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How Much Money Do You Need To Feel Wealthy?

by retirebyforty on November 15, 2013 · 87 comments

in wealth

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On Monday, I asked – Are you getting richer every year? We had 339 votes so far and an overwhelming 96% believe they are doing better every year. This poll is a bit biased toward younger folks. As long as you are working and in good health, chances are you will be able to accumulate more wealth every year. Getting wealthier is much more difficult once you retire and start withdrawing from your investments. It’s not impossible though, and I’m sure many retirees are getting wealthier even after they quit working. That’s Financial Independence plus a bit more cushion so you don’t have to draw down your principle. Now that’s what being wealthy means to me.

how much money do you need to feel wealthy

I mentioned that I don’t consider our family wealthy. Being wealthy is actually a moving target for most people. It turns out most people need twice or more of their current net worth or income to feel wealthy. So if someone is worth $5 million, they would say they’d feel wealthy with $10 million. That’s pretty funny, isn’t it? Let’s focus on net worth for this article. I don’t think high income automatically equals wealth. It’s how much you keep that counts, not how much you make.

Here is the latest wealth study from UBS.

Investors are telling us that wealth isn’t just about having a certain amount of money. The majority of investors define wealth as having no financial constraints on what they do. But when asked to assign a dollar amount to being wealthy, they say it takes $5 million.

do you feel rich wealthy

I’m pretty sure we’d feel wealthy upon reaching the $5 million mark (inflation adjusted). Let’s assume 80% of that is invested and generates 3% every year. That’s $120,000 of income per year with minimal tax. We could live quite luxuriously with that kind of income. $10,000 per month is 250% more than our monthly expense right now. We would be able to travel and live a very comfortable lifestyle at home. Actually, $3 million probably would do it for me now that I think about it more. That would enable our family to live quite comfortably without working. I wouldn’t want to stop blogging, though. You need some goals to drive you forward or else you’d stagnate.

do you feel wealthy how much money

It seems most investors* agree with me. Being wealthy means you should be able to do the things you want without having to worry about money too much. This is why being wealthy is such a subjective thing. I don’t mind cooking at home, flying coach, and wearing old clothes. This isn’t acceptable for some people and they’d need a lot more money to really feel wealthy.

*For the fourth edition of UBS Investor Watch, 4,450 U.S. investors responded to the survey from June 23–July 1, 2013. Investors surveyed are ages 25+ and have at least $250,000 in investable assets; half have at least $1 million in investable assets.

The real problem is lifestyle inflation. As we make more money, we spend even more. We are the one raising the bar on ourselves every year. If we spend more money every year and need 2x the net worth to feel wealthy, then we’ll never get there.

Do you feel wealthy?

It seems being rich is a subjective thing, but let’s make a call. Can you tell me how much money you’d need to feel wealthy? Would it take $3 million, $5 million, $10 million, or more?

Great Comment from David Michael

I seem to remember a quote from Ram Dass, spiritual teacher of the 60?s, “You have to be a somebody before you can be a nobody.” I had it all, and gave it up at age 65. Wealth is an illusion. Now I am a nobody and I’ve never felt more free.

photo credit: UBS and flickr grahamc99

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{ 87 comments… read them below or add one }

Financial Samurai November 15, 2013 at 12:33 am

I enjoyed reading the UBS study when it came out this summer. The main dilemma that came out from readers is the “no financial restraints on activities.” When you put those words, a lot of people argue why of course only 60% think they are wealthy with $5 million.

5 million sounds about right. It will allow you to live in a nice place and not have to worry too much so long as the principle isn’t assaulted.

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retirebyforty November 15, 2013 at 9:19 am

Yeah, when you say no financial restraints, then that can mean anything. $5 million sounds good to me too, but I’d be happy with $3 million. :)

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theFIREstarter December 10, 2013 at 10:23 am

If I had $1,000,000 it would put me in the top 1% Of my country so I think that would mean I am wealthy. If I didn’t “feel” it then I think that would be my problem to deal with. Get ready with those tiny violins yea?! ;)

5 mill just seems overkill, I honestly wouldn’t know what to do with the interest it produced apart from give some away to charity, which would obviously be cool.

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retirebyforty December 10, 2013 at 9:19 pm

That’s great! Are in the UK? Must be another country.
I feel like $1 million is nothing in the US. Everything is so expensive.

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Dave September 8, 2014 at 3:26 pm

My wife and I have 4.8 million as of today. With our 240k house, and our Camry paid for we spend about 45k a year of which 12k is health insurance. We also pay 50 to 60k a year in fed taxes and Oregon taxes increase that by 50%, so figure 75 to 90k a year in taxes.
So if we make 3% on our 4.5 million 135k per year so we get 45k and taxes would get the rest in the years we pay 90k in taxes. Additionally inflation at 2% erodes our purchasing power by another 90k per year. So actually taking purchasing power into account we are going in the hole by 75 to 90k per year. I DO NOT FEEL RICH.

