> In your view, being “rich” means having an income in the ...
> Don’t know/none of these
Wealth.
Or unearned income. Which approximately no-one actually thinks about when they say "income".
Basically the whole thing is pointless due to that.
Wealth.
Or unearned income. Which approximately no-one actually thinks about when they say "income".
Basically the whole thing is pointless due to that.
If you have a job that makes $100K over 10 years, it would be about $20K in taxes, $40K in expenses, and (max) $40K in savings.
At the end of 10 years, you'll have half a million, and the person with wealth will still have his million. He'll also possibly have spent the last 10 years starting a business, improving his education, or earning a salary on top of his wealth.
You will both be 10 years older and closer to the end of prime earning years. Of the two of you, you will still need your earning years, because interest on your $500K is only $20K/yr, but he will not.
Wealth is far different from income.
You are overstating the results of the Trinity Study:
>...The 4% refers to the portion of the portfolio withdrawn during the first year; it is assumed that the portion withdrawn in subsequent years will increase with the consumer price index (CPI) to keep pace with the cost of living. The withdrawals may exceed the income earned by the portfolio, and the total value of the portfolio may well shrink during periods when the stock market performs poorly. It is assumed that the portfolio needs to last thirty years. The withdrawal regime is deemed to have failed if the portfolio is exhausted in less than thirty years and to have succeeded if there are unspent assets at the end of the period.
https://en.wikipedia.org/wiki/Trinity_study
Nothing in the study indicated that its "in his pocket forever" - just that historically, withdrawal rates of 4% were able to last 30 years before the assets were totally depleted. (Also the wikipedia article has a number of criticisms of the study.)
>...4% is just fine as a rule of thumb, or for the purposes of this post.
Let's see.
Your claim was that "If a person has $1M wealth, it's $40K interest in his pocket forever, assuming he invests wisely and follows the 4% drawdown rule."
Going to your suggested website and entering the numbers for 30 years gives a 5% change of bring broke by the end:
>...For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 6 cycles failed, for a success rate of 95.0%.
That's not what most people think of when they hear they will be able to spend 4% forever.
Using a larger number just increases the failure rate. Someone retiring early and trying to last 50 years gives an estimated failure rate of almost 22%:
>...For our purposes, failure means the portfolio was depleted before the end of the 50 years. FIRECalc found that 21 cycles failed, for a success rate of 78.8%.
Nothing in the Trinity study indicated that its "in his pocket forever" - just that historically, withdrawal rates of 4% were able to last 30 years before the assets were totally depleted
If you want absolute guarantees, life just doesn't have them. Not even if you bury your money in the ground.
It's almost like there's an incentive for the media landscape to muddy the waters between well paid execs and the person who owns the company.
Sure a young person making $200k+ in the Bay Area is “rich” but it’s not even comparable to people who have inherited massive amounts of wealth or have become rich through ownership in a rapidly growing company (which also isn’t income, but capital gains). You can’t even afford a 2k sqft home in a nice (accessible, safe, decent schools) area on that income - doesn’t feel rich to me.
This kind of logic is what keeps the upper-middle class of the US paying high taxes but shields the truly rich, I mean filthy stinking ungodly rich, from paying their fair share. Because they don’t acquire their massive wealth via income, but through inheritance and capital gains
I think a lot of people conflate "nice" with "one of the richest/best" in the Bay Area, conflating middle class with upper class.
With 200k, you can afford around a million dollar home. There is a lot of places in the bay area where you can afford a house in that range.
Income != Wealth/Assets
And the two are used interchangeably all of the time, which gets misused. And it happens right here on HN "omg Uber is worth $160B, how can they not pay developers more?!"...
Half of the families in London sitting on hundreds of thousands in net worth earned around median in their primes.
The same is likely true in SF and elsewhere.
(As a side note, it's now impossible for people earning median income to participate in those markets, due to the expense).
EDIT: That said, I do think that income is over-emphasized in categorizing people as rich or not. A person who lucked into a house that went up in value might not feel rich, but they definitely are richer than the person that has to borrow a million more dollars to live in the house next door.
Which, if you are not counting, you are just being silly.
The man on the clapham omnibus will not tell you that a person who owns a house and works in the supermarket has a high income.
They might say that they're rich though. Because wealth is the thing that makes you rich.