How Many Get to be Millionaires?

A million bucks isn't what it used to be, but it is still a nice chunk of change.

So how many people can expect to have a net worth over their lifetimes?

The key phrase here is "over their lifetimes." Wealth accumulation is very much associated with age. While few twenty and thirty year-olds are wealthy, it is much more common for those approaching retirement to have lots of housing and business equity and savings for retirement.

The question then is: what percentage of each age cohort will have a net worth of greater than a million dollars in their late fifties and sixties?

There are a couple of wealth surveys from private financial institutions that track high wealth individuals. But they are not as strong methodologically as the triennial Survey of Consumer Finances (SCF) from the Federal Reserve Board. The government survey asks very detailed questions on all elements of wealth and debt (the survey takes an average of 85 minutes to complete) and carefully checks each respondent's answers for internal consistency.

From the 2004 SCF, we know that 8 percent of households report having a net worth of greater than $1 million. However, less than one percent of those under thirty were millionaires. Even among those 30 to 44 years old, only 5 percent reached the magic million dollar mark.

Focusing on the ten-year band surrounding the median retirement age of 63 results in 18 percent being millionaires. I then divided this population by educational attainment and found that 36 percent of those with bachelor's degree had a net worth of one million or more. By contrast, seven percent of those with high school diploma and 12 of those with some college but no four-year degree reached the million dollar net worth level.

Many might say that the housing market was out of whack in 2004 and that this skews the data badly. To test this claim, I subtracted 20 percent of the housing value from each household's net worth and found that this reduced the share of millionaires by about ten percent. In other words, 33 percent of those with a four-year degree and 6 percent of those with just a high school diploma would still be millionaires if the value of the primary residence was reduced by one-fifth.

One can disregard home equity completely and this reduces the share of millionaires in this retirement age group to 25 percent for college grads and 4 percent of those with just a HS diploma.

No matter how you slice it, a lot of people, especially college graduates, can reasonably expect to have a net worth in the millions in their lifetimes. Hmm. This might have some impact on the public's perception of the inheritance tax issue.

Finally, from an economist's perspective, the figures cited here underestimate the total real net worth of people about to retire because they omit the implicit value of one's social security "assets" (also missing in SCF definition of wealth is the value of tradition company ("defined benefit") retirement income). Researchers estimate the actuarial value of Social Security payments for typical retirees today who earned an average salary during their lifetime at $250,000 to $300,000; for a high income worker, the value would rise to the $400,000. If this were included in individuals' net worth, then over half of college grads at retirement age would have an "inclusive" net worth over $1 million.

And there are many indications that the coming generations approaching retirement will have more wealth than current retirees.

Comments

[Novista]

LOL.

I'm against inheritance tax or death tax or whatever. I'm for a flat tax. 10% on ANY dollar income, wages, salary, investments, no deductions, no exceptions, no fiddles as happen now.

Remember how the AMT was supposed to bite the rich in the arse? Now, ooer, it could be biting the middle class ... so be careful what you wish for, it may come back to bite you!

Anyway, there's a fine old saying in the U.S.:
"Shirtsleeves to shirtsleeves in three generations."

So give the offspring more than they can handle, and you're rid of the problem.

Well, I have to posit here one proviso: no Saudi princes to prop up an incompetent ...

[realitytrumpsbull]

Yeah, the telephone solicitor boiler room people
know all that stuff, too, that's why they
do all that data-mining, 'cause Grampers has
the moolah, and he's not as sharp as he
used to be when he was 20, so they milk that
old bastard for every nickel he's worth AND
every red-ink penny they can get him to take
on in credit, too.

I'd rather have 8 bucks and be free than
'owned' by creditors...

[shano]

Yes, and they all benefit from living in the United States, so they should pay their fair share.

The tax on capital gains of real estate is usually deferred in their life time-if they sell their residence and buy another, there is no tax on those gains under $500,000.
So, it is not a hardship, nor unfair, to have an end tax when the person expires.

They have benefitted from the real estate tax exemption throughout life.

Why is it then, when the government is adding value of $3 to 400,000 in the form of SS income, that people find this tax on real estate capital gains unreasonable? Mindboggling.

Anyone with an income over a million should have to start paying into the SS system, imho. Or they should be donating this money to help the homeless.

If we could only go back to the days when the 'rich' realised that with great riches comes great responsibility.
Now the attitude seems to be to have great riches only demands even more obscene greed.