Reply #147: These people do not earn a million a year.

[JDPriestly]

They have a little about $1.6 million in assets. That includes a lot of Southern Californians who aren't rich at all. They just have houses that are worth $1 million (because of market increases -- the houses would be worth a lot less outside California or New York City) and a few hundred thousand dollars in the bank or in the stock market (precarious). Such people (and I know a number of them) are comfortable, but they wisely live below their means because their "wealth" is very precarious. By your standard, two married retired teachers with a house in Santa Monica, a couple of hundred thousand in the bank left from when they sold their deceased mother's house and pensions and other retirement income of of $7,000 a month each would be wealthy because their old house that they have lived in for over 40 years is now worth $1.5 million. You've got to be kidding.

They are not rich not only because they don't have real wealth but because THEY DO NOT HAVE THE POLITICAL CLOUT TO PASS LAWS TO PROTECT THEIR WEALTH. The truly wealthy (and I know some of them too) have a lot more unearned income and POLITICAL CLOUT BY VIRTUE OF WHO THEY KNOW, THE CLUBS THEY BELONG TO AND THE FACT THAT THEY HAVE ENOUGH MONEY TO PAY FOR FAVORS.

I would define a rich person as someone who is not yet of retirement age and who does not have to work for a living -- a trust bum in short. I know really such people. If you have one million dollars and quit work and decide to live off you money, your income assuming you can actually get 10% will only be $100,000. That is not a lot of money for a person who is used to making over $200,000 a year in a city like Los Angeles. It might sound like a lot if you are thinking in terms of a salary of $30,000 a year, but people who are used to earning $200,000 a year would have to cut back drastically to live on $100,000 a year.

There is another huge catch to your article. It is unclear to me how the income of the people they are talking about is figured. If you have a sole proprietor of a small business, the business income is attributed to the owner for tax purposes. The owner deducts the business expenses on his tax return. Money that has to be plowed back into the business to cover basic costs like the lease and the secretary and the computer equipment is considered to be the owner's income. The owner can't really spend that income. He has to save it for a rainy day. An employee on the other hand can count on a very small amount of disability insurance (state) and things like Worker's Comp and unemployment insurance to help a little on a rainy day. Also, the small business owners described in the article can be wiped out by lawsuits. So they have to keep reserves for that too. These are not truly wealthy people. Just "having" potential access to $1,000,000 does not make you that wealthy. It's your annual income that makes you wealthy. It's how much money you can spend on an annual basis that makes you wealthy. If you want to measure it by assets, it's what you can get for your assets, your house and your business if you have to sell it in a hurry. You need more than a million in assets to be a wealthy person nowadays. Dick Cheney would scream with terror if you told him that his assets had fallen in value to only $1.6 million.

The safe investments that people who have $1 million in liquid assets can reasonably invest in without losing their safety cushion are only paying 5-7% right now. Think how much money you have to have invested at that rate to get an annual income of $1,000,000 at 5% yields only $50,000 - $70,000. I could live quite comfortably on that as a retiree. Maybe you could too. But the people I know whom I would consider to be wealthy would laugh at that kind of annual income.


Think Arnold Schwarzenegger. Now he is self-made and rich. But his wife is not. She is third generation rich. That is a common phenomenon.