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Prasun Choudhury November 15, 2013 at 1:20 am

I think ‘wealthy’ will also be dictated to some extent on the geographic location; e.g. having $1 million in Bay area is very different than having $1M in Portland or Seattle, with the house price being the real differentiator. For me, if I have $3M when I plan to retire around mid-50’s, I would consider myself well beyond wealthy. Even though I currently live in Bay area, I won’t plan to live in such an expensive place, while I am not working (my preferred choice will be somewhere in Pacific Northwest). Considering my current cost of living (leaving aside the rental cost) and also including my travel expenses (traveling 6 months a year, until my health permits), I should be able to live comfortably for the remainder of my life with that money. Health insurance & medical expenses can throw up some unpleasant surprises, but one should probably plan keeping a decent emergency buffer for health costs.

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retirebyforty November 15, 2013 at 9:21 am

You’re absolutely correct. With more wealth, there are more choices. The houses in the Bay Area are ridiculously expensive. I wouldn’t want to have that much of my net worth tied up.

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Max November 16, 2013 at 7:37 pm

It all depends on what you want. I get annoyed sometimes by how everyone says the bay area is so expensive, granted it’s definitely not cheap. But there are places that are affordable here like anywhere else. Granted median rentals in sf are over $3,000/month but you can also rent a room in a house or apartment for $400/month. By the same token while there are multi-million dollar homes as well as homes under $100,000. If you are willing to live a bit away from the most popular metro zones you can make it work.

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C. the Romanian November 15, 2013 at 1:40 am

I don’t feel wealthy at all, unfortunately. :) I had one month so far when I earned a bit over $10,000, and then I really felt wealthy, but I wouldn’t actually need that much. I thought about it in the past and with me living in Romania where the cost of living is low, I would only need a minimum of $70,000 per year to really feel wealthy.

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retirebyforty November 15, 2013 at 9:22 am

That’s the advantage of living in a low cost of living area. Good luck!

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sendaiben November 15, 2013 at 1:58 am

About $2m in assets would do it. At that point I could do pretty much whatever I wanted and still keep the principal intact.

A long way off though!

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retirebyforty November 15, 2013 at 9:22 am

Keep at it! :)

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Daddy Domestic November 15, 2013 at 3:29 am

RB40,
Given our simple habits and needs, I believe 2 or 3 million would be enough, in todays dollars. It also doesn’t hurt that I live in Florida where things (except insurance) are cheap. I could see why someone in New York or London would need 3 times as much to feel the same way. In a third world country, the money we’ve already invested would be more than enough. It’s all relative, right?
-Bryan

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retirebyforty November 15, 2013 at 9:23 am

Yeah, that’s why I want to live part time in a developing country after Mrs. RB40 retires.

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jp @cashsnail November 15, 2013 at 4:18 am

€2m would be more than enough, anything above we would probably donate it to family or charity. But with our current income that’s an impossible target :(
So either we have to earn much more, or spend less :)

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retirebyforty November 15, 2013 at 9:24 am

I figure I’d donate whatever is left after I’m gone. I know that’s a bit selfish…

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Cindy @ GrowingHerWorth November 15, 2013 at 5:44 am

I agree with the other comments that location plays a large part in the amount. It would take much, much less to feel wealthy in my area of the Midwest than it would in many other parts of the country. And also lifestyle expectations. With 2 million, I could live a much more lavish lifestyle than I currently live. Using the 4% rule, I’d be financially independent at 1 million. Of course, it evens out a bit more when you account for lower earnings in areas with lower cost of living.

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writing2reality November 15, 2013 at 5:53 am

To me the $5 million sounds reasonable as your money can be invested in a way that provides more than enough income for you to live on without worry, while being able to account for rising healthcare costs, inflation, and any other expenditures. I would more than likely alter my asset allocation significantly as I’d look to protect that ‘nut’ while still keeping ahead of inflation.

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retirebyforty November 15, 2013 at 9:25 am

I’d focus on capital preservation at that point too. No point taking a lot of risk once you’ve got it.

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The Warrior November 15, 2013 at 6:23 am

Though the Warrior Family sets our goals with dollars figures, the end goal is that we are able to live life without worrying about paying the bills and enjoy life a little bit. In other words, the number doesn’t matter as much as what the money can do for me.

I say this with caution because the financial numbers matter. They are the key and what we have to work with. My only argument is figure out what kind of life you want to afford THEN figure out what the numbers need to be to make that a reality.

