Author Topic: Becoming the 1%  (Read 22051 times)

sol

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Becoming the 1%
« on: June 14, 2012, 07:47:09 PM »
Most folks on this site are on a path to early retirement through diligent savings and low expenses.  Has anyone considered continuing to work anyway, long past the point at which you need the money to meet your basic needs?
 
I've been running some numbers through my magic spreadsheets.  As an example, a bright 23 year old college graduate with a very average 50k/year job and a 50% savings rate can afford to retire in 15 years at age 37 (assuming 3% wage inflation, and 9% ROI) with a nest egg of about a million dollars, sufficient to support his expenses at a 4% SWR.  This is the path most of us are shooting for.
 
Alternately, that 37 year old could keep working and building his nest egg.  If he worked til age 43, his nest egg grows to 2 million and his children never need to work again.  If he worked til 57 he could amass 8 million dollars, and if he worked til full retirement age of 67 he'd have more than 20 million dollars saved up.  20 million dollars should comfortably support his golden years, and that of the rest of his family, pretty much indefinitely.  Welcome to the 1%.
 
This is the new American dream.  Despite all of the press coverage about how the economy is broken and it's so hard to get ahead in life, my basic math suggests that even an average college grad can achieve vast wealth over the course of a normal working career, merely by saving half of his income and earning market returns that are comfortably below the long term average.  Without starting a successful business.  Without winning the lottery.  Extreme riches through an ordinary working career of ordinary earnings, and a moderate savings rate that many people here have already achieved.  It just doesn't seem that hard to me.
 
Of course this isn't the path that most people choose.  Instead, they opt for iphones and take-out dinners and $40,000 weddings, rack up credit card debt and fritter away the near-bottomless abundance that modern society has provided by purchasing fleeting pleasures that don't really add any value to their lives.
 
MMM has mentioned this a handful of times, the desire to keep working for just one more year to have just a little bit more, a deeper safety cushion or a lower SWR, and has argued that freedom is more important than additional money.  I can see how some people might instead justify committing to a normal-length working career in a job they love to provide that same freedom to their entire families.  When contrasted to the choice that most people make, namely a normal length working career in a job they tolerate and wasteful expenditures that don't build dynastic wealth, it seems a better option.
 

arebelspy

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Re: Becoming the 1%
« Reply #1 on: June 14, 2012, 08:01:26 PM »
Absolutely.

It comes down to priorities, what you value, what will make you happy, and when do you have "enough."

It's a very personal question, and I think many (most?) would choose to RE once they're FI (see: case of those winning the lottery and quitting their job). 

Here is the difference I think: the young people (like many Mustachians) who think about it often decide that ER providing them time and freedom is what they want, so they go for FI, rather than wealth beyond that.

The ones likely to achieve the 1% type wealth either never even considered ER or when they hit FI, they decided they liked work enough (or it defined their life enough) that they wanted to keep doing it.  I think the former is more common (someone thinks they'll work until 65, and don't realize when they hit FI at 55 that they even COULD retire, because it's never been in their reality).

Those are the type of people that will hit what you're talking about.  Many Mustachians won't, because that's not what's important to them.  With a sufficient understanding and embracing of Mustachian principals related to green living, channeling your Hasslehoff, hedonistic adaptation, etc., there's no need for more wealth.

But if someone, after sufficient reflection, decides that is what they value, and they live a Mustachian life, and save all they can, and they keep working and enjoy it, and amass mass wealth, and retire very late in lie, more power to them.  I respect that.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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sol

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Re: Becoming the 1%
« Reply #2 on: June 14, 2012, 10:28:53 PM »
Aside from keeping that person actively engaged in the economy, which the socialist in me appreciates, the other main side effect of working past the point of FI seems to be that it gives you control over a larger patch of capital.  Right now most of the capital in the world is controlled by corporations.  Diverting a little piece of that to a cause you believe in seems a worthy goal to me.

Maybe you start a bicycle co-op, or install wells in African villages, or buy college educations for orphans.  Whatever it is, the fruits of your 40 years of boring office work could be spent on a daily starbucks trip and fancy cable package, or amassed into a vast fortune that you can use to change the world.  Or you can quit your job and use the smaller fortune to pay your bills in your humdrum life for the next 40 years.

travelbug

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Re: Becoming the 1%
« Reply #3 on: June 14, 2012, 11:16:12 PM »
I hear you Sol, we are in that decision making process right now.
We have enoughto be FI now, but we are working for another 18 months to beef it up a bit, but then we have also considered the "whatifs":

another 2 years?
another 5 years?

It's so easy once you have amassed a certain amount, everything is streamlined and just flows and grows.

For us, as tempting as it may be to accumulate another million or so, we have decided to just have a year off. That's out starting point.
We can research any business strategies or opportunities, but we have made a pact to concentrate on our health, relationship, children and hobbies for an entire 12 months.

then we will reassess what is important.

I think taking this year out after such a long 13 year + hard slog will be amazing.

We are the type of couple that will always have a project on the go, but we want to be able to do it on our terms.

