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Comment by bb2018 | Hacker News Reader

bb2018

This is clearly not true - if you are making that much and are a constant (but not even especially frugal) saver you will have 10M by the time you retire. The top 1% includes people of all ages - including people collecting paychecks their whole life - not just people who are in their 30s.

Of course, in 20 years 10M will not mean as much, but nonetheless it is important to remember 20% of the population is at or near retirement age.

https://www.nerdwallet.com/investing/retirement-calculator

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You can't fast-forward your net worth and leave everyone else's frozen in place. If 10M is the bottom of the top 1% now, In 20 years 10M won't be enough to be in the top 1%.

Assuming most of those people are 65+, wouldn’t most of them be dead in 20 years?

And passed that wealth along to their descendants?

Valid point. The counter-points I most often come across are:

- Estate taxes: the government wants its pound o' flesh

- Squandering: the wealth is generally gone by the 2nd or 3rd generation. I remember this from The Millionaire Next Door (W. Danko), which is from the 90's, but I haven't come across anything to date stating that the trend has been reversed.

But typically more than one descendant. That divides the pie.

Just because it's possible doesn't mean it's common. So OP is correct.

I ran the math -- If you are a married couple who earn $500k/year in California, you'd have to save 40% of your post-tax income at a 7% rate of return for 27 years to accumulate a net worth of $10M. It's exceedingly rare to make that much money for that long of a period of time.

And if they're making a 7% rate of return for 27 years, how's the person who already had $10 million in wealth and earning 7% per year ($700k per year in wealth appreciation alone from year 1) changing during those 27 years?

I take it you are assuming wealth appreciation in a way that doesn't create income, or at least isn't predominantly treated as income?

Honestly, I'd assume both income and wealth are part of an abstract concept I'd call, in this instance, 'capital'.

The specific ways both are taxed or regulated depend too much on individual circumstances and governments, but the main point is you can't use a simple model that shows a 'well-off' income earner can make it into the top n% in 27 years, if the assumptions required to get that to work also gives the n% a greater or equivalent benefit.

Investments are usually taxed at long term capital gains rates and only when you realize them.

So someone with 500k income can be putting away 250k a year into investments, while someone with a 10 million dollar portfolio can be having 700k in gains each year, only getting taxed when they sell something.

That was my point. You are assuming the wealth appreciation is mostly asset value appreciation that is not realized as a gain every year. Otherwise, this household would also be in the top 1% of incomes, and this thread started by talking about the distinction between top 1% incomes and top 1% wealth.

It's not the norm, but it's also not especially rare. A doctor married to a lawyer (or a big tech engineer) will easily clear that for most of their careers.

So, what is the income of a household sitting on $10MM+?

Precisely the correct question - cap gains at that same 7% would yield $700k/year and be taxed at a rate of less than half the income tax rate.

Cap gains of $700k per year would mean this household had an income of $700k per year, and so be in the top 1% of incomes.

Only if they choose to do so by selling their investment if I understood the previous comment correctly.

If they don't realize it, they don't get taxed on it. I read the comment as stating they are getting taxed every year.

And no inflation.

The 30 year inflation adjusted return on the S&P 500 is 6%, and if dividends are reinvested, 8%. Retrospectively, a long term 7% return would be unremarkable. I wouldn't bet those numbers will be quite as strong going forward.

... and by then $10M is worth $1M

If you assume 2% inflation (relatively high by current standards), $10M will actually be worth $5.85M.

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