The Warrior
NetWorthWarrior.com

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Justin @ RootofGood November 15, 2013 at 6:32 am

I’d be interested to see what $5 million conservatively invested (say, mostly in bonds) would generate after you pay tax on the income. I know it isn’t 5x the income from a $1 million portfolio mostly invested in stocks (that pay mostly qualified dividends that are tax free in the 10-15% brackets). Maybe 2-3x?

My point is that comparing a top line wealth number like a million or $5 million can be difficult. How you invest it can be a large variable. The after tax “take home pay” is what would make me feel wealthy. I’m not sure that $90,000-100,000 per year would make me feel significantly wealthier than $40k/yr.

I’ll still be flying on the same plane (perhaps in business class, but probably not first class). I’ll cruise on the same mass market cruise liners (perhaps with a balcony). I’ll see the same thing on overseas vacations, with a slightly different view from my 3 star hotel balcony instead of a 4-5 star hotel balcony. I could drive a fancier car, but I still couldn’t afford to hire a chauffeur.

In other words, I couldn’t afford to fly on a private jet, or own my own private yacht, or my own island vacation home. Things would be pretty much the same with $100k/yr as they would with $40k.

I don’t feel wealthy with my very low seven figure investment portfolio. But I’m comfortable and content (perhaps living in a relatively low cost part of the SE USA helps). I think I would need $10 million or more to feel “wealthy” (that would probably yield $200-250k/yr after taxes).

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retirebyforty November 15, 2013 at 9:27 am

Spending 250% our current expense would definitely make us feel a lot richer.
Somebody has got to help out the economy. :)

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Justin @ RootofGood November 15, 2013 at 7:58 pm

So altruistic! ;) I can’t be that selfless.

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John November 15, 2013 at 6:48 am

I consider 3M = secure, 5M = comfortable, 10M = rich

I am resigned to the fact that any ss/medicare payments in my retirement will be means tested going forward on each of these financial levels. My concern is when the government starts taxing net worth to fund all of the baby boomers retiring with $100,000 or less in their retirement accounts.

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retirebyforty November 15, 2013 at 9:28 am

That’s interesting. My number is just about half of yours. It would suck if the government starts taxing net worth. I don’t think that kind of law would pass though. There will be a ton of opposition. It’s downright un-American.

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John November 15, 2013 at 12:49 pm

That “kind of law” will pass. Consider 10 thousand boomers retiring every day and look at the average balances in their savings. Do you think that the middle class is shrinking because their moving up or down. Check the political platform of the recently elected mayor of NYC for further perspective.
I agree that there will be a “ton of opposition” to taxing net worth but recognize that there is 3 tons of support on the other side.

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your broker November 22, 2013 at 10:27 am

The government taxing your net worth? Ridiculous! Only Wall Street is allowed to do that!

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dojo November 15, 2013 at 6:51 am

I think even 100k would mean wealthy for me. Sure, I wouldn’t stop working, but it would be a pretty nice sum to have in my account. :D

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retirebyforty November 15, 2013 at 9:28 am

Really? I’m sure you’ll get there. 100k isn’t that much. It can’t generate much income.

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dojo November 16, 2013 at 10:31 am

When you live in a country where 500 bucks/month is already a good wage, 100K can go a long way. :D

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SavvyFinancialLatina November 15, 2013 at 7:37 am

At my age I would consider $1 M wealthy. It would be great if we could get to a $1M. That would be a great milestone.

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retirebyforty November 15, 2013 at 9:29 am

I’m sure you’ll get there. It’s hard when you’re starting out.

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Kali @ CommonSenseMillennial November 15, 2013 at 7:38 am

Relative to other people my age that I know, I feel quite wealthy. Not because I have a ton in my bank accounts, but because I’m on the right track to reach my financial goals in the time I want to meet them. However, when I look at the net worth of some of my fellow PF bloggers – I feel downright poor! To be fair, I am very young and haven’t been in the full-time, out-of-college workforce for too long, and that’s what I try to remember. All things considered, I’m happy with where I’m at financially, and will feel truly wealthy when I’m able to quit my 9 to 5 job in exchange for working abroad making a little less – (in other words, when I’m capable of being able to take the financial loss in the form of a smaller income without it affecting my retirement plans).

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retirebyforty November 15, 2013 at 9:29 am

Good luck! I’m sure you will keep improving too.

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Done by Forty November 15, 2013 at 8:09 am

My wife and I have thought we are wealthy for a while now, and try to use that as a means to get a good perspective on things. We don’t need to feel crazy stress from work: we are wealthy and could handle a job transition, if it comes to that. We don’t need to feel bad about giving or taking a vacation: we are wealthy and can afford those things without too much impact. Mostly we would like our current level of wealth, whatever it really qualifies for, to release us from some anxieties surrounding money.

