For Millionaires ‘Wealthy’ Is $7.5 Million, Fidelity Says (Bloomberg)

[eppur_se_muova]

By Elizabeth Ody - Mar 14, 2011 8:45 AM CT

How much does it take to feel wealthy these days? For many millionaires, it’s about $7.5 million, according to a survey by Fidelity Investments.

“Wealth is relative, and to some extent the more you have the more you realize how much more you need,” said Sanjiv Mirchandani, president of National Financial, a subsidiary of Boston-based Fidelity, that provides clearing and custody services to broker-dealers, in an interview before the survey’s release today.

The more than 1,000 households surveyed had an average of $3.5 million in investable assets. About 42 percent said they don’t feel wealthy, saying they would need about $7.5 million to feel rich. The 58 percent of respondents who said they do feel wealthy were younger on average and have a greater number of remaining years in the workforce, said Mirchandani.

A 65-year-old millionaire is “looking at potentially the loss of a paycheck as they retire, and 30 years in retirement, with inflation on the horizon,” said Mirchandani. “So they kind of go ‘Well, $3.5 million, $4 million, isn’t what I thought it would be. I’d like to have more.’”

There are about 5.5 million U.S. households with at least $1 million in assets, or about 5 percent of the population. Millionaires control 56 percent of the country’s wealth, according to Fidelity, which is the second-largest U.S. mutual- fund company after Vanguard Group Inc. Household wealth was $56.8 trillion at the end of 2010, according to the Federal Reserve.
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more: http://www.bloomberg.com/news/2011-03-14/comfort-level-for-some-millionaires-is-7-5-million-fidelity-survey-says.html




There's a fairly consistent pattern -- what people need to feel 'comfortable' is usually about twice what they have.

[OffWithTheirHeads]

1. Great. Now tax the motherfuckers!

[Terry in Austin]

2. The great divide: even $1 million is enough to put you across

The major socioeconomic division, IMO, is between those who have to work for a living and those who don't.

If you are wealthy enough, you can live off the interest and dividends. That makes life a fundamentally different experience for you than for most everybody else. It puts you in the work-optional class.

Figure about a six percent return on fairly conservative, well-managed investments. With $1 million invested, you're looking at a $60,000 per year income.

A mere two million gets you $120K, which will enable a lifestyle more befitting your class.

Really, how much is "enough"?

[dmallind]

3. Please tell me how to get a consistent 6% on conservative investments

Not that I have as much as you describe, but I have enough where 6% would be a poor but liveable income, and the only investments I have getting that much are mid-cap and value funds at the very least risky. I have some riskier funds getting more but anything even vaguely conservative and low risk like high-cap dividend funds is getting less, and anything genuinely conservative like bonds and money markets are lucky to get 2% at best.

[Terry in Austin]

7. Return

>> anything genuinely conservative like bonds and money markets are lucky to get 2% at best.

True enough, those are truly conservative -- I guess it's a pretty relative term.

I've found it essential to have a good broker/financial manager. He usually keeps it in the %7-%8 range, and I'm comfortable projecting 5% for retirement planning. I like to stay heavy in oil stocks, but he keeps me diversified enough. It's worked out well so far and he's worth every penny.

Somebody with a mil or two would have enough to get fairly aggressive with a good portion of it, and I do believe they could realistically figure on 6%.

My own nest egg is fairly modest, so I wouldn't be able to come anywhere near being able to live on the proceeds, but it will be providing 30-40% of my retirement income.

I guess the takeaway is this: if you don't have a broker who'll watch your stuff, I highly recommend getting one.

Good luck!

[nilram]

8. A friend says he's getting 6% from energy stock dividends.

Pipelines, I don't know what else, not the big names that have gotten trashed. I have another friend who selects only dividend paying stocks and his income has increased over the course of his retirement. Good luck.

