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What Does It Take To Be Rich?

27 - 07 - 2009

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So your net worth is $1 million.

Are you rich? Can you stop worrying about money?

These questions evoke visceral responses from people, from disbelief--as in, ‘Not even close!‘ to, well, disbelief, as in, "Of course!"

Million, schmillion, some say. It takes a lot more than $1 million to be truly rich today, and to stay rich.

They have a point. To match the lifestyle of the average 1925 millionaire would take nearly $10 million in net worth today because inflation has gnawed away the value of a dollar like a termite through a Southland beach house.

Prosperity can worsen that erosion even in low inflation times such as these: Millionaires in Aspen, Colo., complain that billionaires are driving up home prices to unaffordable heights, while luxury houses in Palo Alto are snapped up before the for-sale signs are even stuck in the manicured lawns.

Worth magazine, the self-styled personal finance guide to the rich, recently estimated that you need a fortune of at least $50 million to get truly customized financial service at most banks, trust companies and financial planning firms today.

No wonder so many feel shouldered aside by others’ wealth.

Native Oklahoman Maria Fotopoulos thought a six-figure income meant real money--until she moved to Los Angeles. Fotopoulos, a public relations professional, and her financial consultant husband are renting an apartment in Brentwood while they reel from home-price sticker shock.

"If 95% of Americans have incomes under $126,000, I continually wonder who buys all these houses in L.A. that start at $500,000 for a tear-down--or what would cost $30,000 in Oklahoma City," Fotopoulos said. ’I can sure tell you that falling in the 95% zone doesn’t make me feel like I’m doing much more than getting by if I can’t even contemplate buying a house."

In fact, almost as many Americans making $85,000 tell pollsters they aren’t making as much money as they "need" as do those making $35,000, according to Juliet B. Schor, a Harvard professor who wrote "The Overspent American: Upscaling, Downshifting and the New Consumer."

And the more you make, the more you think you need: Even a $1 million nest egg at retirement may not be enough for a baby boomer now earning $85,000 a year, given inflation and longer life spans.

But other readers no doubt will argue we need another point of reference.

Tear-downs do, after all, still cost $30,000 in Oklahoma City, and the average home in the U.S. costs less than $200,000. The median household income in America is about $47,000. That’s the equivalent of what a lowly bank CD would pay in annual interest on $1 million.

Which means many people conceivably could retire tomorrow on $1 million and, with low-risk investments, live very well indeed. Some no doubt could do so on the interest earnings of even $500,000.

Widen your aspect ratio a little further, and the argument that $1 million isn’t much becomes almost absurd: With 2 billion people in the world living on less than $2 a day, $1 million is an inconceivable sum.

"Most of us live high on the hog compared to everybody else on the planet," says Sherman Oaks resident Ray Hoese, whose family was considered rich in their native southern Louisiana town because they lived in a brick house while others lacked indoor plumbing.

So why wouldn’t $1 million feel like enough to many of us? Partly, it’s because costs of living have risen along with incomes. Getting ahead seems to require a two-income family; the Census Bureau tells us that dual earners are among the households making more in real terms than 20 years ago, but one-income families have lost ground.

That’s Hoese’s position. "I make a good living, but because of where I live--Southern California--and the fact that my wife stays home to raise and home-school our kids means we still struggle from paycheck to paycheck," said Hoese, a marketing communications manager who lives in Encino.

Whether a $1-million net worth feels like a lot may also depend on the form that wealth takes.

http://www.latimes.com/business/investing/la-spendsave-story16,1,4871975.story
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