What is considered "rich" in today's economic landscape?
How much income and savings would qualify an individual as rich? I am interested in knowing the objective number or value that would quantify as rich, but more so, I'm intrigued by your subjective options as to what would make an individual rich.
“Rich” is a highly subjective quality. In my opinion, there is no absolute “rich”.
Willie Nelson had millions and went broke. Jordan Belfort (the ‘Wolf of Wall Street’) was making apparently $250 million a year and went broke and to jail. MC Hammer also apparently went broke despite $33 Million of income. So to define rich in absolute terms is not useful. How about we define it in terms of the amount of income you need to be happy? So if you need $50,000 a year to be happy, then $50,000, divided by some rate of return would give us a number. Suppose you thought 5% was a reasonable return, then $1,000,000 would be a good nest egg. But, we have inflation. So I think you need 25 times (that would be 4%), or better, 33 times (that’s 3%) your annual income requirement to be ‘rich’. Need $50,000 a year? $1,650,000 is the start of rich for that person.
This presents a problem of ‘how much income makes you rich?’ According to that bastion of wisdom, income of about $200,000 for a single person or $250,000 for a married couple makes you rich. So using my math, a single person with $5 - $6.6 million is rich, and a couple with $6.25 - $8.25 million is rich. That goes to my old definition of rich as over $10 million. That being said, I’ll ask you about your health, your family, and your spirit. Money can’t give you those. So measure material wealth in dollars and real wealth in sense.
Years ago, my daughter came home and asked, "Dad, are we rich?"
In my irritating fatherly habit of answering the questions of my offspring with questions I asked, "What do you mean?"
Her patient response, "Well, some kids at school say they are rich and that I'm not."
I explained the basic definition of "rich" as having more than you need, especially in income. You're rich if your income consistently exceeds your budget.
"Why do they say that?"
She, "Well they have nicer cars and houses and wear expensive clothes."
Me, "But you don't like expensive clothes. We don't exactly force you to shop at Goodwill. And we live the way we like to live. I'll bet your friends have no savings and that their parents spend more than they make. That's not 'rich'. That's trying to look good."
And I continued, "Honey, you know that you can have anything you want. You're just so much more sensible than your peers. You would rather have a new camera than $200 boots. That's smart! And you'll end up happier for it."
I teach the MBA course, Private Wealth Management at NYU Stern School of Business. While there is no consistent objective number used by economists, we have a subjective definition we use in the course; rich is having more financial assets than you can reasonably spend to support your lifestyle in your lifetime.
This subjective definition of rich shifts the focus from funding retirement living expenses to allocating one's financial wealth between, 1) personal lifetime spending, 2) transferring it to your kids and future generations, 3) supporting your important charities and, 4) for family businesses, reinvesting it in the business. In order words, rich is having significant assets left over after taking care of all your needs during your lifetime.
Enough to be able to do whatever you would like, whenever you would like.
Some don't feel 'rich' with millions, while some feel rich with far less. To my mind, it's just about not having to worry about living the lifestyle you want.
That is the million dollar question. But you are right, it is subjective. I have clients who are millionaires who don't consider themselves rich, and then I have clients who have hundreds of thousands of dollars who are quite content as far as piece of mind. I would say that being "rich" is being able to do the things you would like to do over your lifetime, not how much you have in your bank account.
Being happy and having piece of mind and a family that loves you is far more important than how rich you are monetarily.
That's just one guys opinion. Hope this helps, Dan Stewart CFA®