My dream "job" would be to become a philanthropist, and I can actually do this by spending my time in third world countries helping and gaining insight into what is needed and who to trust, and then go back to my cushy first world country and try to link the two with donations and benefactors.

If that makes sense.

So I can help by using my FI to a greater degree with my time. There is more money in the world than I can ever dream of and many, many generous souls looking for a cause to help alleviate their greed/lifestyle/guilt/ of those said 1% or the 1% who are just plain kind and appreciative to what they have been granted simply by their place of birth.

Great thoughts. For me it's what it's all about.

C

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Re: Becoming the 1%
« Reply #4 on: June 15, 2012, 01:18:13 AM »
Maybe you start a bicycle co-op, or install wells in African villages, or buy college educations for orphans.  Whatever it is, the fruits of your 40 years of boring office work could be spent on a daily starbucks trip and fancy cable package, or amassed into a vast fortune that you can use to change the world.  Or you can quit your job and use the smaller fortune to pay your bills in your humdrum life for the next 40 years.

Just want to chip in, you don't need a vast fortune to change the world. Having a vast excess of time to put towards society can also change the world.

Mike Key

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Re: Becoming the 1%
« Reply #5 on: June 15, 2012, 06:28:26 AM »
My life goal is sort of how you have laid out, however I don't want to work a 9 to 5 for that long. I took a job and left my freelance career to speed up ER, but I'll probably go back to working freelance. I'm under the personal impression that retirement is a GREAT lie and ruins human potential. We're meant to work, and make things, and do things. Although FI I believe can allow one to really pursue building true wealth and happiness.

grantmeaname

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Re: Becoming the 1%
« Reply #6 on: June 15, 2012, 07:18:12 AM »
I'm under the personal impression that retirement is a GREAT lie and ruins human potential.
Maybe you start a bicycle co-op, or install wells in African villages, or buy college educations for orphans.  Whatever it is, the fruits of your 40 years of boring office work could be spent on a daily starbucks trip and fancy cable package, or amassed into a vast fortune that you can use to change the world.  Or you can quit your job and use the smaller fortune to pay your bills in your humdrum life for the next 40 years.
Damn, you guys are really not fans of retirement. A life without work every day is humdrum and ruins human potential, really? You can build up a bike co-op by giving time much more easily than by giving money. And a Habitat house. And you could do a lot more to help the parks district, or a local museum, or your town's schoolkids. If you find retiring abhorrent, fine. You are entitled to your preferences. But don't go pretending that amassing a fortune and working until you're 70 is the only virtuous way to live life or the only way to give to your community.

arebelspy

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Re: Becoming the 1%
« Reply #7 on: June 15, 2012, 07:42:18 AM »
My life goal is sort of how you have laid out, however I don't want to work a 9 to 5 for that long. I took a job and left my freelance career to speed up ER, but I'll probably go back to working freelance. I'm under the personal impression that retirement is a GREAT lie and ruins human potential. We're meant to work, and make things, and do things. Although FI I believe can allow one to really pursue building true wealth and happiness.

We have people on all ends of the spectrum from people named Mike seeking FI.

mikeBOS from lackingambition has the opposite opinion, and recently wrote a piece defending not working:
http://lackingambition.com/?p=1103

To each his own.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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Mike Key

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Re: Becoming the 1%
« Reply #8 on: June 15, 2012, 08:34:18 AM »
I should rephrase it, because most in this community get the wrong impression of my opinion that retirement is a lie. It's more like the concept of the "American Dream".

If you've ever studied the history of retirement there are some interesting factors. And if you study some of the worlds most successful and wealthiest, you'd find a lot of them did so at a later age. Some of the top companies in the world are run by people past the standard retirement age. I feel there is pressure in our society to tell those who are older they can't do anything anymore. When usually at that point in life you have more wisdom and knowledge.

I think that for most here, retirement just means freeing one's self from BS jobs or relying on anyone else for income. If you own a business that creates income, or real estate, you can for example get to a point where it is self managing for the most part. But you still work from time to time. You find other things, and pursue other ideas.

What I think it the great lie and destruction of human potential is the moronic concept of retiring at 60 or whatever and sitting around waiting to die.


That's stupid.

grantmeanameYour statement was the point I'm trying to make. I just hate calling the concept retirement. To me, retirement is sitting around waiting to die.

So, that's a little bit of my perspective.

I place retirement in there with, go to school, go to college,  get a good job, buy a house, make babies, retire, you've had a successful life ... nonsense.

Actually arebelspy your blog post link there speaks a lot to my ideas, of using FI not for retirement to an island, but to free ones self to explore the endless potential of self.

This probably made no sense.


Ok, looking at this point, I'm so over thinking my philosophy here.
« Last Edit: June 15, 2012, 08:38:39 AM by Mike Key »

grantmeaname

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Re: Becoming the 1%
« Reply #9 on: June 15, 2012, 01:51:22 PM »
It's funny that we're almost exactly all on the same page with that. I guess I was just picking up the notion that paying work was the only worthwhile way to spend time, which is something I couldn't disagree with more--and it wasn't remotely the point of what you were saying, anyway.

