The Fallacy Of Lumping Millionaires With Billionaires

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Billionaires

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Billionaires

Suppose you have a net worth of one thousand dollars, while your friend has one million dollars. Would you consider yourselves to be in the same financial category?

Certainly not. The comparison is absurd. Your friend’s one million is a thousand times greater than your one thousand. That’s how much difference it makes to add three zeroes and a second comma.

Yet those intending to shame or attack “the rich” commonly make a comparison that is equally absurd, when they lump together “millionaires and billionaires.” One billion is a thousand times greater than one million – the same difference of scale as the difference between one million and one thousand.

Why is equating millionaires with billionaires so common?

Folks that salt sound bites with “millionaires and billionaires” do so from an emotional, not a mathematical perspective. It’s a phrase that rolls smoothly off the tongue and emotionally triggers issues of fairness in those – about 99.9% of the population – who don’t consider themselves rich.

Besides being inaccurate, equating millionaires and billionaires does a great disservice to middle-class millionaires.

Wait, what, middle-class millionaire? Is that a typo? No.

Let me clarify that I’m talking about net worth, not income. What a person earns does not make them a millionaire or billionaire. It’s what they keep that is important. I once worked with a client who earned around $5,000,000 a year but had so much debt their net worth was negative $3,500,000.

I had trouble finding a current number for how many people in the U.S. make over $l,000,000 a year. My best guess is around 0.05% of taxpayers, around 75,000 people, consistently earn that much. Net worth is another story. A December 23, 2021, article at spendmenot.com reports there are 20,270,000 people in the U.S. worth one million or more and 788 billionaires.

What lifestyle can you have with a net worth of a million as opposed to a billion dollars? Experts tell us the most reasonable sustainable withdrawal rate from an investment portfolio is 3%. That means your $1 million will provide $30,000 a year. Adding Social Security benefits of, say, $18,000 to $30,000 a year means a retirement income of $48,000 to $60,000 a year. This is what I think of as a middle-class millionaire. Three percent of $1 billion, on the other hand, will give you a retirement income of $30 million a year. At that rate, you could get by without bothering to file for Social Security.

Read the full article here by Rick Kahler, Advisor Perspectives

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