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Is A Million Dollars Enough? 'Millionaire' is On The Way Out

May 8th, 2016 by 
PK

In this country, there is a definite fascination with the word 'Millionaire'.  It's a word which comes with all sorts of interesting associations - affluence and opulence sure, but also someone shrewd with business dealings, on top of their game, and always dealing - or possibly just extremely busy at work.  Interesting and fun word associations aside - isn't it time we examined where the word came from and ask: is a million dollars enough to have a special title nowadays?  Is a millionaire actually 'rich'?

While we quibble with most folks' definitions of 'rich', it's certainly true that a number of the 'monetary set points' folks have looked at as benchmarks or targets have been eroded a bit by inflation.

While $100,000 or a six-figure salary still guarantees you a pretty high ranking in the nation's income ranks, it doesn't mean what it did in the 1980s.

The same reasoning applies, obviously, for millionaires with a minimum $1,000,000 net worth:  as Wikipedia notes, the term goes back as far as 1719 in France, and perhaps as early as 1843 in America.

The Erosion of Inflation

If you read Thomas Piketty's Capital in the Twenty-First Century, you'll note that, interestingly, Piketty devotes a large number of pages to the treatment of incomes and wealths in literature.

As inflation was tame (or, if not tame: volatile but cyclical) for many years authors would state the actual numerical incomes and wealth of main characters.  However, in the modern era of fiat currency and low steady inflation... numbers mean less than the descriptions of what the characters earned and what they owned.

Is a million dollars enough? Picture of Warren Buffett

Is a million dollars enough?  Well, technically, he's also a millionaire. (Wikimedia)

Let's dial it back to 1843.

We turn to Measuring Worth for a quick inflation calculation: $1,000,000 in 1843 translates to somewhere between $25,600,000 and $11 billion today.  Was a million dollars enough to be rich back then?

I can't see how you'd come to any other conclusion.

As for today... while we know that there are a few (maybe even 125?) billionaires in the $10+ billion range, we know that this makes sense on the top end of ~ $11 Billion.  However there is already a special name: we already call billionaires "Billionaires", so I'd argue we shouldn't need to adjust that nomenclature.

Which brings us to the lower end of that estimate - $25,600,000.

Wikipedia seems to like that number as well.

It painstakingly uses different measures to claim that a 1900 millionaire would be worth around $21 - $641 million today.  We thank them for providing such an accurate and tight range with no room for argument or interpretation.

Of course, we have a problem with the top end of the estimates - using GDP per capita and share of GDP is silly when you've got decades of population and productivity growth making things better for everyone.

It's true that the fictional Great Gatsby may have lived in an expensive house, but nowadays typical people have better amenities and services.  (Not to mention the ability to read financial websites on the internet.)

Let's Concentrate on the Low End

So, while "millionaire" may have once meant "richer than some countries and an undisputed titan of industry", we agree that those prerequisites are left to the billionaires of today.

So, I suppose we should concentrate on the rich or the "very well off" - let's call those folks people with "enough wealth to live a comfortable existence even with a large shock to their wealth".  Let's arbitrarily define a comfortable life as the ability to make 3x the median income in perpetuity - that should buy a great life in most areas of the country (don't complain, folks, I live in the Bay Area).

So, $51,939 in 2013, multiplied by 25 due to the so-called 4% withdrawal rule, multiplied by our arbitrary 3x... $3,895,425.

So, now we've got a range of estimates - $3 to $25 million seem to be a reasonable range of "new millionaires".  Since our "enough money to spend whatever they want and not worry until their grandchildren are retired" class is now the billionaires, this seems a reasonable compromise.  Let's turn to the Fed's SCF microdata and narrow down exactly how many households have the sort of wealth mentioned:

Wealth ThresholdPercent of Households
$1,000,000.009.4%
$3,000,000.003.1%
$3,895,425.002.3%
$8,000,000.000.9%
$21,000,000.000.1%
$25,600,000.000.1%

You can find more on our net worth by age calculator.  (And, yes, you can expect a more up to date version soon.)  Also of interest, we've done math on accredited investors... where 'net worth' definitions don't include a primary residence.

Is a Million Dollars Enough?  What Do You Think?

Funnily enough, these are reasonable approximations of "the 10%", "the 3%", "the 1%" and "the 0.1%" on the political side.  Perhaps what we mean by "millionaire" is just a relative term referring to some proportion of society with lots of wealth?

If that's the case, maybe the number we should have argued for "the new millionaire" is the classic "one percent" - $7,869,549.00 in 2013 dollars.  And, of course, billionaire is off the charts - literally still reasonably accurate and countable today.

It's all arbitrary though - until we agree on some easy-to-remember term like 'decamillionaire', or inflation makes billionaires a bit more common (trillionaires, anyone?), I think we're stuck with arbitrary cutoffs and classic terms which have taken it on the chin due to inflation.

But please let us know how you'd clear it up - what's the new "Millionaire" in America?  Is it the same as the old Millionaire?  Is a million dollars enough?

Don't Quit Your Day Job...

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