Really interesting topic, Joe. I heard once that the trick might be having more money than the people around you. I think the reason so many Americans feel broke is that we often try to reach for the next rung on the ladder in terms of neighborhood, friends, colleagues, etc. Surrounding ourselves with people who earn or have more might have good results from a bottom line perspective, but we might feel poor in the process.

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retirebyforty November 15, 2013 at 9:30 am

That’s a great perspective to have. It’s always going to be difficult if we keep comparing ourselves to the people on TV. Mrs. RB40 reads Travel & Leisure and a few other magazines. Those lifestyles are way out of reach for the average American.

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aB November 15, 2013 at 8:43 am

Totally wealthy, have my health, loving wife, healthy 2 year old..
Financially, not so much. Why is my son’s daycare costing more than my tuition was!?

Anyways, I would classify wealth more in terms of cash flow. If the cash flow is going to where I want it to go (makes me happy), then I’m wealthy (as opposed to where I need the cash flow to go, which does not necessarily make me happy or unhappy). The amount of assets just helps create or increase that cash flow.

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retirebyforty November 15, 2013 at 9:31 am

That’s great! I’m really happy with my life too, but I don’t feel financially wealthy at this point. It’s no big deal though.

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Amy K November 18, 2013 at 12:48 pm

“If the cash flow is going to where I want it to go (makes me happy), then I’m wealthy”

I love this, I think it captures the mental shift that I haven’t been able to describe. I realized at the end of summer that we are wealthy, something my husband had known for quite a while. It wasn’t that I was unaware of the numbers, but I finally realized that we had that independence.

We’re not financially independent, but we like our jobs and they’re pretty secure and they pay very well. We live on about 2/3 of our income, we are wealthy because we do this by choice, and it is by no means a sacrifice. There’s also a bit of comparative wealth – many of our friends make much less, and are saddled with student loans and other debt. We have about a million in investments, and our monthly expenses are about double Joe’s. We are comfortable. We are wealthy.

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retirebyforty November 18, 2013 at 3:31 pm

That’s a great way to look at it. Nice job!

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Amy K November 25, 2013 at 8:57 am

Aha, someone else with that mindset,
“[T]hen I thought, If these whip-smart young women, who voluntarily signed up for this money class don’t identify with wealth, we have a problem.

So I said: You all want financial security (they nodded); you want to be good money managers (they nodded); you want peace of mind (lots of nodding).

That’s wealth, I said.”

http://www.dailyworth.com/posts/693-reclaiming-wealth

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Anon E. Mouse November 15, 2013 at 8:47 am

We have a net worth > $3M, and feel a long ways from “wealthy”.

I think for the personal perception of wealth, liquid net worth is more important than total net worth, since owning a million dollar house doesn’t help one live comfortably. In fact quite the opposite — some assets like expensive houses cost money while not generating any.

I can agree with the $5M number, with the caveat that the $5M must be liquid (and a large portion of it must be outside of retirement accounts).

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retirebyforty November 15, 2013 at 9:33 am

I think 80% liquidity is a good goal to have. I don’t know if having an expensive house is the right way to build wealth.

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davidmichael November 15, 2013 at 9:14 am

I seem to remember a quote from Ram Dass, spiritual teacher of the 60’s, “You have to be a somebody before you can be a nobody.” I had it all, and gave it up at age 65. Wealth is an illusion. Now I am a nobody and I’ve never felt more free.

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retirebyforty November 15, 2013 at 9:33 am

Your perspective is great. We need to keep that in mind.

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jim November 15, 2013 at 11:08 am

Rich people take too much for granted. Give a poor person $500k and they’d feel rich. Ask a mult-millionaire if they feel rich and they say they aren’t. A million dollars “isn’t what it used to be” but its still rich as far as I’m concerned. $1M would put you at the top 0.5% of the world. 2/3 of the world doesn’t even have $10k to their name.

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retirebyforty November 16, 2013 at 10:02 am

That’s true about rich people. I don’t know about giving a poor person $500k though. Most people probably ends up spending it all in a few years…

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Andrew@LivingRichCheaply November 15, 2013 at 11:22 am

I think the survey would be better if it had an age group. If I had $1 million in my 20s I would feel wealthy, but not if I’m in my 60s. Definitely agree that not having financial restraints upon my activities would make me feel wealthy. I don’t have expensive tastes so it won’t cost a lot, though I do live in a high cost of living area.

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retirebyforty November 16, 2013 at 10:03 am

You’re right. $1 million at 70s actually wouldn’t be too bad. You can start spending down then.

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Paul N November 15, 2013 at 12:22 pm

I don’t think a dollar value is the right way to look at this. I think it’s more of how many dollars you need per month to pay your expenses and make your time your own to do anything you want. (compared to working wage)

For example if you get enough in dividends + rental properties etc. per month to give you say $4000.00 a month, maybe that’s your goal? As an example -Your portfolio value may fluctuate between $800,000 to $1.2 mil. – who cares if you get your $4000.00 a month steady and your happy?

