Rich is a lifestyle and a mindset. I have a rich friend, despite that he probably wouldn’t consider himself such, but his house is MUCH larger than normal, he has multiple expensive cars, an expensive watch, etc. On the other hand, I’ve known people who probably have similar amounts of money, but they don’t necessarily have a big house or other expensive tastes. So rich, to me, is living and thinking that particular way AND having the means to sustain it. If you’re the former and not the latter is living beyond your means, and the latter is having wealth.
As for gauging it, I think it often means one owns assets. First, I don’t see a hard cut-off on income being meaningful. Making $150k in Missouri might give one the money to live that kind of lifestyle, while that’s upper middle class where I am, and maybe just solidly middle class in a place like Manhattan. Second, I think it generally means investments and assets. If you’re living hand to mouth, you’re not above middle class. I see middle class as having some degree of disposable income , but you really just can’t be rich unless you’re at the level where you can pretty much have pretty much what you want when you want it.
So, as an example, last time I bought a car, I had to figure out my budget, decide what features I really wanted, which ones I might need to compromise on to keep it in my budget, and as a result, certain other wants had to be delayed or given up. Using my friend, as an example, his family decided they needed another car, and went out and bought one with cash that same day, brand new $50k car. I just can’t fathom the mindset of being able to make a purchase of that size on a whim. It’s not so much that every rich person does that, but more that a rich person CAN do that.
But your definition of rich is reasonable, it’s basically one of my two definitions above, ability to sustain ‘upper middle class’ lifestyle indefinitely without working, and spending $250k a year is pretty unquestionably at least ‘upper middle class’ lifestyle.
The other basic definition is some high %-tile of income, which I termed as the political definition, but tends to converge to same thing: special targeting of some people for higher taxes is usually sold on the idea it’s only X small %.
On your definition though there would be room for debate about what amount of principle equates to worry free withdrawal of $250k/yr. This debate came on an unrelated topic where it seemed to me a lot people had unrealistically high expectations of investment returns. The real after tax and after inflation expected return for a balanced portfolio (say 60/40 stock/bond) is more like 1-2% now than 5-8%. Bond yields are historically low, stock valuations are historically high. So spending $250k/yr worry free, after taxes, inflation adjusted, indefinitely would require $10-$20mil. You could lower it to the extent an older person planned to spend down the inflation adjusted principal, maybe less than $10mil. But based on your estimate of return it’s $3-$5mil. You couldn’t spend $250/yr after tax, adjusted up for inflation, indefinitely, starting with only $3-$5mil. You’d be taking a significant risk of being poor again. However I guess most people would say someone worth $3-$5mil is rich.
I think if a person can spend $250,000 a year without tapping into his savings and has a combined net worth of around $3,000,000. I would consider that a baseline for rich.
Well, unless you are Warren Buffett - although argueably, he has Ted and Todd to manage his money…
I’d go with TriPolor’s description and agree that fabulous wealth - or super rich - is when you can live like you are rich for the rest of your life - i.e. you can own a private jet and several houses. And the way I figure it, TriPolor’s description would take about six million for us (our standard of living with our cost of living). You are getting above $50 million to be super rich.
I’d say you’re rich if you can live a well-to-do lifestyle (multiple homes, frequent foreign travel, able to buy most things without thinking about the cost) on the income from your personal wealth - not tapping the principal.
A lot of people can spend 50k on a whim. Once, or maybe twice. And then they’re broke. Those people aren’t rich. If you have a million you can do it 20 times before you’re broke. I think that qualifies as rich, although of course it’s still entirely possible to spend the money and be broke.
“Set for life” is a different bar, which is probably a good amount above a million for people below retirement age. Set for life at several times the median income is a higher bar still.
A million bucks just isn’t that much, when we’re talking about ongoing cash flows from investments. It’s not enough to be set for life; you still have to at least tie inflation in what you reinvest, and what you keep is going to vary with the economic conditions.
