The ‘semi-rich’: Millions of high-income Americans may not feel wealthy but are
grow.acorns.com
grow.acorns.com
A household with $1.2M in assets does not belong to the same group as a household with $20M in assets.
Or at least it should be. Many people with $1.2M cannot go a few months without a pay cheque because it's all locked in a house and a retirement fund -- make sure you're not one of them. An emergency fund is the best way, but I also recommend having an open HELOC. They're a lot easier to get when you have a job, and you don't have to draw on them until you have an emergency.
I live in a HCOL area, so I get this sentiment. But it doesn't match at all with actual reality in the US. The median 65-69 year old has a net worth of $272k, with the average being $1.25M [0]. A lot of places are pretty cheap - especially since even modest earners could get thousands of $ in SS each month.
[0] https://dqydj.com/average-median-top-net-worth-percentiles-b...
A person with $20M assets at 8% earns $1.6M per year. A 20x difference in assets is essentially an entire generation of wealth accumulation..
Both of which do nothing for that persons daily life. Can’t unlock home equity because they need a place to live. Not unlocking 401k value because… we’ll they are frugal and that is a bad idea.
While they are definitely well off, perhaps upper middle class, it is a vastly different lifestyle than 20mm net worth.
Indeed, imagine saying: “there's not that much difference between $50,000 in assets and $1,000,000 in assets.” Of course more money earns more money, but it's still important not to underestimate the importance of a factor of 20. One can try it the other way: “there's not much difference between $20,000,000 and $400,000,000.” Except that many of us here probably can't really grasp either, I think we wouldn't believe that.
Those lifestyles are no where near being the same.
*based on a conservative 3% withdrawal, but the point stands irrespective of the withdrawal percentage.
You could scrutinize loans based on assets to close the gap.
In theory ultra high wealth buys the luxury of leisure. In practice, in the US today, leisure monotonically decreases with income and wealth. By far the bottom quintile works much fewer hours than the top 1%.
Edit: forgot link
[1] https://www.epi.org/publication/ib348-trends-us-work-hours-w...
If we define work as "hours spent doing something", then potentially. But I like my first definition better.
https://www.businessinsider.com/stress-effect-on-aging-healt...
Responsibilities cause stress, but power to address those responsibilities mitigates it somewhat. CEO's have much more of that power than middle managers do.
https://www.shrm.org/resourcesandtools/hr-topics/employee-re...
Perhaps, though that effect must be offset by other things (and/or access to healthcare), since the life expectancy based on income graph is monotonically increasing for both genders.
http://www.equality-of-opportunity.org/health/
My hunch is that the well off might have stress on the job (though again, this is a subset of well-paid positions, and I think the subset is actually smaller than you think), but everyone else has a lot more stress outside of the job which is much more important. The stress associated with poverty cannot be understated - it lowers IQ by ~15 points.
(Poverty and IQ: https://www.pbs.org/newshour/economy/making-sense/analysis-h...)
None of which is to imply I’m not rich to most of the country. I am. But I still have to work 40+/week to pay my mortgage.
...and child care (for 3 children under 3 years old), elder care (my parents are over 70 with existing and emerging conditions), etc. I just don't really expect to retire, to be perfectly honest, despite what my net worth is on paper.
If you are retired with $1.2M in assets, even a 3% draw down rate only gives you $36K a year. You can make that work if you are frugal but that is a vastly different lifestyle from the $20M individual.
The lifestyle difference between 1.2 and 20 million in assets are not similar.
$1.2 million is comfortable and $20 million is generational wealth. Many people who have that level of assets are part of a multi family office that will literally do your chores for you.
https://www.wsj.com/articles/SB10001424127887323551004578441...
Of course wealth is a gradient, and any buckets are approximations.
Lifestyle doesn't matter. You can be extremely wealthy and live austerely, if you desire. What matters is security, power/influence, and so the ability to pass wealth to further generations.
All simplifying assumptions necessarily group some unlike elements. But we need to simplify in order to describe complex systems.
- unable to retire/aged out of the workforce
- lose house
- lose job and unable to find replacement.