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retirebyforty November 16, 2013 at 10:04 am

I like that too, but I’m still curious as to how much you’d consider rich. Would it be $1.2 million then?

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freebird November 17, 2013 at 1:36 pm

I think Paul N is right, my definition of wealth is not in dollars but in time, namely the number of years of net living expenses one’s liquid net worth adds up to. Once you hit 33x you’re financially independent because you no longer require wage income to support yourself for the rest of your life. You can get there by saving and investing a rising income, or by reducing expenses, or both. As for “rich” well that all depends on the situation of everyone around you. I live and work in silicon valley, and in the better school districts around here that means nine figures because a significant chunk of all that IPO and stock options money is going into houses.

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Jay November 18, 2013 at 4:44 pm

Hi Paul

I was just about to say the same thing. A bulk net-worth number is largely meaningless, it’s actually the monthly income that it generates that’s important. How you invest is a lot more important than what’s invested.

As for me, I’d feel very comfortable and unconstrained financially at around 10k per month. What that translates to in actual net worth depends on the quality of investment. If you’re super-conservative and get 1% in a CD, that’s $12M. If you have a higher risk tolerance or find a very good investment, that’s $600k to $1.2M (assuming 10-20% return)

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Kurt @ Money Counselor November 15, 2013 at 2:03 pm

I would not say I feel ‘wealthy,’ though statistically in comparison the rest of the world’s population we likely are doing very well.

I’m intrigued by the statement “No financial constraints on activities.” I’d point out that there are at least two ways to achieve this status. 1) Have a very high net worth, or 2) understand that a happy, satisfying life is largely independent of owning costly stuff and doing costly stuff.

I have on my wall a motto a sister-in-law did for me in needlepoint. It reads “He who lives content with little possesses everything.” And to quote from my favorite financial adviser, Henry David Thoreau: “Our life is frittered away by detail. Simplify, simplify, simplify! I say, let your affairs be as two or three, and not a hundred or a thousand; instead of a million count half a dozen, and keep your accounts on your thumb-nail.”

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retirebyforty November 16, 2013 at 10:06 am

That’s a great way to look at it. I agree completely. Spending modestly is the way to go.

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Steve November 15, 2013 at 3:41 pm

I have modest desires. I only want 1.5 times my current household net worth before I’ll feel rich. Enough to retire early, indefinitely, and no more.

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krantcents November 15, 2013 at 5:58 pm

Based on the definition, I feel very wealthy. Normally rich and wealthy is not terms I would apply to myself. I still feel it is someone else. I expect the first obstacle will be switching from a lifelong saver to a spender. I just do not know if that is possible.

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Paul ralphston May 19, 2014 at 2:09 pm

Going to be difficult to go to a spender from a saver. We have saved almost 5 million dollars and I will turn fifty next year. I believe if I see my net worth grow even 10,000.00 per year after I quit working it may ease the pain of spending, just a thought

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save. spend. splurge. November 17, 2013 at 5:21 pm

Based on that definition I also feel wealthy. I don’t feel constrained in spending at all, but I also know that I will have to continue to work… so for me, being wealthy or feeling wealthy is if I never have to work again. Ever. Even with all my spending.

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Sharon November 17, 2013 at 8:30 pm

Couple of things help equate to wealthy from my perspective.
1. Finally reaching 55 to take an early retirement pension. At 2K per month, not huge, but it’s 2K per month forever starting now. Combined with $1.5 million savings and whatever ss at 62, we’ll have a tidy monthly income.
2. We have absolutely no debt and I have a spouse that supports a great plan of spending wisely to afford more travel. Newer cars and a no-mortgage home in fantastic mechanical and cosmetic shape help round out a great financial situation.
3. Great health, happiness and a joy of life. Do we need $5 million? I’d take it, but am not striving for it. But our savings continue to grow, so may reach $2 million.

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retirebyforty November 17, 2013 at 9:58 pm

Congratulation! I hope we’ll be where you are at 55. That’s a great achievement.
Mrs. RB40 will be eligible for a pension if she sticks with her job that long, but I’m not sure if she will.

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Mike November 17, 2013 at 9:51 pm

I would say $5 million would be a decent amount. Not super-rich but one could comfortably afford a decent lifestyle on that buck. It could be a good amount if you are looking to at least be semi-independent and have money left over for whatever else you wanted to do.

