Are You Rich Yet?
Find out what it takes to tip the scale in our annual report on wealth in
America
By HAROLD SENEKER
Money is a terrible master," P.T. Barnum once observed, "but an excellent
servant." So how much do you need to turn that master/servant relationship
to your favor? We think $2 million dollars is a great place to start.
How to Get Rich, and Capital Preservation
Table: A Million for Each Hand
Wealth, of course, is a relative matter. If your loud-mouthed brother-in-law
has a portfolio worth $10 million and you've only got five, then the collar
on your Turnbull & Asser shirt may start looking a little frayed come the
holiday party season.
Then there are the 77 newly minted centimillionaires -- products of the past
year's initial public offering lottery -- that Barron's identified last week
("Paper Tigers," Sept. 13) to make all but the most prosperous among us feel
inadequate. For the rest of us, there's Bill Gates, who donated $6 billion
to charity in August for vaccinations and recouped it all in the market that
week, as Microsoft's shares rose 9%.
So, lest we all gather together and weep, Barron's has compiled its second
annual guide to wealth in America. As we did last year, we draw the first
line at Beer & Pretzels Rich, which identifies exactly where on the
financial map a person in America moves from merely "affluent" to
out-and-out rich. That's the point at which, as country singer Johnny
Paycheck so aptly put it, you can tell the boss to "Take This Job and Shove
It." (Few do, of course. But knowing that you could makes all the
difference.) From there, we move up the ladder to Filet Mignon & Champagne
Rich, which 99% of Americans would agree is pretty darn rich. Next stop:
Yacht & Limousine Rich, at which point your money worries should really be
over. Unless, of course, you aspire to the ranks of the Really Really Rich.
When it comes to separating the rich from the rest, the best measure for the
task is independence. That is, having enough money to live on at a level
generally recognized as a good one without ever having to dip into
principal.
BEER & PRETZELS
The benchmark for the first level of wealth in America -- Beer & Pretzels
Rich -- is $2.02 million. Not assets of $2.02 million, mind you -- your
house or houses don't count. But investment assets. We arrive at that figure
by taking the adjusted gross income for the 95th percentile of individual
taxpayers -- in 1996, that figure was $101,141 -- and extrapolating the
amount of assets, conservatively invested, it would take to throw off that
much cash a year while still leaving a margin to cover inflation. That
$101,141 figure, by the way, is up 5% from the previous year (and thanks to
the wizardry of the IRS computers, it's the latest number available).
Rich? Yes. But not exceedingly so. An independent income of $101,141 is
enough to keep a Lexus in the garage, a well-stocked wine cabinet and a
standing reservation for two weeks a year at the Hana-Maui Hotel. It also
puts you ahead of 113,469,679 of the 119,441,767 individual taxpayers out
there.
(Barron's rules: If you have significant financial obligations, such as
tuition bills, a mortgage, business debt and the like, you would need to be
able to handle those payments out of other assets or earnings to make the
cutoff.)
Of course, there are people who almost look down their noses at such modest
sums. And there are circles where having $1 million for each hand is
regarded as, at best, Little Rich.
So, lest the really rich get upset about being lumped in with the
proletarian rich -- one can only imagine Ron Perelman's ire at the thought
of rubbing elbows with a car dealer in McAlester, Oklahoma -- we continue up
the hierarchy of wealth.
FILET MIGNON & CHAMPAGNE
The next level on the wealth food chain, as it were, is Filet Mignon &
Champagne Rich. To qualify, you need a portfolio of $4.55 million. That
not-so-modest sum would produce an annual income of $227,546, which is the
99th percentile of individual tax returns. That, by the way, is an 8.66%
increase over last year, proving that inflation for some is not docile after
all.
It's safe to say that if you reach this point, you've got it made. A survey
of high net worth individuals conducted for Merrill Lynch by Gemini
Consulting found that there were roughly six million people worldwide with
liquid assets of $1 million or more. The survey, which Gemini has been doing
for several years now, analyzes income and economic data from 57 countries
(which account for 95% of the world's GDP) and applies sophisticated
mathematical techniques to estimate the distribution of wealth in those
countries.
According to Gemini's equations, the world's richest six million hold wealth
totaling approximately $21.6 trillion. That makes the average holding $3.6
million (or 20% less that what it takes to qualify for the Filet Mignon &
Champagne set). And since there are about six billion people in the world,
this group of six million is a fairly elite bunch, making up 1/10th of 1% of
the population, worldwide.
When you start talking about rich folks, you're not talking about car
dealers and undertakers any more. You're talking about Yacht & Limousine
Rich -- people whose names appear regularly in the pages of Barron's and
Forbes. That's how we've calculated it, anyway. To come up with our $19.33
million cutoff, we took the median salary of the CEOs of the companies in
the Barron's 50-Stock Average, which includes folks like C. Michael
Armstrong at AT&T and Jack Welch at General Electric, as well as S.R. Rogel
at Weyerhaeuser and Eugene S. Kahn at May Department Stores. In terms of
straight pay, these CEOs pull down an average $966,621 a year, up 8% from
last year.
YACHT & LIMOUSINE
And if your investments are producing the same, you're probably much sought
after by your alma mater, not to mention the local museum -- say the
Metropolitan in New York or the Art Institute in Chicago.
In fact, you could probably live a lot larger than we're giving you credit
for. After all, if you are pushing the $20 million mark, you probably don't
have all your money in certificates of deposit or muni funds at Vanguard.
Chances are you have a financial planner helping you to make your investment
decisions, or a personal banker who is handling everything from investments
to tax strategies to estate planning.
P.T. Barnum wasn't just referring to the difficulty of making ends meet when
he spoke of money as a terrible master. He was also speaking to those urges
that drive us to accumulate ever more. And that brings us to our final
category: Really Really Rich.
REALLY REALLY RICH
To arrive at our final benchmark, we took the median value of the salaries
of the Barron's 50 and threw in the value of their bonuses, options and
other goodies. That came to $1,892,850 (which is down 1.5% from last year --
maybe boards of directors are developing some spine, after all). To safely
generate that much cash a year, we figure you'd need $37.86 million.
And $1.9 million a year puts you in rare company indeed. According to the
Internal Revenue Service, only 110,762 individual returns reported income
above $1 million or more. But while it will buy you almost anything you
want, it won't buy you everything.
It won't, for example, buy you your own Gulfstream GV (price tag: $40
million), though if it's a jet you crave, you can buy a piece of the
Gulfstream IV-SP from Executive Jet for $2,018,000, plus maintenance costs
of $13,020 a month and $2,890 an hour. And $1.9 million a year won't buy you
a finely appointed townhouse on New York's Upper East Side, though you'd
have no problem handling the $15,000-$25,000-a-month rent bill. And after
taxes, it won't even pay the $4,400-a-day in child support that Patricia
Duff is demanding from billionaire Ron Perelman to cover the care and
feeding of their four-year-old daughter.
No, $1.9 million won't buy everything. But for readers who might feel
constrained by that annual sum, one solution is to just work harder. |
