For Millionaires ‘Wealthy’ Is $7.5 Million, Fidelity Says | Hacker News Reader

For Millionaires ‘Wealthy’ Is $7.5 Million, Fidelity Says

bloomberg.com

26 pointsacangiano14 comments

I have heard elsewhere that people gnerally say that they would be "wealthy" at twice their current net worth. So, I wasn't surprised to read that the average net worth of the 1000 head's of household in the sample had a net worth of $3.5MM.

Though this rule falls down a bit when your net worth is negative ;-)

I've always put the low-end cutoff for "wealthy" at "can I comfortably live on interest, assuming a reasonable annual return?"

Unfortunately, your definition for "live comfortably" tends to change as you accumulate more money.

This leads to an interesting question that I've been wondering about lately. But first some background.

One hacker that I work with is currently unemployed. He is absolutely brilliant and could easily land an incredibly good job at basically anywhere he wanted. He's an expert in many widely-demanded but under-supplied abilities, such as reverse engineering.

But he doesn't take a job. After college, he worked for a few years at a tech company, then quit. Why? Because he could pay for his cheap apartment, food, and internet access using interest on his investments and the periodic small contract. To him, having a place to stay where he can play video games and hack on cool projects was "living comfortably".

Now to me.

Over the past few years, I've gone from having practically no money (~$2000 total savings over an entire childhood) to having more than I know what to do with -- through a combination of internships, then contract work, my current job, and finally my startup. Now that I'm about to graduate from college, my income will increase even more -- in large part due to no longer having to pay for college. Of course, I'm probably still "poor" by HN standards.

But I still can't think of anything to spend it on. I haven't even considered getting a car. I'm quite happy with my ~90 sq. ft. dorm room -- bigger just means more work to clean it. I have a good laptop and some external hard drives. I can afford the food I want.

If 1 million dollars were dumped on me tomorrow, I'd buy a new desktop computer, invest a bit in my startup (on a real website, etc), stuff the rest in my bank account, and go on with my life as normal.

But people I've worked with, even those near my age -- particularly at startups -- constantly talk about "what they'll do with the money". They'll get a Ferrari or a BMW. They'll get that big house they always wanted. They'll take a cruise in the Caribbean.

This sort of attitude consciously bothers me. I've experienced the same sort of thing when visiting some mildly rich distant relatives in an expensive country club -- I look around and see tons of money being "wasted". I know it makes sense from their perspective, but to me, it seems senseless.

... and this all makes me wonder: am I just weird? Or is there something more to this?

No, you're not weird. Just at a different point on the Life Curve.

I've been a developer for about 20 years. When I got out of college I lived in a crappy little apartment in a crappy neighborhood in a crappy town. And I loved it. The job paid me to do stuff that I was already doing for free and even though I didn't make much, I spent even less, so I was piling up more money than I knew what to do with. Now, more stable and with a wife and family, I couldn't imagine living like that ever again. It lost its appeal a long time ago.

Why do we work? If we're being paid, what's wrong with spending to make ourselves happy? You think a computer and a website are important to you, they think Ferraris and cruises are important. Neither is "better," just different and reflect different priorities.

Don't castigate people for spending what they can afford: it's their money to do with as they wish. Especially don't think for a second that there is some nobility in being poor, or thrifty. Few people are poor by choice and the thrifty often would not be if they could afford to spend.

In my case, I have a good idea what "comfortable" living is. At the low end, I would need around $2K net/mo (assuming I were to relocate to S. Asia – something that I've given serious thought to doing). If I stayed here in Manhattan, NYC, I would need at least $10K net/mo. If I moved to Japan (another place I've considered), I wouldn't need to pay for housing, so I could live on a few K net/ mo.

At times in my life, I've had enough money to spend a lot. I learned an important lesson: the more you spend, the more stuff you get, the more time you spend worrying about where to put that stuff, the more time you spend maintaining or selling that stuff, etc. Now, I spend my money on travel, food, mortgage, utilities and computers. My wife buys shoes and clothes, but she's one of those naturally stylish women who makes inexpensive stuff look better than overpriced, tacky name-brand junk. We aren't frugal, but we are in a sweet spot for spending that is genuinely the comfort zone for us. I would make a big effort to keep things the same way even if I had a pile of cash in the bank. The only exception might be some real estate projects, because I like to work on renovations as a hobby.