I guess where I’m going is that it’s not so much about how much you have, but about how much that amount allows you to earn without working for it. Otherwise, every time you dip into that principal, you reduce your future earnings by quite a bit.
Really “rich” people have so much money that they can live that lifestyle WITHOUT dipping into it- they just live the rich-guy lifestyles off of what that money earns, and invest some extra along the way.
So one way to possibly put numbers around it might be to quantify what sort of annual income would qualify one for “rich guy lifestyle.” My personal guess is somewhere between 500-750k a year or more, which translates into roughly having about 10 million in investments, assuming an average of 7% annual return.
I think the professional classes have to be kept to one side, some doctors, lawyers, business executives, IT Professionals can easily have income and assets which would approach those of the very rich but, unlike businessman or inherited wealth, that is something which would disappear tomorrow if they lose their profession.
One of my Senior Counsels pulls on many millions of dollars a year in professional fees, he alos has investments and real estate portfolios, all in all his bet worth is probably approaching the $100 million mark. However, if he loses his practice, he probably won’t remain at that lifestyle for ever.
I would consider rich to be someone whose lifestyle would not be improved by additional spending. “Improved”, as opposed to “made more conspicuously opulent”. And is in no danger of having his lifestyle seriously impacted by a termination of income.
How much money that would be is not a countable figure, it would depend on the needs of the individual.
Again I think the concept is reasonable but the numbers less so. 7% is very optimistic for ‘sit back and watch it grow’ investments (if you’re say running your own business the return is higher, but then you’re not sitting around). Public pension funds have targets like 7% nominal, tax free…but it’s a growing scandal how unrealistic those targets now are. For an individual ‘just living on the income not the principle’ as several posters have mentioned, they have to pay tax on the returns which they can’t spend, and the principal and amount taken out to live both have to be adjusted up by inflation each year.
Again the realistic number after taxes and inflation (and you said rich people have professionals manage it, that’s another at least 1% if so but I’m not assuming that since many don’t because financial advisers tend to be a crappy deal for what they charge) without having to have a very risky portfolio, but instead a balanced portfolio of say classic 60% stock/40% bond, is 1-2%. Call it 2% to be optimistic. $500-$750k/yr safely forever requires $25-38mil. Your original suggestion of $250k requires $12mil. In the former case it’s getting close to the one person who suggested $50mil…but I think that’s kind of extreme. Would any average person really view someone they personally knew with an eight figure net worth (ie >$10mil) as not being rich? I doubt it.
It’s how many angels can dance on the head of a pin at some point, but I’d say non-realistic to call anybody with eight figure net worth ‘not rich’, even though in fact $10mil will ‘only’ safely sustain ~$200k in annual spending, after tax, inflation adjusted, indefinitely, pretty safely. And course $50mil is richer, so is $1bil and the absolute richest have 10’s of $bil.
And in reality a lot of definitely rich people do still work.
That’s supposed to be a serious question? Who cares if he lost his practice? He has 100 millions. He can live an extremely affluent lifestyle until his last day without ever working again. What percentage of the world population has 100 millions? If he doesn’t quaify as rich, who does?
I will describe two people whom I would call rich. One was a founder of Sun Micro and cashed in $100M and could have retired, although he could have. He did when he hit 55 and could retire as emeritus. But before that he had invested in Google, so I imagine he is now a billionaire. That filthy rich.
The other one is borderline rich. In 2000, age 33 he retired and cashed his Microsoft options for about $10M. For four years he helped raise his four kids (he really loves kids, always has, including younger kids when he was an older kid) and wrote a book, self-published. Then he got bored and went back to work. He has been back for 12 years and talks of retiring finally when the youngest (now 14) goes off to college. His family spends a lot on travel and vacations, but they mostly follow an upper middle class lifestyle.
That’s true, but we’re talking about being rich, not about being retired. Someone with a million net worth in liquid assets with in addition a reasonable amount of income is rich, because they can largely do what they want, for some time at least.
Don’t forget that the median income in the US is below $30k a year. A million is nothing to sneeze at.
