing in the work force worked out well. There were also very few layoffs during my working life because of the Cold War and the high demand for engineers.

I actually have a lot to be grateful for since being a father when we arrived in the USA I also missed out on the draft.

[Flexman]

The difference between rich and wealthy according to author of Rich Dad Poor Dad: The rich gets their money from working earned income; the wealthy gets their money from passive and portfolio income.

Also, wealth is defined by the number of years you can live off your net worth. Assuming you have $2,500,000 net worth, and your living expenses are $100,000 a year, your wealth will last you 25 years.

[Apex]

@Mark,

I agree that being rich does not equate to being happy.
I agree with hedonic adaptation.
I agree that financial independence has more potential to boost happiness than being rich.

I agree with everything you said.

But if you read the end of my comment you will see that I said that I think many people are confusing riches and financial independence. I was not making a value statement, or holding out riches as a goal to be sought after. I was merely trying to define what is truly rich. Not what makes happiness. Not what makes you financially secure. What makes you rich in terms of money and wealth. I believe that was the question and I was trying to be very specific in answering that question and only that question.

Very few people will ever be rich. Rich is an exclusive elite club. You don't get there because you have enough. You get there when you have way too much. Whether or not it is worth getting there at all is not a topic I was addressing.