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Re: Becoming the 1%
« Reply #10 on: June 15, 2012, 01:55:16 PM »
To the original question: I think the reason this isn't common is that most people who have voluntarily lived on 25k for their entire adult life has figured out the basic MMM principals of life by the time they are FI, and have no particular desire amass 20 million dollars.

If your goals weren't iphones and BMWs before, why would you suddenly feel a need for yachts and private jets? 
Both human psychologists and most religions agree that once all the basic things in life are covered (not just food and shelter, but security, meaning, love, etc) additional wealth has no correlation with happiness, and I think most people with a 50% savings rate realize that intuitively, if not explicitly.

The same goes for leaving a huge fortune to your off-spring.  Those who have this understanding for themselves are also going to realize that inheriting millions doesn't make a person happy, or smart, or kind, or hard-working (quite the opposite!), or appreciative -  it doesn't even guarantee they will be successful in life.

If I somehow ended up wealthy, I would never corrupt my children by giving them any of it.  I just couldn't do that to someone I love, and am intrusted with taking care of.

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Re: Becoming the 1%
« Reply #11 on: June 15, 2012, 03:47:24 PM »
I feel there is pressure in our society to tell those who are older they can't do anything anymore.

Exactly!  That's what retirement is, for most people.  You've hit that magic age of 65 or whatever that makes you worthless, so go sit in front of the TV doing the 12-ounce curl 'til you die.

Now there's work and work.  Once I had achieved that degree of FI that I called "being independently poor", I could to a considerable extent choose the sort of work I wanted to do.  If that happened to be a research project out at the bleeding edge of human knowledge instead of hacking software for yet another pointless (to me) consumer device, then I could do it even though the PCD would have paid several times as much. 

Yes, I could do this, or something, for free, but why?  A thing's worth what someone is willing to pay for it, and if no one was willing to pay for my work, would it be worthwhile?

AJ

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Re: Becoming the 1%
« Reply #12 on: June 15, 2012, 05:15:09 PM »
"being independently poor"

I'm totally stealing this :)

sol

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Re: Becoming the 1%
« Reply #13 on: June 15, 2012, 05:25:26 PM »
If I somehow ended up wealthy, I would never corrupt my children by giving them any of it.

If you believe that a person cannot be a moral citizen or positive contributor to society if they are independently wealthy, then why are you striving to be independently wealthy?

Isn't the whole point of this site to help people get to the point where they don't have to work anymore?  If that's a virtue, why isn't it virtuous to bestow this situation on your children?

Is it because you feel you will have worked "hard enough" to retire at some point, and can thus stop contributing?  Is there some perceived benefit in the struggle, in the suffering, before achieving financial independence?  If that's the case, is it less virtuous to achieve it in 10 years than it is to do so in 15?

The more I think about these issues, the less averse I am to leaving a legacy to my children.

sol

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Re: Becoming the 1%
« Reply #14 on: June 15, 2012, 05:28:13 PM »
Just want to chip in, you don't need a vast fortune to change the world. Having a vast excess of time to put towards society can also change the world.

My point wasn't meant to discredit those people who give of their time, it was to contrast the vast wealth that seems so easy for the average Joe to attain against the vast waste that the average Joe chooses instead.  Giving of your time is fine.  Giving of your stash is fine.  Giving of neither and buying a new iphone every two years, in this light, seems less admirable.

sol

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Re: Becoming the 1%
« Reply #15 on: June 15, 2012, 05:32:05 PM »
Damn, you guys are really not fans of retirement.

I'm a fan of deliberate decisions.  If a person wants to quit work at 35 years old and watch tv in his living room for the next 40 years, that's his choice.

I feel like a better choice, though, would be to continue working to have a positive impact on the world.  Not many people can do that by starting their own charitable foundation, but it looks like virtually everyone can amass 20 million dollars to endow a charitable foundation, merely by working an average career at average wages and maintaining a 50% savings rate.

grantmeaname

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Re: Becoming the 1%
« Reply #16 on: June 15, 2012, 06:26:51 PM »
You're not addressing the point that those aren't the only two alternatives, though. It's not like you can't be helpful by volunteering because you've retired, and it's not like every cause benefits more from a 20 million dollar foundation than volunteering. After all, that's two only museum curators or one endowed professorship at a 4% SWR.

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Re: Becoming the 1%
« Reply #17 on: June 15, 2012, 10:08:51 PM »
I feel some MMM'ers rather would perpetuate a lifestyle of being independently broke rather than independently wealthy.

And usually it's broke people who go around talking about money doesn't make you happy. BULLSHIT. I've been ass broke, living in a mobile home with no electricity because I couldn't pay my power bills and eating cold Ramen noodles.

As my income has increased, my lifestyle and happiness has gone up, exponentially. And it's not a result of stuff (for one I'm a minimilist), most of it is result of peace of mind and access to more choices than broke Joe America has.

It's also been proved more over that those with access to greater wealth are healthier and live longer.

You can apply the principles to live within your means and be comfortable, or you can use them to build and grow.