- unable to afford living in your area.
- broken by medical bill/disaster.
- unable to afford education/childcare for children
My partner and I work in well known tech companies, but don’t come from money - we are well off as long as one of us doesn’t get a bad performance review and there isn’t a crash.
It’ll be decades if ever when I have the financial security to consider myself wealthy.
If you have that amount or more on hand right now in investable assets, the only thing keeping you from financial freedom is the desire to have a fancier lifestyle than the average American.
Yes, most likely you are set if you have 1.5M - but it's not a guarantee.
So, what will happen once you succeeded bringing those risks down to zero? Is that the time you start pursuing your dreams or will you start trying to get the next set of risks down to zero?
Even with 1 million in the bank, the only risk you may face is a slightly worse lifestyle and the possibility of having to relocate to a cheaper area. In a world where working remote at least partially has become a viable solution unless you work in hardware.
Agreed that with 1 million in the bank destitution is not a real risk, but childcare can run 30-70k/yr. Being forced by circumstances to uproot is far from ideal.
1 million in the bank with drawdowns also runs a severe risk of being hit by a crash sometime in the next 30-70 years one might draw from it.
Even a catastrophic medical issue shouldn't make you lose your house, unless you don't bother to have insurance - and if you have 5 million in the bank, you absolutely can afford to have insurance.
Everyone knows they need 2x their current wealth to feel secure.
If you are taking the full 6% then inflation is eating the asset, in 30 years the 60k will be equivalent to 24k. If you started this in 98 then you would have seen your assets halved twice, and would be living off of 15k or so in 2008.
A much safer withdrawal rate is 3-4% with some inflation adjusted caps and floors so that in good years you grow your investments and in bad years you maintain a certain level of lifestyle.
I fall into this 9.9% as well, so someone please tell me where I can exert this "Aristocratic influence" I have.
In Australia apparently all you have to do to get into this group would be to actually own a paid off house. :/ I think this says far more about housing then wealth inequality though.
Yes, it’s true that kids from well to do areas grow up to become well to do. But twin studies tell us the mechanism of heritability is entirely genetic.
Below, I've linked some of the articles I have read on this in the past.
Here is a book pointing out various issues with twin studies: https://dl.uswr.ac.ir/bitstream/Hannan/139363/1/978113881306...
https://www.brookings.edu/opinions/americas-zip-code-inequal...
"Today, the state of the American Dream—the ability of anyone to work hard and get ahead—largely depends on one’s zip code." https://talkpoverty.org/2015/12/17/american-dream-zip-codes-...
https://www.forbes.com/sites/michaeltnietzel/2020/01/02/solv...
I'm born into the lower working class, Western Europe. And so is my brother. From an early age it was clear that my brother has limited intellectual interests or ability, nor is he creative. He simply isn't a learner, not a man for the books. He's a most excellent blue collar worker and that is the outcome. He's doing fine and is happy.
Me, I seem to be born to live in my head. An almost exact opposite. It was absolutely inevitable for me to end up in a creative or intellectual field. Which tend to have better compensation.
I could brag about how very hard I had to work to actually arrive at that place, coming from rock bottom. But these self congratulations would be misplaced. Anybody can work hard and my brother also works hard, if not harder. What decided between these vastly different outcomes is the brains we were born with, as everything else is equal. Perhaps even a good work ethic is in part genetic, I'm unsure.
There is a huge catch to this story. I was fortunate to live in a time and place where education was open and accessible. My parents' economic status didn't matter, I was in the same schools as people far richer. Society allowed me to compete and thrive from an equal and fair starting point, and then let genes (and some merit) play out. Which not only enables a great outcome for me, also for society.
I believe this equal access is absolutely critical. In fact, access to education has such a dramatic positive return that I believe education should be free. Insane! Who will pay for that?
The future will pay for it, in multiples.
On meritocracy:
"I think a defining feature of the group culturally is this belief in meritocracy, in the sense merit is what makes the economy work. The sum total of our GDP is the sum total of the individuals in it."