I'd need about $30mm. At that amount, I can have an income above the US median off t-bills alone. Having said that, I'm sure if and or when I actually have that kind of money, I probably wouldn't be so conservative with it, but that's the baseline.

This is perhaps the interesting bit, using the 10 year t-bill rate to compute what it would take to make the median income. (its not $30M at the moment though, median income is $47,127 [1] federal, state, and other employment taxes reduce that to under $40,000 (that would be your 'take home' pay)) You will want health care however which depending on your age will add $500 - $2500 a month. So more like $60K). Now 10 yr bill are currently at 3.25% so you only need $1.85 million in 10 yr T-bills to pay you that amount of income. $30M in t-bills is about $975K / year which is way above the median.

[1] http://www.census.gov/newsroom/releases/archives/income_weal...

I was actually basing the amount off the 1 yr. Does the gov't pay interest yearly on t-bills or only once they mature?(sorry if this sounds stupid, but I've never had enough $ to think about buying any)

Well the US Treasury sells T-bills every quarter, folks who have T-bills and want to convert them into cash sell them pretty much at any time.

A treasury bill has a 'face value', like $10,000 which is what the bill will be worth, and a maturity date which is when it will be worth that. If you buy a T-bill you buy it at an 'auction' [1] in which you (typically) pay less than the face value and you calculate what it would be worth when it matures, which gives you the return. If you hold it until it matures your return is 'guaranteed'.

Bonds can be re-sold, and they are, so you can hold a bond for a while and as interest rates change the 'value' of your bond changes because it has a fixed maturity value and maturity date. So if you are building a treasury bond 'ladder' you take your money, divide it up into 'n' equal parts, and buy bonds that are about to mature 'momentarily' (like this quarter), in 2 quarters, in 3 quarters, in a year, Etc until with the last little bit you buy bonds that are brand new and mature in 10, 20, or 30 years (depending on your style). Now every quarter you have mature bonds to turn in for cash, which you then use to buy the same face value of bonds that mature in 10, 20, or 30 years. You will have money left over and that is your 'income' every quarter. The face value of all your bonds is 'fixed' and your income stream comes from turning over mature bonds into newly issued ones.

This is exactly what a 'bond fund' does, it charges you to do all the paperwork, it might use a mix of bonds to get a better rate of return. But if its just you making a fund for yourself, pretty much any competent financial agent can set it up for you. And while it is very safe (because it is very low risk) it won't pay you as much as you might want. On the plus side with "Treasury Inflation Protected Securities" (TIPS) you won't lose money due to inflation either, with the caveat that the same guys who are paying you interest are the arbiter of what is and what isn't 'inflation' and as many have pointed out this is sort of a conflict of interest.

If you have $5M and give it to a decent manager (I know I know how do you find 'decent'?) and tell them "I want an upper middle class tax free income off this with no risk to the principal." they should be able to oblige you.

(disclaimer, I'm not a financial analyst! seriously if you had that kind of capital it really really helps to have someone who does this all day to help you manage it, happy to recommend mine if you contact me off list.)

[1] http://www.treasurydirect.gov/instit/auctfund/work/work.htm

Here's the original source, which has the raw data with less editorializing: http://www.fidelity.com/inside-fidelity/individual-investing...

And here's the same survey from last year for comparison: http://www.fidelity.com/inside-fidelity/corporate/fidelity-s...

The title was based on this paragraph. Only those that did not already feel wealthy contributed to the $7.5M figure.

among those who classified themselves as not feeling wealthy, the investable asset level needed to begin to feel wealthy is $7.5 million.

Of the 58 percent of millionaires who say they feel wealthy -- up slightly from 54 percent in 2009 -- they began to feel so at $1.75 million in investable assets,

Interesting how close this is to the statistical value of a life (dated, but see: http://www.huffingtonpost.com/2008/07/10/american-life-worth...).

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