I chose growth personally.

To the original poster, I ran the numbers on us tonight and we're considering moving from 30% savings rate to 50% savings rate. That million dollars is a lot closer when you put things into perspective.
« Last Edit: June 15, 2012, 10:10:45 PM by Mike Key »

Mike Key

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Re: Becoming the 1%
« Reply #18 on: June 15, 2012, 10:16:44 PM »
Here is where I feel the mix up with money and happiness comes from. People equate a lot of money with having a lot of stuff. And stuff wont' really bring you happiness. We're all emotionally fickle as human beings. (Which is why marrying for love is stupid) Thus, we desire something and when we get it, we enjoy it for awhile, and then loose interest and move on to the next shiny object.

However access to more money can give you access to greater resources and choices that would allow you to do more things that could bring true happiness to your life.

Granted, there are plenty of single young people living on 50K traveling the world. But try planning on having 4 kids and traveling the world with 50K and not living like complete bums.

And if you want to leave legacy for your family and give them greater peace of mind and more choices, that can only be done thru wealth.

You can't tell me that hasn't worked for the Rockerfellers or a dozen other families.


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Re: Becoming the 1%
« Reply #19 on: June 16, 2012, 08:00:49 AM »
If I somehow ended up wealthy, I would never corrupt my children by giving them any of it.

If you believe that a person cannot be a moral citizen or positive contributor to society if they are independently wealthy, then why are you striving to be independently wealthy?

Isn't the whole point of this site to help people get to the point where they don't have to work anymore?  If that's a virtue, why isn't it virtuous to bestow this situation on your children?

Is it because you feel you will have worked "hard enough" to retire at some point, and can thus stop contributing?  Is there some perceived benefit in the struggle, in the suffering, before achieving financial independence?  If that's the case, is it less virtuous to achieve it in 10 years than it is to do so in 15?

The more I think about these issues, the less averse I am to leaving a legacy to my children.

Its not about contributing, its about being independent.
If I become FI, its because I personally earned it.  Not through "suffering" - its not penance.  Its an acknowledgement of the reality of the world.  Every living animal has to work in some form to feed itself, whether its hunting or making a web or seeking patches of vegetation in the winter.
If a person lived in a hut in the woods with no social contact, they would still have to "work" even if they aren't contributing. 
ER just means you worked harder than you needed to, and saved the excess for later - the ant from the ant and the grasshopper fable.
The only ones who never have to work at all are pets and trust fund kids.

Inheriting money doesn't make them "independently" wealthy in the same sense of "independent" as in FIRE.  They are dependent- on their parents.

From the thread on paying for college:
Read The Millionaire Next Door.  The most enlightening part for me was parents who gifted money to their children versus didn't.  The kids who weren't helped ended up being much more successful, even though initially "burdened" with debt.

That part really stuck with me, and so I plan to financially help out my children as little as possible.  Emotionally, mentally, physically, etc. I want to help make them the most prepared, best they can be.  And I think the way to do that is by not helping them financially.  Overcoming tough times makes someone successful.  Handing them things doesn't.

Think of everything MMM talks about regarding independence and happiness, the value of riding a bike or learning a skill not just because of the monetary benefit, but because of the direct benefit to a persons life to be able to do things, to experience life directly, not to mention the health and environmental benefits.

"Heirs given money typically have a strong inclination toward spending the money on possessions, pleasures, or other purposes without lasting significance."
"Jesse O’Neil... documents... the inability to delay gratification, unwillingness to tolerate frustration, feelings of failure, and a false sense of entitlement. As problems grow worse, heirs withdraw from others, avoid accountability, and develop progressively more serious social disorders."
"75% of parents worry that heirs’ lives may be adversely affected by wealth. Estate planners who have watched inheritors over the decades will almost always agree that these fears are well-founded."
And, some hard numbers:
"Studies in America provide contemporary evidence that families still lose their wealth following the time-tested pattern. 60% of families waste away their wealth by the end of the second generation. By the end of the third generation, 90% of families have little or nothing left of money received from grandparents. Ultimately, 95% of all traditional inheritance plans fail."
http://www.wealthcounsel.com/Consumers_VoorheesArticle.aspx

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Re: Becoming the 1%
« Reply #20 on: June 16, 2012, 11:25:51 AM »
I would love to be in the 1% and have all the opportunities it would bring.  However, I am currently 33 and if someone could magically make me 65 years old with 20 million dollars I would choose to stay the age I am now and without the money.  I just think time is more valuable.  If I could accumulate that money over time at my convenience not doing 9 to 5 then sure.  I too have no problems with having a large income FI.  I don't believe I will ever intentially hold down my income for tax reasons etc.

On a side note about inheritance.  I have no problems with it as long as the inheritor has the proper education regarding money.  I have seen people piss away monitary gifts from grandparents but those same people do the same with their own money.  If they never have to work a day for money but always have more coming in then going out then that is not a big deal.  Money is just a "concept" after all and no more real then peoples collective beliefs.  I don't believe the struggle for money over a persons life makes a person or their character.

