Charles Schwab interviewed 1,000 Americans about their views on money. Here are the most interesting insights.
I’m always interested in others’ views about money, and Charles Schwab’s annual survey – Modern Wealth Index – has quite a few insights into the subject.
It Takes Over $2 Million To Be Considered Wealthy
What does it take to be considered wealthy in America?
Apparently the answer after interviewing 1,000 folks across all ages and states is $2.4 million. Using a 3.5% withdrawal rate, that would throw off $84k a year to live off. We’ve already established that with some planning you can pay zero federal taxes on your money, so you’d be free to spend every single dollar of that amount.
Interestingly, there’s a divergence by generation on how much it takes to be considered wealthy. Millennials think that number is $2 million, while Generation X and Boomers believe it’s closer to 30% more.
Why the difference?
This is pure speculation, but as one of the oldest in the millennial cohort myself, I would note that we are all basically in our early 30’s or younger. Many of us haven’t had kids yet. Our health is good. We are comfortable living in fifth floor walk-ups and don’t have expenses associated with children or aging parents. Our health insurance costs are still low.
If I had to lean on one group’s opinion, it would be the Boomers. At this point they are all mostly in their 60’s. They’ve seen most of what life holds. Their answer: $2.7 million.
A 3.5% withdrawal rate on that figure would equate to $94.5k a year. That’s quite a cushy lifestyle.
A Sample Lifestyle of The Wealthy
I was curious what sort of lifestyle this figure would buy, so I did a little internet research. Here’s what I came up with.
Welcome To Your Luxe Mini-Mansion
Enjoy your stone-front mini mansion, renting for $2,395 a month. Your two kiddos get to attend the local public schools, which get a rating of 8 (very good) on GreatSchools. Everyone gets their own room in this 4 bed, 2 bath abode with 3-car garage.
Directly in the development is a sprawling golf course, where you can work on your swing and enjoy the perfectly manicured greens.
Vacations: Family Safari in Africa or Elephant Sanctuary in Laos?
With $10,000 budgeted for vacation each year, you can safari in Africa or sample exotic foods in Southeast Asia. Junior fascinated by animals? Why not take him for a once-in-a-lifetime trip to an elephant sanctuary in Laos and interact with baby elephants?
$10,000 not enough to scratch your luxury itch? Do a family vacation every other year so you can drop $20,000 on a single trip. That’s right, you can take a trip every year that’s equivalent to buying a brand new car.
Wining and Dining Like A Boss
You can spend over $10,000 on eating out and entertainment. That’s on top of $700 to buy organic groceries at Whole Foods every month for the family. How will you eat and entertain your way through almost a thousand dollars a month? Wednesday family outings to the steakhouse, maybe. Jet skis in the summer. Horseback riding for the kids. Heck, lease a horse for them: $200 a month for Junior’s pet pony.
Note: Wondering why there are no income taxes budgeted? Texas has zero state income tax and you can utilize this strategy to pay zero dollars in federal taxes.
Wealthy Means Over 20x Median Household Net Worth
How does the definition of wealth compare with the average Joe’s finances? Check out the chart below, which shows median and average net worth by age cohort. Note that the average is much higher than the median because the small contingent of uber-rich skew the average upward. Median represents the exact middle, where 50% fall below the figure and 50% fall above.
Source: DQYDJ from Federal Reserve Data
A household with over $2 million would have almost 20x the net worth of the median household with a head of household aged 50. I chose age 50 because that would be roughly 30 years of working life and represent someone at the peak of their earning potential.
Wealth Is Defined By More Than Just Money
When asked to define wealth, the top answer had to do with a specific amount of money. But not far behind that was the idea that experiences, peace of mind, and good relationships define a wealthy person.
This is heartening.
After all, these things are free.
Having a picnic in the park with the family can be a memorable experience. Jumping into puddles in the rain. Making a birthday cake for your partner. All great experiences that are high on fun and low on cost. Meditation costs zero dollars, and that has been proven to improve your mental state. And I’m a big fan of hobbies that require you to create rather than consume. They are huge sources of fulfillment that can be extremely inexpensive and may in fact turn a profit.
Geography Affects Views on Wealth
Unsurprising, geography affects what people consider to be wealthy. In the US, the highest hurdle is San Francisco, where respondents said it would take $4.2 million to be wealthy.
New York City is not far behind at $3.2 million. Moving to a lower cost of living area is a standard FIRE practice for good reason.
Want To Accelerate Your Own Progress Towards Wealthy?
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What Do You Think?
How much do you think it takes to be wealthy in America? What are the trappings it buys? What does a day in the life of a wealthy person look like to you?