Do You Know What You Need To Be “Rich?” Here’s What People Think You Need VS. What Data Says Actually Makes You Wealthy
In America, the idea of being “rich” is often a topic of conversation and everyone seems to have an opinion. But how close are Americans’ perceptions of wealth to reality?
The answer depends on where you live and how you define financial independence. Let’s unpack what people think “rich” means versus what the numbers actually show – and see if they line up.
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What People Think is Rich
According to Charles Schwab’s 2024 Modern Wealth Survey, most Americans believe that having $2.5 million makes you wealthy. This figure varies depending on where you live:
San Francisco: $4.4 million
New York: $2.9 million
Washington, D.C.: $2.8 million
Boston: $2.7 million
For the average American, hitting the $2.5 million mark seems like a solid target. But is that enough to be considered wealthy by all standards?
What the Numbers Say
When you look at official statistics, the idea of wealth gets a little more complicated. To be part of the top 1% of U.S. households, you’d need a net worth of at least $13.6 million. This includes everything you own – houses, investments, savings – minus your debts.
According to Federal Reserve data, even if you aim for the top 5%, you’d still need at least $3.8 million. For those in the top 10%, a net worth of $1.94 million would get you there. Based on these numbers, the public’s perception of $2.5 million isn’t too far off – it lands between the top 5% and 10%.
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Is $2 Million Really Wealthy?
A Reddit post from the “Henry Finance” subreddit brings up a common perspective on the $2 million mark. One user said, “Sure, $2 million is considered ‘rich’ because it is statistically in the country’s top few percent of household assets. But it’s very marginally financially independent. If you aren’t working, that’s just $60k a year in income at a 3% withdrawal rate. Nobody thinks of $60k a year as rich in any HCOL (high cost of living) area.”
The Redditor points out that while $2 million may sound like a lot, it doesn’t always offer the financial freedom people associate with being “rich,” especially in expensive cities.
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What Does It Take to Be Financially Independent?
This post states true wealth is when “you don’t have to work at all and can live an upper-middle-class lifestyle strictly on passive investment income.” By that definition, you’d need an annual passive income of around $200,000, which means having about $6.67 million in liquid assets (not including home equity).
You might need even more in high-cost-of-living areas like New York City or Silicon Valley. The post continues, “There’s just a whole different level of wealth in finance and tech in those cities that you need eight figures of net worth to join that club unless you decide to move to a cheaper cost of living location.”
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So, What’s the Verdict?
Statistically Rich: With a net worth of $1.94 million, you’re in the top 10% of U.S. households. At $2.5 million, you’re sitting nicely between the top 10% and top 5%. Keep in mind, “upper class” is typically classified as the top 20%.
Perceived Rich: Americans believe that $2.5 million makes you wealthy and they’re not far off the mark.
True Financial Independence: If you want to stop working and live comfortably, you might need closer to $6.67 million in liquid assets.
Ultra-Wealthy: In high-cost-of-living areas, you could need upward of $10 million to truly feel “rich.”
While public perception of wealth is fairly accurate in statistical terms, it doesn’t always reflect the reality of financial independence. Whether $2 million feels like “rich” depends greatly on where you live and what kind of lifestyle you envision. Ultimately, true wealth might be better defined by the freedom it provides rather than a specific dollar figure.
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This article Do You Know What You Need To Be “Rich?” Here’s What People Think You Need VS. What Data Says Actually Makes You Wealthy originally appeared on Benzinga.com
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