1. How much money would I need to be “rich”?

    I recently read an article based on the results of a Gallup poll that asked Americans how much money they would need to make a year to be “rich”. My first thought was, “that’s dumb, I don’t consider how ‘rich’ I am based on how much money I make.” Yes, it’s cliché, but it’s also true. A lot of people would say they value intangible things more than money, be it significant others, or whatever.

    For me, it’s time. I consider time to be the most valuable thing I have and I’m pretty stubborn about giving it up. I spend as much time as possible doing what I want to do, and as little time doing what I don’t want to do. That means I end up working about 25% as much as the average American, but also only make about 62% as much as the U.S. per capita income. That’s a trade-off I’m very happy to make; a decision I made at an early age and continue to reaffirm as I get older. 

    So I got to thinking: what’s the answer? What would I need to consider myself “rich”? I value time more than anything, and I already have more of it than most people. Am I already rich? Maybe. I do what I want to do most of the time, but I still have to work occasionally, and though I like what I do, it’s still work; it’s still forced upon me. I might still work on things just because I enjoy it, but only if and when I felt like it.

    I don’t think I would consider myself “rich” until I didn’t have to do anything I didn’t want to do. That’s not terribly practical, if not impossible, as there are many unpleasant things in life you have to do for your own benefit, but work doesn’t have to be one of them. So as loathe as I am to admit it, my concept of wealth does tie into money, because I would need to be financially independent to consider myself “rich” by my own definition, even if indirectly. 

    Okay then, so how much money would I need to become “rich”? Well, I would need a lump sum that would last me the rest of my life. Because I’m perfectly happy living my life the way that I do now, I would only need as much as I’m spending to live comfortably right now and adjust that for inflation. According to Mint, that’s about $1500 per month, which includes all the travel I do. In fact, I would probably travel more and spend less - since most countries are cheaper than the US - but I think that’s a reasonable average. 

    Now it becomes an issue of assumptions and math. First, the assumptions.

    1. I will live 90 years. This is probably the most optimistic assumption I will make. It’s entirely likely that our generation won’t even outlive our parents due to our own unhealthy habits, but I’d rather overshoot than undershoot and risk outliving my savings. 
    2. I’ll get a net annualized return of 8%. This is historically what the stock market has grown over the last 140 years. The last decade has been incredibly volatile, with net returns virtually flat, and it’s possible that will be the “new normal”, but I think if I invest my money in a retirement income fund over the next 60 years, more likely than not, it’ll grow roughly about as much as it has for generations.
    3. The inflation rate will be 3%. Again, this is historically what the inflation rate has been for the last 100 years. It might change, but it probably won’t. 
    4. I’ll get nothing from the government. Whether Social Security will be around in 30 years is up for debate, and most would probably say yes, but I’m not going to depend on that assumption. Again, I’d rather overshoot.

    These assumptions make or break my end result, but I think they’re reasonably conservative. If I made these assumptions 60 years ago, or 60 years before that, it’d be about the same. So we can reasonably assume they’ll be the same 60 years from now. 

    Then it’s just down to the math. How much would I need to distribute $1500/mo, adjusted at 3% inflation, accounting for 8% return, over 60 years? Luckily, there’s a lot of retirement distribution calculators out there that will do the work for me and the end result surprised me. 



    It turns out I only need $355,000 to last me for the rest of a very long life. Granted, that’s no small amount of money, but it’s considerably less than I would have guessed.

    Currently, I have a plan for my retirement that uses similar assumptions. Assuming I live until 90, and retire at 60, and want to live on just $25,000 adjusted for inflation, I would need to save up $818,000. So I need to save up more than twice as much money to be spent in half the time. I guess that shows you the power of compound interest.  

    So there you have it. In order to consider myself “rich”, infinitely rich in fact, since I’ll never have more time than I would if I stopped working, I would need a lump sum of $355,000. It’s a number so small to me, so achievable, that it makes me reevaluate my beliefs. I’ve always been quite happy, and grateful, that I didn’t spend (waste) my time working more, either at school or work. If anything, I only regretted spending (wasting) as much time as I did.

    But I’m wondering now, if I worked really hard for the next several years, or did so for the last several years, if I would or could be infinitely “rich”. It’s not something I ever really considered, or cared to consider, but I guess I’ll have to reaffirm yet again whether my current path is the one I want to be taking. 

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