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Re: Becoming the 1%
« Reply #21 on: June 16, 2012, 11:39:24 AM »
Most folks on this site are on a path to early retirement through diligent savings and low expenses.  Has anyone considered continuing to work anyway, long past the point at which you need the money to meet your basic needs?
 
I've been running some numbers through my magic spreadsheets.  As an example, a bright 23 year old college graduate with a very average 50k/year job and a 50% savings rate can afford to retire in 15 years at age 37 (assuming 3% wage inflation, and 9% ROI) with a nest egg of about a million dollars, sufficient to support his expenses at a 4% SWR.  This is the path most of us are shooting for.
...
MMM has mentioned this a handful of times, the desire to keep working for just one more year to have just a little bit more, a deeper safety cushion or a lower SWR, and has argued that freedom is more important than additional money.  I can see how some people might instead justify committing to a normal-length working career in a job they love to provide that same freedom to their entire families.  When contrasted to the choice that most people make, namely a normal length working career in a job they tolerate and wasteful expenditures that don't build dynastic wealth, it seems a better option.

As we all know, investment portfolios are not guaranteed. You can expect there to be future investment returns that will be decent enough to grow your portfolio, but there are always the risks that every person must weigh and factor in.

The 4% rule-of-thumb is just for success over historical 30 year periods - and it's key to remember that withdrawing 4% each year (in an historical analysis) has sometimes left the portfolio with a balance of $10 at the end of the 30 year period and still qualifies it as a "success" - not to mention the drastic drops that sometimes have happened after 10-15 years, but (in the past) have recovered. It's easy to look at the past and say "see, it's guaranteed to last you because it eventually recovered in time", but it's entirely another matter to be solely dependent on your portfolio, seeing it drop 50% at year 15 or 20, and wondering "will it come back, or am I screwed?" without knowing for certain that it will recover. Someone retiring early (and having a withdrawal period of 40-50 years) might factor in longer withdrawal rates to reach the same rate of success, which don't necessarily have the same historical success rate that a 4% withdrawal yields for a 30 year period - and history, while useful to learn from, will always be different from the future, whether in the macro sense or your personal situation.

Many people who have the option to retire early are diligent enough to save up in order to be able to retire early, rather than being the type of flying by the seat of their pants and just winging it....and being responsible people, they are unwilling to take the risk of the 4% withdrawal leaving their portfolio on a huge downward trend in later years (if the future behaves like some historical periods) - and being in your 60s/70s/80s with absolutely no way to recover on a portfolio trending to $0 does not give them a great peace of mind. As a result, some people (like me) shoot for a lower withdrawal rate for an earlier retirement - and even then, depending on how much of a safety factor you want to put in, we might allow for a little bit extra wiggle room so we don't ever have to worry about hoping to find part-time work to help make ends meet after being out of the workforce for 10-20 years. Yes, the odds say that it won't happen - but they're just odds. Some are fine with a 1:4 chance of having to find a job 10 years after retiring, while some want a 1:10 chance or just 1:500 chance.

There are many things that each person must estimate on the future. Compare what life was like in the 50s/60s versus today: while many who are able to FIRE don't buy every gadget, and know how to buy smartly, there are still many things available today that a retiree in 1955 couldn't fathom. Having a little extra $ cushion gives you the opportunity/freedom to do that. And that doesn't even begin to approach the specter of the unknown impact of health insurance premiums, which even just 20 years ago weren't nearly the factor they are now. Imagine having a health insurance/expenditures budget item that is sizable to begin with, and then grows 5% (minimum) every year  - that can be a huge whammy in just 15 years time.

All of this requires some of us to work well past being able to live on a 4% withdrawal rate. To some, it's "more than enough", while to the more risk-averse, is definitely on the right track but "not quite enough to give me a sound nights sleep".

The above is only for those who do look at FI/RE issues - it completely ignores those the majority of society who could reach FIRE status, but who live at their office (due to an unsatisfactory home life), who live for consumption and spend everything they make (and who will always be slaves to their jobs), or who lack the self direction to keep themselves occupied if they didn't have a job...all of whom will work until 65 "because that's what you do", and they have no option.

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Re: Becoming the 1%
« Reply #22 on: June 16, 2012, 01:26:35 PM »
Then there are those of us in the middle, like me.  We've saved and invested, and with reasonable luck and prudence, don't actually have to work.  Yet we do work, because we like the work and/or the sense of accomplishment & productivity that it gives us.  So we can choose interesting work, and if the market goes completely down the tubes, can survive without the investment income.  So we've got the belt and suspenders...

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Re: Becoming the 1%
« Reply #23 on: June 16, 2012, 02:14:11 PM »
I don't call it retirement, I call it reinvention. When I achieve FI, I can quit what I do for money and do what fulfills me without worrying about what or if it pays. Not planning on sitting on my ass. I want the freedom to do this for a while, do that for a while, interspersed with any other random things that appeal to me.

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Re: Becoming the 1%
« Reply #24 on: June 16, 2012, 07:17:26 PM »
it's not like every cause benefits more from a 20 million dollar foundation than volunteering. After all, that's two only museum curators or one endowed professorship at a 4% SWR.

