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Wealth vs. Wealthy

July 19, 2012

I was thinking the other morning about wealth and the state of being wealthy.  Health is sometimes conflated with wealth, being designated, at times, as being of more importance than wealth, and sometimes being considered a kind of wealth.  While I am largely in agreement with these ideas, it is not what I’m writing about today.

I’m writing about material wealth.  Money, property, investments, etc.

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So, what is wealth?  This is certainly a variable.  To a ten year old, fifty dollars might seem like wealth.  To a twenty year old, fifty thousand dollars might seem like wealth.  But if the ten year old has fifty dollars, or the twenty year old has fifty thousand dollars, are they wealthy?  I don’t think so.

Wealth can be of the moment, but to be wealthy, I would say you must have sufficient material wealth that you are financially secure for the rest of your life, or at least the foreseeable future.  Financially secure, though not necessarily able to indulge in opulence.  The way I see it, you can be wealthy but not in a position to indulge in Ferraris, a villa on the Cote d’Azur or caviar for breakfast every day.

If you are wealthy, you can afford a decent place to live with the usual modern conveniences (whatever that might be in the place and culture you live in), access to quality medical care, and more than enough healthy, appetizing food; as well, perhaps, as a few luxuries, although these do not have to stretch to three month luxury cruises, though perhaps they would stretch to a five day spa retreat once or twice a year.  Not for today and tomorrow.  Not for this month and next month, but sufficient financial security that you can live this way for the rest of your life.  Then you’re wealthy.

Of course, you may have such wealth and feel this security and have things change.  Wealth and the state of being wealthy are not necessarily constants.  But if you are in a position where it seems that you either have such wealth, or can reasonably expect an on-going income that it will produce such wealth, then I think you could be considered wealthy.  Unless things change – the stock market drops, you lose your position, hyperinflation, or who knows what – you feel that you are financially secure for the rest of your life.  I would consider such a person wealthy.  Heck, I’d consider such a person blessed.

In the USA in 2012, how much would be necessary to place one in such a blessed state?  A million dollars?  If you’re 25 years old, and healthy, you may reasonably expect to live another 50 to 75 years.  A million divided by 75 is $13,333.33.  So a million dollar is not necessarily enough to live on here in the USA, and certainly not 20 years from now, even if there is low inflation.  Even divided by 50, it’s only $20,000/yr.  However, one could invest the money, and have interest and/or dividends in addition to one’s capital.  Of course, one’s investments might decline, and after investing a million dollars for a couple of years, one might have $700,000 instead of a million dollars.  Then again, that might be enough, because of the years taken off one’s life watching one’s investments decline by 30%.

Or one could put one’s money in “safer” investment vehicles.   Bonds or certificates of deposit.  If one had a million dollars and could put, say, $900,000 in CDs, even at the low rate of return available today, that million might be enough, even for 75 years.

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But, hey, we’re talking about a million dollars.  A MILLION DOLLARS!  And the possibility of that not being enough to be wealthy, to be financially secure.  On the other hand, if one has accumulated a million dollars, over time, one might also have been working, and building up one’s social security account, and perhaps a pension.  And do this in years beyond being 25 years old.  Let’s imagine a woman named Dorothy, and she has managed to put together a million dollars by her 50th birthday.  It is unlikely that she has more than 50 years to live, and starting at age 66 (or even earlier) she can start collecting a small pension and a small amount from social security.  Plus she can invest her million in bonds and the like and earn a small (or maybe a large) amount there.  If she’s still working then her capital continues to grow.  If she stops working, she’ll need to eat into her capital for the remainder of the years until she starts collecting from Social Security and her pension, and then eat more slowly into her capital for what she needs in addition to what she collects from Social Security and her pension.  Maybe then a million would be enough to be wealthy, as I’m defining it here.

So for a 25 year old, a million dollars is certainly wealth, though it doesn’t necessarily make him wealthy.  For Dorothy, at age 50, a million dollars seems like enough that I’d consider her wealthy, especially if she will be eligible for social security and a pension in coming years.

According to Time Magazine’s website there are 5.1 million millionaire households in the U.S., and that is, evidently, a slight decline from recent years.  However, that number refers to households, not individuals.  Also, for many of those 5.1 million households, a great deal of that wealth may be represented by the house they live in, not exactly liquid, because you have to have a place to live, and the market is in disarray.

Is there a number that can be set as a threshold?  Above this number and one is wealthy?  Well, yes, in a way.  If you have $10M, you’re wealthy.  If you have $500, you’re not.  The difficulty is finding a way to decide on at least an approximate number.  Again, it depends somewhat on your age, your health (and so, how many years you have yet to live), and whether or not this number of dollars you have will be, now or in the future, supplemented by other income from social security or pensions or some other source.

I think I’d be pretty cheerful if I had a million dollars, though I admit I’d be even more cheerful if I had two.

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