Where do you stand?

In a recent post, I shared one view (not mine) on what it takes to be considered rich

…it’s $5 million !

Now, here is an article by Bankrate that brings that number right down to the other end of the scale …

Check out this table showing the spread of annual income:

Income level (percentile)

Median income (rounded)
Level VI (90 to 100) $170,000
Level V (80 to 89.9) $99,000
Level IV (60 to 79.9) $65,000
Level III (40 to 59.9) $40,000
Level II (20 to 39.9) $24,000
Level I (less than 20) $10,000

Source: Before-Tax Family Income, 2001 Federal Reserve Board Survey 

First, let’s see where you stand in relation to this table?

If you aren’t in the top brackets (although, many of our readers are), it might be comforting to note (according to the Bankrate article): “if you are bringing in $40,000 a year, you’re doing better than half the households in America. Or, as a Washington think tank recently pointed out: If you’re a teacher married to a policeman, your combined household income puts you in the top 25 percent of all households in the nation.”

What intersted me most, was the relatively low income that it takes to be at the absolute middle of the top 10% of all income earners in the USA … ‘only’ $170,000.

This amount seems to correlate with a New York Times survey that said the ‘rich’ were bringing in between $100,000 and $200,000 per year …

… and, if you are like most Americans – earning less than $40,000 – this sounds like a king’s ransom … but, it’s not.

You see, there’s a big difference between what you might bring in as income and what some people call sustainable retirement income .

Take a look at what the Bankrate article tells us how much these same people currently have as their Net Worth:

Net worth (percentile)

Median net worth (rounded)
Level VI (90 to 100) $833,600
Level V (80 to 89.9) $263,100
Level IV (60 to 79.9) $141,500
Level III (40 to 59.9) $62,500
Level II (20 to 39.9) $37,200
Level I (less than 20) $7,900

Source: Family Net Worth, 2001 Federal Reserve Board Survey 

Look at the top level, the same ‘rich’ people who earned $170,000 a year in the first table, only have a median net worth of $833,000 according to the second table.

Now, if you take this $833,000 and apply the ‘safe’ annual withdrawal rate of 4% as advocated by most misinformed financial advisors (for me, the safe withdrawal rate is more like 2.5% p.a.), it seems like these so-called ‘rich guys’ can only afford to spin off $33,000 a year.

Now, that’s less than the teacher and the fireman! So, what’s wrong?

Well, for a start there are actually very few really Rich people in this country – so few that there should be another category in BOTH of the above tables: the top 1% of the USA population by Net Worth and Annual Income. 

Secondly, the so-called ‘rich guys’ earning $170,000 are just like the rest of the working population working at a JOB … Just Over Broke.

When their job stops, they stop being ‘rich’ … period.

So, where do you stand?

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5 thoughts on “Where do you stand?

  1. “Secondly, the so-called ‘rich guys’ earning $170,000 are just like the rest of the working population working at a JOB … Just Over Broke”

    like that.

    I noticed your hiding your links behind text, for some reason I can’t do that on my blog, wierd.

  2. It’s how much you keep, not what you make.

    I’ve known businessmen who make well over $170,000 per MONTH, but their liquid net worth is under $1 million.

    One BIG problem I’ve seen is guys get bored – hit their 50s or 60s, no energy/no need to start another business (they can coast on what they did 20-30 years ago)

    Then they hit the tables – and either spend all they’re earning, or more (savings, lose the business, etc.)

    Not too many years ago, our state business magazine had a front cover story about gambling addiction, including guys who had pulled 10+ year federal prison sentences for embezzling millions from the business they had taken public.

    yep, one can be the most successful entrepreneur in the history of their village/city/state, and still lose it all if they can’t or won’t control their appetites.

  3. Thanks Bill and Rob.

    There is a book that I’ve already referred to that ‘proves’ that you need BOTH active (ideally, a business) and passive (ideally real-estate) in order to MAINTAIN your wealth and pass it on to your kids (if you think that’s important). I don’t agree … but, to your point, Bill, you at least need a SAFE WITHDRAWAL PLAN when you stop working (some people call that ‘retirement’) to make sure that your money lasts as long as you do …

    Rob: try this HTML (WordPress.com builds this function in to their blog editor, but other sites may not) – I highly recommend this blog!!! – feel free to modify 😉

  4. i make about $497,000 a year in gross income with about $200,000 in bonuses. My net worth is about 14 million, where do I stand?

  5. @ Danny – Well, it depends on what your Life’s Purpose is (www.shareyournumber.com)? The way I figure it, you can possibly retire and live off your $14 Mill. right now (5% of $14 Mill. is $700k), like me …

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