Yes, but we're talking about a hundred million Americans each allocating 20 million dollars as they see fit.  Or, alternately, a hundred million Americans buying a daily starbucks and new iphones.  No contest, in my mind.

If I become FI, its because I personally earned it.  Not through "suffering" - its not penance.  Its an acknowledgement of the reality of the world.

Managing a trust fund is also an acknowledgment of the reality of the world, it's just a much nicer world.  One with guaranteed health insurance and no cockroaches in your apartment.

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Every living animal has to work in some form to feed itself, whether its hunting or making a web or seeking patches of vegetation in the winter.

And most of them die of starvation or exposure or predation long before their natural lives are over.  We are not animals.  We've long since transcended subsistence living, which is why we make art and music and genocide and recreational drugs.

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Inheriting money doesn't make them "independently" wealthy in the same sense of "independent" as in FIRE.  They are dependent- on their parents.

I disagree.  As long as the money passes legally, it's theirs.  Saying you are dependent on the generosity of your parents who left you a fortune is no different than saying you are dependent on the generosity of parents who made you an American citizen, or taught you how to read.  We're all "dependent" on our own histories.


Read The Millionaire Next Door...  Overcoming tough times makes someone successful.  Handing them things doesn't.

I've thought about this, and I think success is not solely defined by the struggle or hardship you endure to achieve it.  An indentured farmer in Ethiopia may work his ass off for fifty years and not be successful.  Handing your children a comfortable lifestyle without fear of homelessness or hunger does not strike me as evil. 

Also, consider that TMND is trying to sell a philosophy, and part of the package is smaller nest eggs so you can die broke.  I'm just saying that there are alternatives out there, and they don't look to be that hard.

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Think of everything MMM talks about regarding independence and happiness, the value of riding a bike or learning a skill not just because of the monetary benefit, but because of the direct benefit to a persons life to be able to do things, to experience life directly, not to mention the health and environmental benefits.

I HAVE thought about it, and the reason he can do those things is because he is financially independent.  I'm proposing to try to instill those same values in my children, without the decade of hunching over a computer screen for long hours to make it happen.  I don't think you need to suffer to learn this particular lesson.

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"Heirs given money typically have a strong inclination toward spending the money on possessions, pleasures, or other purposes without lasting significance."

That's just poor parenting, then.  A parent's job is to instill the values you want to perpetuate.  Are those values compromised if you provide your children health care and a college fund?  If you provide them a roof until they're 18?  If you provide a car when they turn 16, or a house when they turn 30?  Why is the line arbitrarily written wherever you choose to put it?

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60% of families waste away their wealth by the end of the second generation. By the end of the third generation, 90% of families have little or nothing left of money received from grandparents. Ultimately, 95% of all traditional inheritance plans fail."

Surely some imaginative soul in this group can find a "non-traditional" inheritance plan they believe in.  Controlling interest in a family business?  A managed real estate portfolio?  A trust that distributes 1% of assets per year as long as the net value rises by more than inflation? 

sol

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Re: Becoming the 1%
« Reply #25 on: June 16, 2012, 07:27:56 PM »
I am currently 33 and if someone could magically make me 65 years old with 20 million dollars I would choose to stay the age I am now and without the money.  I just think time is more valuable. 

I'm with you on that one.  But I'm not suggesting you trade 27 years of your life for 20 million dollars, I'm suggesting you accumulate 20 million dollars by maintaining a 50% savings rate on a very average college graduate salary.  This doesn't seem like a huge sacrifice to me, especially when I consider how many people I know who make WAY more money than that and can't manage to save a dime.

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Money is just a "concept" after all and no more real then peoples collective beliefs.  I don't believe the struggle for money over a persons life makes a person or their character.

Thank you for coming to my defense on this one.  I was beginning to think no one else here could see a benefit to leaving a family legacy.

I'm not saying it's for everyone.  The point of my post was to point out that large sums of money are apparently pretty easy to accumulate for a typical wage earner, without dramatic sacrifice.  Most people on this forum are looking to hit their magic number and quit working, and then spend the number down.  I'm proposing that applying that same frugal lifestyle over a normal length working career, instead of an ERE one, leads to fantastic wealth and a 1% nametag for you and potentially all of your descendants in perpetuity.  Without doing anything extraordinary.

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Re: Becoming the 1%
« Reply #26 on: June 16, 2012, 09:52:29 PM »
Yes, but we're talking about a hundred million Americans each allocating 20 million dollars as they see fit.  Or, alternately, a hundred million Americans buying a daily starbucks and new iphones.  No contest, in my mind.
I wasn't comparing consumerism and charity. I was comparing financial giving to giving time through Mustachian early retirement, which you describe as "humdrum" and worthless. It's hard for me to believe that a hundred million foundations would be that much more beneficial to the nation than a hundred million skilled volunteers with forty years of time to volunteer.