Nothing too controversial...
"Everyone earns what their merit is worth."
I feel like this only works in a very technical sense and doesn't translate to what people would mean using natural language. Merit is a morally loaded term which I think makes the whole debate over Meritocracy confusing. A better way to put this would be:
1. Individuals have different amounts of leverage, which is correlated to earnings. 2. Competency is non-trivial and significant source of leverage. 3. A person with competency has more leverage than a person without competency all things being equal.
"That is coupled with a market myth that says that whatever people do that earns money is essentially good for society."
Perhaps there are people that believe this, but they must be a small group of people. Everyone everywhere complains about the knock-on effects of different industries.
It's not clear to me where they are drawing these conclusions from.
There is a vast difference between, as she says, "1.2 million" and "20 million."
20 million is "screw you" money. In that someone could quit everything they do, and live their whole life very comfortably on the wealth they have in hand, by paying cash for their house, setting aside a million in rainy day money, and putting the rest into very low risk bonds.
1.2 million is just enough money to get someone in trouble if they make a few mistakes. Buy an expensive house in the wrong place? Not a millionaire anymore. Ill-timed stock returns that turn south around the first of the year? Not a millionaire anymore. Try to start another business that doesn't pan out? Not a millionaire anymore. There's a million ways (pun intended) for someone with 1.2 million dollars to find themselves fast running out of money. Someone with 20 million? Not so much.
There’s two primary reasons they choose to continue to live in the Bay Area. One is they value the amenities of the metro. Many view Iowa as a terrible fate, even if they are living in a mansion. In this case, they may be “living poor” in terms of housing, but only because they choose to spend most of their income on the luxury good of Bay Area living. Same way, I wouldn’t be crying for a high income guy who’s always broke because he spends all his money on his boat.
Second reason people live in the Bay Area is because it gives them access to very high paying career paths. Even if it’s a bad deal for an L2, by the time they make L6 at Google, their living standards will be much higher than what they could earn in Iowa, even given the cost of living.
This group is best thought of as sacrificing consumption today to invest in their human capital. Much like medical residents, while they’re low paid today, they’ll be very high paid in short order. Again, we really wouldn’t feel two bad about medical residents having to drive a used car for a couple years while they rocket up the career ladder.
(Yes, I moved 1000 miles. I know the pain of leaving it all behind, and the joy of 2x the house for 1/6th the taxes and more job opportunities.)
If you're coming from big tech or big startup in Bay Area, it is unlikely you will find "more [acceptable] job opportunities" in a significantly lower col area.
The interesting point that this one misses is that the children of this class are often not counted as part of the 9.9%, but are effectively part of it nonetheless because of the backstop an benefits that the 9.9% confer onto them. And their beliefs, etc. are pretty well in line with the 9.9. So really, it's more like the top 20% that's in this category, even though it doesn't look like it on paper.
It’s like someone manages to jump across a pit of fire and get to the other side and then convinces everyone else they should do the same thing. Unfortunately, statistically, those following that model are not all going to succeed. It does not make sense to have a society that is either defaulting on student debt or they are so burdened by it they can’t buy houses or take other important steps in life."
The path of getting a good, useful education, making decent life decisions, and slowly building up wealth over time via real estate? Ya, that will work for most people. The jump over that fire pit is pretty short. And while some people can't jump at all, a lot can.
Except, statistically, most people jumping the fire pit (going to college) do succeed, so making the jump, in aggregate, is worth it. On an individual level, sure, somebody should consider the pros and cons. But from a policy perspective, we absolutely should be pushing some sort of higher education (albeit not necessarily the standard 4-year BA).
And I do hate that college costs have gone up as much as they have. My parents paid cash for my and my sister's undergrad. Despite similar incomes (adjusted for inflation), doing that for my son was a real stretch.
2. Shave off the most extreme outliers at the top
3. Give this group a catchy name and attribute values to them
4. Make enough money off of pop-sociology to be included in this group
5. Repeat with n=n/2
Being wealthier on paper doesn't always translate to a more wealthy lifestyle.
