How Rich Are You? Richer Than You Think
Take a look at how much money other people have and live on, and your situation might look better than you thought.
by Selena Maranjian (TMFSelena)"Every man is rich or poor according to the proportion between his desires and his enjoyments," the lexicographer Samuel Johnson once said.
There are lots of definitions for the word rich, including Dr. Johnson's, above. When surveyed last year, people cited an average net worth of $2.3 million as the point at which they'd consider themselves "rich," per the folks at Schwab. That's just an average, though; plenty of people would feel rather rich with a lot less.
Here's a look at what we think rich means -- along with some tips on how you might make yourself richer.
Some perspective on wealth
To be rich, you clearly need to have a lot more money than the average person. So let's take a look at the average American. (Keep in mind that depending on the source)
- The median household income in 2018 was $61,937, per the U.S. Census Bureau.
- For full-time individual workers, the median weekly earnings were $949, equivalent to $49,348 annually -- though, of course, female workers got $44,304 vs. men's $54,808 -- fully 19% less; nonwhite workers brought home even less. (This is per the U.S. Bureau of Labor Statistics, as of early 2020.)
- The median household net worth was $94,670 in 2016, per a 2019 report from the U.S. Census Bureau. That includes financial accounts, real estate, vehicles, and home equity.
Given the data above, $2.3 million or even just $1 million is far more than the typical American has, and would be a reasonable indicator of wealth. But let's take a broader look. Here are Americans' household incomes broken down into quintiles:
| Quintile | Average Income |
|---|---|
| Lowest 20% | $13,775 |
| Second 20% | $37,293 |
| Middle 20% | $63,572 |
| Fourth 20% | $101,570 |
| Top 20% | $233,895 |
Source: U.S. Census Bureau, August 2019.
It's also instructive to see how much people have managed to sock away for retirement -- which isn't too much, overall, unfortunately. Here's how much workers nearing retirement recently reported that they have saved:
| Amount Saved for Retirement | Workers Aged 55 and Older |
|---|---|
| Less than $1,000 | 10% |
| $1,000 to $9,999 | 6% |
| $10,000 to $24,999 | 7% |
| $25,000 to $49,999 | 6% |
| $50,000 to $99,999 | 6% |
| $100,000 to $249,999 | 26% |
| $250,000 or more | 40% |
Source: Employee Benefit Research Institute/Greenwald & Associates 2019 Retirement Confidence Survey.
Fully 29% of respondents had saved less than $50,000 -- and they were likely only about a decade from retirement.
Here's one final set of numbers to help you put how rich you are in perspective: According to data from the United Nations, fully 736 million people lived on less than $1.90 per day as of 2015 -- equivalent to only $693.50 per year. That's the International Poverty Line, and between 2011 and 2015, the number of people living on less fell by roughly 200 million. There are still lots of people living on very little, even if they're above that line: "Over 1.9 billion people, or 26.2% of the world's population, were living on less than $3.20 per day in 2015. Close to 46% of the world's population was living on less than $5.50 a day," says the World Bank. Those daily incomes translate to annual figures of $1,168 and $2,007.50, respectively.
One definition of rich: Having enough
Clearly, it's likely that your income and your net worth would classify you as very rich compared to billions of people. But if you're living in a smaller house than you'd like and you haven't yet managed to afford that big trip to Europe, you may not feel especially rich. So consider this definition of being rich: having enough money on which to retire comfortably, with financial security for the rest of your life.
How much money you need for retirement is different for each of us, but $1 million will serve many of us well, while others will do just fine with considerably less. One rough gauge is to use the (admittedly flawed) 4% rule, which suggests that you can withdraw 4% of your nest egg in your first year of retirement and then adjust subsequent withdrawals for inflation, and that doing so will likely make your nest egg last 30 years. The table below shows how much you might collect in your first year from different-size nest eggs:
| Nest Egg | 4% First-Year Withdrawal |
|---|---|
| $250,000 | $10,000 |
| $300,000 | $12,000 |
| $400,000 | $16,000 |
| $500,000 | $20,000 |
| $600,000 | $24,000 |
| $750,000 | $30,000 |
| $1 million | $40,000 |
Source: Author calculations.
Think about how big your nest egg is likely to be and how much you are expecting from Social Security, and you should get a very rough idea of how on track you are to have the money you need for the rest of your life.
How to get even richer
If it's looking as if you're not rich enough and are not on track to retire rich enough, if you still have some years of investing left, you can probably improve your situation considerably. Here's how much you might amass with regular investments of various sizes that grow at an average annual rate of 8%:
| Growing at 8% for | $10,000 invested annually | $15,000 invested annually | $20,000 invested annually |
|---|---|---|---|
| 5 years | $63,359 | $95,039 | $126,718 |
| 10 years | $156,455 | $234,683 | $312,910 |
| 15 years | $293,243 | $439,865 | $586,486 |
| 20 years | $494,229 | $741,344 | $988,458 |
| 25 years | $789,544 | $1,184,316 | $1,579,088 |
| 30 years | $1,223,459 | $1,835,189 | $2,446,918 |
Data source: Calculations by author.
Here are some last words on succeeding in life, from Warren Buffett, arguably the world's greatest investor:
"If you get to my age in life and nobody thinks well of you, I don't care how big your bank account is, your life is a disaster." He added, "Basically, when you get to my age, you'll really measure your success in life by how many of the people you want to have love you actually do love you."