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Re: Becoming the 1%
« Reply #27 on: June 16, 2012, 10:47:25 PM »
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Every living animal has to work in some form to feed itself, whether its hunting or making a web or seeking patches of vegetation in the winter.

And most of them die of starvation or exposure or predation long before their natural lives are over.  We are not animals.  We've long since transcended subsistence living, which is why we make art and music and genocide and recreational drugs.
The people making art and music and weapons and drugs are still creating something of value, by which they make their living.  My point was that "money doesn't grow on trees" so to speak - there are those who think that the only reason we have to work is to support capitalism or "the State", as if food and shelter would just magically appear if everyone stopped working.
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Inheriting money doesn't make them "independently" wealthy in the same sense of "independent" as in FIRE.  They are dependent- on their parents.

I disagree.  As long as the money passes legally, it's theirs.  Saying you are dependent on the generosity of your parents who left you a fortune is no different than saying you are dependent on the generosity of parents who made you an American citizen, or taught you how to read.  We're all "dependent" on our own histories.

You are saying that teaching a man to fish is in no way different to giving a man a fish (as long as its a really big fish).
The first man may have been dependent in that he could not teach himself, but he has become independent.  If there is a falling out in the stock market (or the refrigerator the big fish is stored in loses power) then the second guy is screwed.
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I've thought about this, and I think success is not solely defined by the struggle or hardship you endure to achieve it.  An indentured farmer in Ethiopia may work his ass off for fifty years and not be successful.  Handing your children a comfortable lifestyle without fear of homelessness or hunger does not strike me as evil. 
No, success isn't defined by struggle, it is fostered and made more likely because of it.  But you don't have to endure hardship just because you earn your own way in the world.
I am also not sure why someone born in the US with at least a standard eduction and Mustachian values and skills would ever fear homelessness or hunger.
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Think of everything MMM talks about regarding independence and happiness, the value of riding a bike or learning a skill not just because of the monetary benefit, but because of the direct benefit to a persons life to be able to do things, to experience life directly, not to mention the health and environmental benefits.

I HAVE thought about it, and the reason he can do those things is because he is financially independent.
?????????????????????????
Cause and effect?  I think you may have them reversed.  That's like when I ride my bike to work and my co-workers say "I wish I was fit enough to do that".  He was able to become FI in the first place BECAUSE he was already doing those things, just like every other middle class person could be if they did the same.  Most don't, and people who grew up with money they didn't earn are even less likely too.

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I'm proposing to try to instill those same values in my children, without the decade of hunching over a computer screen for long hours to make it happen.  I don't think you need to suffer to learn this particular lesson.
Again, I never said anything about struggle or hardship.  All I am talking about is earning your own way in life as an adult.
With all the talk on this forum about voluntary work (paid or not) after FI, and of voluntary frugality, I don't understand why you keep insisting that earning money through productivity is inherently and unavoidably struggle and hardship.
I really really think you personally need to look for a job you hate a little less!!
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"Heirs given money typically have a strong inclination toward spending the money on possessions, pleasures, or other purposes without lasting significance."

That's just poor parenting, then.  A parent's job is to instill the values you want to perpetuate.

Don't you think the majority, if not all, people who got rich through their own hard work try to instill the same values in their children that they have?  This is a well known phenomenon, and it happens even though the parents are aware of it and actively trying to counter it.  I just picked key parts, but the original website is not that long.  You can read more there.

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Are those values compromised if you provide your children health care and a college fund?  If you provide them a roof until they're 18?  If you provide a car when they turn 16, or a house when they turn 30?  Why is the line arbitrarily written wherever you choose to put it?
Its not really that arbitrary - human children take roughly 16-20 years to fully mature, and about the same time to educate to modern standards.

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Surely some imaginative soul in this group can find a "non-traditional" inheritance plan they believe in.  Controlling interest in a family business?  A managed real estate portfolio?  A trust that distributes 1% of assets per year as long as the net value rises by more than inflation?
All of those have been tried.  Its not about how the money is distributed.  Its about the effect on the subconscious mind of having vast unearned wealth. See: http://www.wealthcounsel.com/Consumers_VoorheesArticle.aspx

Bakari

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Re: Becoming the 1%
« Reply #28 on: June 16, 2012, 10:52:18 PM »
Money is just a "concept" after all and no more real then peoples collective beliefs.

The actual piece of green dyed paper is just a concept we all agree to.  The value of wealth, with which you can purchase goods and services is totally real and independent of any particular social arrangement.

Take the pharaohs of ancient Egypt, for example.  Massive wealth, with no form of currency.

In order for their to be material things for humans to use and enjoy, from food and shelter to music and art, requires individual humans to put forth effort and produce things of value.  Value would not just spring forth from the heavens if we stopped using paper currency.

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Re: Becoming the 1%
« Reply #29 on: June 19, 2012, 12:50:31 PM »
Re: heirs and inheritances

In my personal experience, I inherited several tens of thousands of dollars as a teenager. It gave me an attitude of "throw money at things to solve problems" for the next ten years. Trust me, by the time I was through college that money was nearly gone. And I'm thriftier than most people my age--I spent it on a quality used car and several years of reasonable living expenses, mostly. I'm grateful I had it, because it allowed me to finish engineering school without needing to work full-time and with no debt, and it gave me the financial security to live my life in a way that I wanted, rather than kowtowing to my mother's wishes to keep the money flowing.