I live in Singapore. If I have a 1M house, I can sell it, have 1M. Now I have two choices. I can either choose to be homeless, or I can buy another house for another 1M and be stuck in the same position as I was in in the first place. That 1M is really just "on paper" if you live in a country where housing is equally expensive everywhere.
In summary, some of these wealthier on paper people you mentioned way back may in fact just be wealthier. They can also live a wealthier lifestyle if they so choose.
$1.2 isn't an unusual amount of assets for a pair of professionals in the US, once you include house and retirement accounts, neither of which can be easily converted into cash for spending.
That looks like you are taking the world individual income distribution and the US household poverty line for single member households. That's...not really sensible.
It's quite accurate. But let's dot our i's and cross our t's as the procedural criticism is a fair one. U.S. poverty for a single household with 1 member is $12,880. Plug that into our handy WAPO calculator here:
https://www.washingtonpost.com/graphics/2018/business/global...
And you are better off than 80% of the world (if the calculator is to be believed). Try it yourself!
"The 9.9 Percent: The New Aristocracy That Is Entrenching Inequality and Warping Our Culture."
No examples of policy, law, or any specifics how this group is "entrenching inequality". This is more reductive single factor race blaming. Nothing regarding how many of the 9.9% inherited this class status, so how is this an Aristocracy?
Demonizing merit seems like a terrible strategy for a society.
I mean, you could have something so expensive that you run out of your insurance's maximum benefit. But, first, that's really rare (not that that's any comfort if it happens to you). And second, if you were somewhere like Canada or Britain that has "real" health coverage, they probably hit the brakes somewhere before you burn $10 million in care, too. (I admit that I don't actually have evidence of this statement.)
There seems to be this "but medical" narrative (GP is not the only example in this thread), and I suspect the hidden message is "we need real healthcare coverage so that it doesn't bankrupt you!" And, maybe we do. But claiming it could bankrupt the multi-millionaires just makes you look silly. That's not the way to persuade people.
The main thing is to make healthcare more affordable and have reasonable limits (i.e. $10M) to ensure people are not bankrupted by it.
https://www.hhs.gov/healthcare/about-the-aca/benefit-limits/...
Whites are 72% of the population so 90% falls pretty close to what we would expect to begin with. It seems an awful lot like the author was digging for any "us vs them" that they could find. Seeing as that the author of the book being reviewed and the author of the article are both shameless leftist shills according to their respective Twitter accounts, I feel comfortable sorting this article into the propaganda bin.
Second, this is an incredibly arbitrary group. $1.2 to $20 million? Why the fuck would you choose $1.2? It seem glaringly obvious that the author chose an overly-specific range so that their numbers would conveniently match their agenda.
Finally, valid statistical analysis is not "casual dismissal".
edit: Not that I disagree about the existence of the dynamic you point to.
And there's definitely a class of super wealthy who are "class traitors" in the sense that they advocate against super wealth. (You could certainly doubt and debate whether they just support those messages or whether they also support good faith action to that end).
Oh wait, looks to be already done.
It has to be tough trying to write about complicated topics while staying under a 'fourth grade reading comprehension' ceiling, or whatever the target is.
How confusing the world is when you have to stick to the 'ten hundred' most common words and concepts. (ten-hundred from XKCD)
It can turn out a surprisingly clear result that doesn't even show much sign of having started with a limited amount of words. It doesn't seem dumbed-down or vocabulary impaired, just easy to read (given that I do use any word that really seems to decrease the complexity of the explanation or cognitive overhead.)
It takes some time, so I didn't do it here, but if I did, this explanation would be clearer!
Income doesn't mean much if most of it is going toward debt service. Anecdote: Trump had an epiphany when he realized a bum on the street was literally worth more than he was financially.
It's always so important to convince each cohort of the population that every step of the ladder above them is absolutely crushing it, probably at their cohort's expense, and they probably deserve to be taxed harder.
After all, what other business does anyone have judging how well others live?
Meanwhile, acorns has raised over $100 million from Black Rock, celebrities, NBC Universal, etc.