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EL @ Moneywatch101 November 18, 2013 at 9:48 am

Ha reading some of these comments is ridiculous. I think most of those people in the US, would be content with just 1 million. It all depends how it’s invested, what it’s generating on an annual basis and how smart you are about frugality. If it’s all tied in real estate and not really providing income then yes they will not feel rich, but if it is in high yielding bonds and dividend stocks, earning 50-75K annually, then that is a good way to feel rich. Maybe I’m being modest, but for me rich is 1 million and wealthy is anything over 2.5 million.

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Kevin November 19, 2013 at 7:58 am

I agree. Seems to be a lot of posters living in expensive areas trying to keep up with the Jones’.

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Jason November 20, 2013 at 12:07 pm

This income level may work for people already in their 60s, but I don’t know about this for people still working and want to retire early.

When you’re talking about early retirement, sure 75k seems doable today. But, let’s fast-forward 25 years and take into account even a modest inflation number. 75k per year may just barely keep food on the table, the car running, and the house heated. Oh, and now you’re in your 60s so health care costs rear their ugly head. What’s that you say? You’re country has health care? But, that was 25 years ago, practically ancient history when the government could afford these programs. Even the co-pays may be enormously expensive in 25 years.

The more I think about it, the more I feel that any early retiree needs to have a way of growing their passive income even after pulling the plug. If your current income does not allow you to invest significantly, it seems likely you’ll end up in trouble and when you are least able to deal with it.

I still stand by my 10k / month passive income. But, of course more is better. :)

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looking to retire November 18, 2013 at 2:53 pm

Most people want to be average…basically middle class which takes about $70 pretax income for a family of 4
$20k income taxes (federal, state, social security, medicare, sales)
$20k house + related expenses (utilities)
$7k food
$10k healthcare
$5k car for 2 + related expenses
$1k vacation
$7k kid related expenses until they are 18 (daycare, extracurriculars, college savings, etc.)

$70k pretax given today’s ZIRP environment would take $3,500,000 in all in high risk non-investment grade bonds with 6% annual return.
Real inflation is 4%, so real return is 2%.

So folks, you need 3.5 million dollars in HIGH RISK investments to keep up with a very average middle class living standard.

1 million in the bank gives you ….$20,000 / year in real returns.

Factor in inflation, taxes, and risk, those who think million dollar is a lot are delusional. Even in third world countries, million isn’t much because real estate in big cities are sky rocketing. Yes, America…you are poor. Russia has more millionares than Europe, China has more millionares than USA.

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looking to retire November 18, 2013 at 3:07 pm

Real inflation = 4%
High risk corporate bonds = 6%
Real rate of return = 2%

$1,000,000 = $20,000 / year dividend income
$3,000,000 = $60,000 /year
$5,000,000 = $100,000 / year
$10,000,000 = $200,000 / year

You need $10M to actually be wealthy enough that your income is higher than wage earners.

For typical middle class to retire securely (don’t cut into principal and keep up with inflation)
$1,500,000 net worth is the minimum….
$500,000 in stocks (4% real return)
$500,000 in bonds (2% real return)
AND have the house paid off. ($500,000 for a decent house in safe neighborhood near a city)

Most people forget that you need $100,000 set aside for house repairs, real estate taxes, etc. For most people social security will pay for real estate taxes, medicare premiums, and taxes on interest/dividend. That’s it!

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Matt June 15, 2014 at 9:05 am

I think this is a pretty good analysis, except for a few things. First, I don’t think we are experiencing 4% real inflation. Some goods are going up more, some are going up less, but I think we are closer to 2%-3%, with instances of declines, much due to technology.

I also think with just a bit of work, you can do much better on your equities. I know personally investing in things like MLP’s (or better, GP’s, like WMB), other strong dividend growers has been yielding far better returns, well north of 8% real annualised. Maybe it won’t always be this way, but there is some fantastic organic growth to invest in out there, don’t let the media fool you. (Bad news sells papers, good news, not so much).

With respect to wealth and when is it ‘rich’, I agree with many posters that it is when you no longer have to think about money in the context of allocating consumption decisions, within reason. I passed $10M in liquid assets on the odometer a few years back and basically the main difference is that while my budget has gone up a bit, for the mostpart, I am now a perpetual saver, the interest/appreciation on investments is starting to compound. To me, this is when you start feeling wealthy. I also believe past about $5-$6M of liquid investible assets, you really start seeing a marginal utility to monetary wealth. Expenses for the next level of service or good start going logarithmic. Private jets for example, even at $10M-$15M of liquid assets, it’s really not enough, you would feel uncomfortable. But you do move to business class 100% of the time, which oddly, is not that expensive in relative terms (or particularly for how much better the experience is, especially on long-haul flights). And by now, most people know that a larger-than-needed home has negative utility–more upkeep, feels and looks lonely, very high carrying cost in taxes, etc and more illiquid. Kind of a fools errand, high end property.

