I don’t know about you, but I think polls and surveys are really fun and sometimes they can be even useful too (but usually for marketing research purposes). However, I have an issue with a recent Gallup Poll that asked American’s how much income they believe they need to be “rich”. According to the poll results, Americans set the “rich” threshold at a median of $150,000 in terms of annual income and $1,000,000 in terms of net worth.
To me, these numbers are way too low….
Now, I know that this is a poll and that these results are a function of how real people across the United States think about wealth and their future financial needs. But here is my problem with these results: The very definition of “rich” is that you have a large capital base that generates enough passive income to cover your annual expenses for the rest of you and your families lives. So, if you need to have a $150,000 income to “feel rich” and you have a capital base of $1,000,000 and we assume an annual return rate of 6% on your capital base and a 2.5% inflation rate, you are out of money in just 8 years. (Remember inflation will increase the Gross Income you will need each year that’s why it increases each year; it’s the time value of money concept).
To me, that does not feel very rich, wealthy or anything close to it. It sounds to me like you will need to be working at that $150,000 job for many more years to sustain that “rich feeling”. And “feeling rich” and “being rich” are clearly two different things.
Here is a table of what your gross annual income would like each year with $1,000,000 in assets at a 6% return:
| Year | Asset Base | Gross Income |
| 0 | 1,000,000 | ————- |
| 1 | 901,000 | 150,000.00 |
| 2 | 792,085 | 153,750.00 |
| 3 | 672,561 | 157,593.75 |
| 4 | 541,689 | 161,533.59 |
| 5 | 398,684 | 165,571.93 |
| 6 | 242,711 | 169,711.23 |
| 7 | 72,882 | 173,954.01 |
| 8 | (111,746) | 178,302.86 |
Now, if you only need $100,000 a year then your $1,000,000 stretches to 11 years of annual income and if we increase the annual return to 8%, your money will stretch for another 2 years to a total of 13 years. Here is one more calculation to chew on: with a $1,500,000 capital base and an annual return of 7% (inflation still at 2.5%) you would be able to receive the equivalent of $100,000 for 22 years. For example you could receive this amount each year from age 66 to 87 year old if you were to retire at the end of your 65th year. Just don’t live to 88 years old because you will be out of money.
Now that you have a bit more information, I am going to give everyone a “do-over” on the Gallup Poll and re-ask the big questions:
Here a link to the Gallop Poll Results and Press Release: http://www.gallup.com/poll/151427/Americans-Set-Rich-Threshold-150-000-Annual-Income.aspx
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I saw this report too. Unfortunately I know many people who would agree that $150,000 a year is rich. In fact, a few I know would say $75,000 is rich. Yet, as others have said, when considering the cost of living in some areas, $150,000 is far from rich. Comfortable, yes, rich, no.
$75k is certainly too low, my view is that the income number is more like $350k and net worth of $3 million. But you can’t just have the income, you need to have the high net worth to be truly “rich” in my opinion.
Nice article NWP
Another factor can be cost of living… as it varies widely depending on the area.
Thank you! I think cost of living is really one of the biggest factors that drove people to respond the way they did in the Gallup Poll. I also think Pam @ MoneyTrial hit the nail on the head when she said that each person thinks about their own expenses i.e., number of kids, etc… when answering the questions. It really is impossible to know what drove the results but I get the feeling it was expenses rather than projections of the future income, returns and inflation.
I think “feeling rich” also depends on if you have kids, how many you have, whether you are paying for college, etc.
The higher your expense base, the more money you need to feel rich, totally logical. Unfortunately this can’t really be captured in the poll results because the question is very open-ended.
FYI, This is sort of the inverse of the wealth effect, which means that the more money you have and better your investments are doing, the more rich you feel and the more likely you are to spend…
I’ m sure if a poll was done specifically for each state the numbers would be drastically different. But, on average 150k is killing it once you factor in all the non metro areas
I still think that $150,000 is definitely a solid living, pretty much anywhere in the country. But I think folks would be really surprised on the math and some folks who initially thought $150,000 is definitely rich would change their minds to $250,000+
Yes it is relative, as Kevin (and others’) comments suggest, but I agree that my thresholds for someone being rich are much higher, and I no longer live in a metro area. Full disclosure: I have lived in metro areas for most of my life. Anyway, I’m inclined to agree with you wholeheartedly. It’s a great starting point, but as your polls suggests, it would come up short for “rich” by our standards.