[golfguru]

10. Right now, there is NO SAFE WAY to make 6%

Closest you can come is buy AA or better rated bonds paying north
of 5% and be sure to be able to hold on to maturity. Or you can buy
Muni's paying 4% tax free. The problem is with all this printing of money
and budget deficits, we could have galloping inflation any time now and
your bonds will drop in value if you sell them before maturity date.

[Coyote_Bandit]

4. Ummmm......No

I worked as an investment portfolio manager in a previous life. We would not take a new account of less than $1 million in liquid investable assets and did not consider a client high net worth unless they had investable assets of at least $5 million. It took more than that to be considered wealthy. A $1 million account would typically be intested into a balanced investment objective (50% equities and 50% fixed income). A younger client that was self-supporting (without the risks associated with self-employment) and who did not require cash withdrawals from the account might have a more aggressive investment objective (perhaps as much as 75% in equities). Clients who required regular cash withdrawals, were not self-supporting, or who were older had more conservative investment objectives (perhaps as little as 20% in equities).

Over the past decade the total return for the S&P 500 - including dividends - was a ***negative*** 1%. Dividend distributions accross the entire index was a mere 1.8%. During that same time period the return on US Treasury bonds was just over 5%. Don't forget that there will be trading expenses and investment managment fees which may easily exceed 2% of the value of the total account. How might these averages have played out over the past decade?

An account in 2000 with $1,000,000 principle less $20,000 fees/expenses (2%) less $5,000 negative equity return (-1% of $500,000) plus $26,250 fixed income return (5.25% of $500,000) equals a balance of $1,001,250 with a tax liability (10% netting gains and losses) of $2,125 for an ending balance that year of $999,125. Rinse and repeat every year for the rest of the decade. At the beginning of 2011 the $1 million will have turned into $990,417 - with no distributions taken. Just over $23,000 will have been paid in taxes. The fixed incme portion of the portfolio will have generated nearly $290,000. There will be about $55,000 in equity losses. Investment management and fees will take nearly $220,000 from the account. Even if there are ***NO*** fees or costs (a totally unrealistic scenario) the total average annual return including 10% tax on net gains will only be 2.317%.

It is mathematically impossible to get a positive annual return if fees and costs total 2%. With total fees and costs at 1.5% the average annual return will be a positive 0.46% - or less than one half of one percent. To generate that average annual income of $60,000 the beginning principle will need to be nearly $13 million. In order to generate that same average annual income with no fees or costs the beginning principle will need to be about $2.6 million. A sophisticated investor with extremely low trading volume and little access to research might be able to match market performance and generate that $60,000 average annual income with costs of a quarter of one percent - but that would require an initial investment of over $3 million and it is highly unlikely that an individual investor is capable of doing that year after year over a decade or more.

I haven't even addressed matters such as inflation and behavioral finance.

You don't have to believe me, of course. Do your own math. Look up the recent market returns. Using those much higher long-term historical market returns to forecast future returns assumes the past will repeat itself. Do you think that the market returns of the next one to five years is going to more closely resemble the returns of the past decade or that of the productivity and high market returns of say the 1950's?

You seem to think that haveing a million dollars makes one filthy rich - and capable of generating a livlihood simply from investing those funds. To be sure $1 million is a comfortable cushion but there are people with severe injuries and chronic diseases who easily exceed the $2 million lifetime benefit on their health insurance policies every frickin day. A million bucks plus an accident or illness can still land you in bankruptcy court - even if you are employed, earning a modest income and living a frugal lifestyle.

[Terry in Austin]

6. Okay, $2 million, already

You guys are missing the point.

You can be work optional on a lot less than the gold-plated losers in the OP are whining about.

Fer cryin out loud, ya gotta know how much is "enough"!

[OllieLotte]

5. I think this is the most interesting part::

"There's a fairly consistent pattern -- what people need to feel 'comfortable' is usually about twice what they have."

[Synicus Maximus]

9. Remember

"A man with a million dollars is as well off as one that is rich"

J. J. Astor