The best ‘change’ is simply the removal of any pressure from working that comes from ‘having’ to be there. You really feel different about your career, free to make even riskier, more enjoyable or fulfilling choices. A year off for charity work doesn’t look crazy.

In a way, the money can create a bit of additional stress…’am I getting the most out of it’? ‘is it truly safe in different scenarios’? You will also find that it becomes harder to be ‘normal’, again, not a ‘problem’ just oddly a tiny bit isolating.

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Brit January 6, 2014 at 1:07 pm

I need to raise my standards! I thought having 50k would make me feel wealthy enough…. wow!!

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Pichirino January 31, 2014 at 9:46 am

Wow your question really is relative to the individual.
I could be FI in about 5 years but does this mean im wealthy?

By definition I could be retired by 33 so one would expect so.
But the truth is my low salary(extremly low by american standards) and an 80-85% savings rate would mean a retirement life of equally financial discipline to which im not ready to commit at that point.

So while im FI by year 5 ,I want to accumulate enough wealth to go on at least 13 years after that to build up a work pension which together with social security is meant to combat inflation.

This also means I would have more flexibility to choose to travel some and spend on stuff that matters to me.

While financial independence can be reached at lightening speed by an 85% savings rate I doubt most low income earners would wish to do so to Retire Early by itself.

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jo February 8, 2014 at 1:05 am

I am almost 39 years olg. My net worth is about 3 million but I am by no means wealthy. I own a house worth 750k in a suburb wherein the average house price is about 1.3 mil. I own an office worth about 250k in which I work. I have about 2 mil in liquid assets: cash, shares, bonds, etc.

However, I consider that I am not wealthy because I still need to work. The 2 million at a three percent yield gives 60k a year, hardly enough to live on. I think I need at least 3 mil in income producing assets before I can leave work and hence feel wealthy.

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Srqretiree March 22, 2014 at 6:28 pm

Live in Florida in house worth $2m and have $3.5m in investments making about $100k per year. No debt but two teenagers at school. Earn about $100k investment income after taxes. Mid 40’s and have 2-3 international vacations/cruises per year. Do I feel rich, NO but comfortable. I agree that you feel you need to have double your net worth

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retirebyforty March 24, 2014 at 9:35 am

It sounds like you are quite comfortable at that level. I’d say you’re wealthy. :)

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Jay April 21, 2014 at 4:12 pm

First post here. It seems that most of the posts here seem to coalesce on the basic math that, for those in their late 30s, 40s, and early 50s, $3M is a magic number that allows you to earn a decent “salary” without working of $50-$100k/year (a wide range, I know) depending on how conservative your investments are. Under the 3% rule, or by owning real estate or similar investments, that $50-100K/year should be inflation adjusted. And most of us, it seems, are counting on SS as “gravy” if and when we get it.

On that basis, it seems that $3M does not feel wealthy, but would be quite comfortable as it produces an upper middle class income. It is hard to think of oneself as being wealthy with those numbers and an early retirement goal. On a superficial level, the wife and I know we are wealthy since we are maybe 3 years from that goal and are in our mid 40s ($2.7m including primary residence, no kids except one 20+ yo son out of the house). But since we’ve worked all our lives for this, have never spoiled ourselves, and don’t come from wealth, it is hard to think of that money as wealth as opposed to our retirement nest egg (no pension for us, possibly no SS if not solvent by then).

If we get to a potential goal of $4M by age 51-52 and then retire, I may feel wealthy. I don’t now because, as mentioned, I don’t see the $2.7M as disposable. I do think that if we had $3M at age 70, we’d feel wealthy for sure. So there are a lot of variables.

I also agree with a lot of posters, that, at some dollar amount and whatever age you are, there is a shift toward feeling wealthy. For me, I do think that having $5M now, even with an early retirement goal of 50-52, would definitely do it. Perhaps not Paris Hilton wealthy, but still wealthy when one crunches all the numbers.

I find this a fascinating question, not only for the math, but for the psychology of what feeling wealthy means. If I get to $3M at age 50 and then retire, it’s not like I’m going to get the presidential suite in a 5 star hotel, buy that ski chalet in Telluride, or Gstad, or even travel without a pretty tight budget. Unless we greatly exceed our retirement goals, I don’t think a lot of us will ever truly know what being wealthy really means. In that regard, it is probably more worthwhile focusing on getting to a point where we can enjoy the things we like to do, and thus feel “wealthy” in a more existential sense.