Assuming you can get 6% and with inflation of 2.5%, $1 milliion invested would only yield $35k in ‘real’ terms. Well that’s a crude sum I know and you could bolster it by drawing down from the capital but as you point out, you need to know how long you are going to live!
. If $150k/annum is your definition of ‘rich’ and this derives from some investment, the corresponding net worth figure must be in the $5 million range.
And net worth, particularly on this side of the pond, is dominated by your house and pension values, neither of which can be entered into this sort of calculation I think…
This all assumes 6% of course and at the moment in some places and in recent times, inflation has been higher than 2.5% with a depressed savers rates and stock growth.
Nah – rich probably means closer to $50 million in assets. Then you start to worry whether the bank will go under. You can’t win!
Ah… you took the ball and ran with it. I think your calculation of $5MM is about right, (maybe a shade high) to sustain a $150,000 income in real terms. But I think that would assume you want to leave an estate to your heirs…. I was thinking that $3MM might be my number, not including my primary residence.
There is saying in banking; If you owe the bank $100,000 then you have a problem. But if you own the bank $100,000,000, then the bank has a problem…
While you confuse me a bit with the math (not my forte), I can see that the AVERAGE American views $150,000 as rich because it IS. Only for us big metro people is that number not enough. But we’re not the average American. Living in southern California, I always tend to forget about the “middle” of America. Although I know a lot of nice people that live there : P
Tough question, I wouldn’t consider myself rich in assets until I had several mill in assets. My parents are at about 1mill in assets, are they rich? HELL NO!
I would also consider an income of around 250,000 rich, by my standards I would have way more than I need or deserve but I can understand how others would see much more or less as rich.
A 150K income and 1million$ net worth would be rich to most Americans, not to mention only a dream. There are over 300 million people in the US today, what are the chances they could all have an income and networth near these numbers? It’s not possible in the real world of most American workers.
I agree that most Americans will not become “rich”; being wealthy is just a classification and it really just represents some upper percentile of the total universe of income and net worth levels. The poll results focus on what income and net income they would need to be rich, in their opinion. My point is that I think many American’s who took the survey under-estimated the income and net worth levels needed to be “rich” in the true sense of the word. But I guess the definition of the word “rich” was left open to the imagination. So, maybe I am the one who is trying to put parameters on something that really was supposed to be in the eye of the beholder… But taking the median of all the interpretations still gets a set of numbers that most Americans might realize are too low once they do the math.
You’re in New York, I’m in the Bay Area. Our DC, Boston, LA, San Diego friends? We’re all in the same boat. Good luck retiring on $1M in those areas, and $150,000 is a very good salary but not ‘rich’ in my mind. From my calculator, 22% of people in San Mateo and Santa Clara county make more than $150,000.
Maybe it’s our fault for picking expensive areas, but if the SEC doesn’t even consider $150,000 Accredited, how can it be rich?
Totally agree with your points. As you mentioned, I am in New York City paying high income taxes, extra city-local taxes and $12 for a glass of wine at a restaurant, so $150,000 here is unfortunately quite average here or in some zip codes below average. However, I recognize that we are talking average numbers across the U.S.
Right, if someone can’t invest in a hedge fund or private equity fund then it is tough to say they are wealthy. Only problem with that logic is that the Government came up with the accredited investor minimums, which means the numbers are totally arbitrary
If you have $1,000,000 in assets, then the most you should be drawing is $30,000 – $35,000, maybe $40,000 at the most, and if you need more, then work or build up more assets.
I do view $150k and $1,000,000 as rich in one way, but in another way it’s not. Even the guy making $50k and with $100k in assets is very well off compared to much of the rest of the world.
@Invest It Wisely – You just highlighted my main point: “If you have $1,000,000 in assets, then the most you should be drawing is $30,000 – $35,000″, But then you would not have $150,000/year. So, that basically means even if you have $1,000,000 then you still can’t live a $150,000 a year lifestyle, therefore you are not rich. Even though you have $1,000,000 you still can only spend $30k per year or you will run out of money during your lifetime. Now, even if we assume the $150,000 annual income and the $1,000,000 in net worth are mutually exclusive, I would argue that one a standalone basis that $150,000 in income is not ‘rich’. I concede that $150,000 is well above average and I will even say that it is a very solid income that if handled wisely could lead to becoming rich. But I would venture that if someone is making $150,000 they are likely residing in an area with a higher cost of living and higher taxes as many of the other commenters have pointed out.