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Lawrence May 24, 2014 at 7:46 am

I love these type of discussions. I have done fairly well in savings in my life despite basically starting from scratch after divorce 16 years back at age 35. As a high income earner as well as an aggresive saver and investor. I have managed to save to about 12 Mill (house 800K the rest in investments and cash) . My kids are done university and are self sufficient.I am not rich. I am well off, and could retire comfortably. However a huge downturn in the stock market couldknock me down abit. However at 51 I am too young to retire I am a physician specialist. However in a few years will likely retire, to volunteer, and travel the world. I feel I would have more than $450K a year after tax indexed to inflation without touching capital for ever. Since I currently live on less than $150K a year this is way more than I would need.

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Mike May 25, 2014 at 4:13 am

I have $1 million in my 401k, $150k in a different retirement account and $600k in liquid assets. My $175k 1 bedroom apt is paid off and i would net $650 k after taxes if I sold my business tomorrow.

If i was single i could retire but my girlfriend who lives an a big house in Long island has different ideas about how to live.

I do not feel wealthy. I would say i am comfortable but i still have to work.

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retirebyforty May 26, 2014 at 11:13 pm

Maybe when you hit the $5 million mark? :) Good luck! Sounds like it’s going to be tough with your girlfriend because she has high expectation.

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abdelghani June 10, 2014 at 9:44 am

3 million dollar.

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name September 23, 2014 at 2:17 pm

So it is only 86 percent where is the other 14 percent on the poll that asks what means to be rich….what did they say

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retirebyforty September 24, 2014 at 9:50 am

I assume the 14% have other answers.

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Mike October 4, 2014 at 3:36 pm

I’m 35 and have $2.4 million invested in real estate, including commercial retail. The rental income from my portfolio generates approximately $134,000 per annum after taxes. To help combact inflation because I’m still reasonably young, I reinvest half the income back into real estate, so effectively I’m left with $67,000 per annum. I now live in Thailand where the cost of living is roughly 50% cheaper. Not having to work sounds like a great idea, but there are days I get bored (there’s only so much golf you can play, let’s face it).

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Josh November 11, 2014 at 5:37 pm

It’s strange to me why someone who’s been leading a frugal life for most of their adult life feels as though they need 3 to 5 million dollars. I would think it would be very difficult to change one’s spending habits once you reach that mark. Does anyone really need that sort of sense of security? If not, then constantly saving and leading a frugal life to enjoy the money at an old age doesn’t make much sense to me either.

In your case your annual expenses are roughly $50k, but you feel you need $3 mil? If you had $3mil, would you double or triple your expenses?

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TimeToRetire November 29, 2014 at 12:38 am

I am 34, and almost have $5,000,000 saved up. About 1/3 is in home equity, the rest in mutual funds. I moved out at 19, and received no assistance from parents after that, so all the money was self-earned. I’m not writing this to brag; I’m writing it so we can explore what someone would really do once they earn this kind of money.

Right now, I still have my business. I feel like my business may not be around forever, so I am working about 50+ hours per week now so I can make as much money as possible. I used to tell myself that I’d quit working and move to Costa Rica as soon as I hit 1 million, but the money kept coming and doors kept opening, so I kept working.

At this point, here are the options I see for myself. I’m not sure which to choose:

1) Try to earn significantly more, buy a 2nd & 3rd home, fly private jets, etc.
2) Stop working and delegate all responsibility of my business to managers. Cut back on spending, just in-case they run the business into the ground.
3) Try to travel a lot and telecommute to control the business. This is supposed to be a “best of both worlds” option, if done correctly. If done incorrectly, it will mean my cell-phone will be ringing when I’m trying to snow ski.

I’ve been married about 12 years, and we have no kids. If I stopped working so much, I might invest that time into a child instead.

Would love to hear your thoughts on what you’d do in my situation.

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retirebyforty November 29, 2014 at 11:57 am

Congratulation! That’s a huge milestone. I think the main question to ask is – are you enjoying running your business? If you like it, then you probably should keep doing it. If it’s not much fun anymore, then maybe you can try something else. How about selling your business and try a smaller operation that you can run while traveling?

Good luck!

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TimeToRetire November 30, 2014 at 1:02 am

I like your logic, thank you.

Regarding selling/enjoying: I don’t know what I’d do if I wasn’t working, I’d probably exercise more, but I’d also start to feel unproductive and make hobby businesses.

I think my best bet right now is to work on what I like and not worry too much about the day-to-day of the business. That’s what I’ve been trying to do.

Does anybody stop working and actually enjoy it? I’m afraid I’d feel really really lazy if I did that. What do you fill your day with?

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retirebyforty November 30, 2014 at 8:08 am

I’m really busy with the kid and my blogs. You really need to find something to do when you leave your main job at such a young age. I know some people who left their job and they are all working in some capacity. You just need to find something you enjoy. A hobby business is one great way to do it. At this age, it’s not good to stop working completely.
Good luck!

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TimeToRetire December 1, 2014 at 8:06 pm

Great advice. Thanks RB40.

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