But I look at my money sooo much more possessively now that I am making it by working. I hate seeing my bank balances drop after purchases, I'm more strategic about how I spend, and I rue my profligacy of previous few years. I just keep thinking "if I had just worked harder during college, made more money, not spent so much then, I could own a home by now and financial independence would be much closer". But until I had to make my own money it just didn't seem important to think that way.

Luckily I am making a good income now, my wife's home business is picking up as she puts more time into it, and we're now learning to save aggressively. If all goes according to plan I will be a homeowner within the year and have no mortgage in less than 5 years. If I had started these habits in high school I could have been FI by 25 I bet, because I started, objectively, with a serious financial advantage. But I couldn't learn how to leverage it without wasting it first and losing the opportunity.

I can, because of my family's particular situation, reasonably expect several more major windfalls in the coming years, and I hope I've learned my lesson well enough not to waste them and if when they appear.

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Re: Becoming the 1%
« Reply #30 on: June 19, 2012, 05:06:27 PM »
I'm with Sol here. With the exception of spending more time with their kids, you rarely (never?) see someone here or the ER forums talk about doing anything meaningful and productive (which for purposes here I will define as benefiting someone other than yourself) in retirement. Sure, lots of people cite "volunteering" and "doing whatever I want", but you never hear someone talk about specific plans to volunteer full time in a professional capacity for a non-profit organization. I don't think that volunteering 10 hours a week at the local school or worse, doing menial labor that you could pay someone $10 an hour to do, meets the obligation that you should feel as a wealthy, intelligent member of the western world.

http://www.thelifeyoucansave.com/idea
« Last Edit: June 19, 2012, 05:21:55 PM by mcneally »

mcneally

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Re: Becoming the 1%
« Reply #31 on: June 19, 2012, 05:12:50 PM »
Where I'm not with Sol is math. The 20 million figure quoted throughout this thread is implicitly based on a 9% REAL rate of return. Take that down do a more reasonable 4% real rate of return and you cut your net worth figure by over 75%. You can still do a lot of good with that, but average $50k Joe isn't going to amass $20 million in today's dollars.

sol

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Re: Becoming the 1%
« Reply #32 on: June 19, 2012, 05:53:39 PM »
Where I'm not with Sol is math. The 20 million figure quoted throughout this thread is implicitly based on a 9% REAL rate of return. Take that down do a more reasonable 4% real rate of return and you cut your net worth figure by over 75%. You can still do a lot of good with that, but average $50k Joe isn't going to amass $20 million in today's dollars.

I'll concede that point; I didn't factor inflation into my calculation.

That's not really what I was getting at, though.  Half of people make more than the US average wage, and could theoretically amasss much more.  Or you could go to a 55% savings rate to make up the difference.  The point was that these large sums appear to be pretty easy to attain for virtually everybody.  No special tricks, no home run investments, just an ordinary career like most people have anyway, coupled with some MMM-style frugal living.  That's the amazing part to me, that it seems so very easy to join the 1% just by spending less than you earn.

sol

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Re: Becoming the 1%
« Reply #33 on: June 19, 2012, 05:57:52 PM »
In order for their to be material things for humans to use and enjoy, from food and shelter to music and art, requires individual humans to put forth effort and produce things of value.  Value would not just spring forth from the heavens if we stopped using paper currency.

The 1% do not produce any of this value you're talking about.  They're not farmers or architects or carpenters.  Their full time occupation is managing their money, moving around imaginary numbers between imaginary buckets, allocating some perceived store of value to wherever they think it should go. 

And our current economy works just fine like that.  I agree not everyone can be the 1%, because then there would be no 99% to water the crops and pick up the garbage.  I'm saying that it looks like any one average person can join the 1% and choose to stop doing the work, as long as there are still enough other people who haven't figured it out left to do it for them.

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Re: Becoming the 1%
« Reply #34 on: June 19, 2012, 07:52:12 PM »
Or you could go to a 55% savings rate to make up the difference. 

I don't mean to quibble, but using $50k starting, 50% savings rate, 3% real wage growth (which has you making $183k by the end of your career), 4% real rate of return, you'd have about $4.9 million after 44 years, meaning you'd need to save 204% of your gross to get to $20 million. Change it to a 5% real rate of return and you get $6.1 million.  There's a pretty big difference between saying a person could amass $5 or 6 million vs $20 million.
« Last Edit: June 19, 2012, 08:10:00 PM by mcneally »

sol

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Re: Becoming the 1%
« Reply #35 on: June 19, 2012, 08:38:49 PM »
Again, I never said anything about struggle or hardship.  All I am talking about is earning your own way in life as an adult.
With all the talk on this forum about voluntary work (paid or not) after FI, and of voluntary frugality, I don't understand why you keep insisting that earning money through productivity is inherently and unavoidably struggle and hardship.
I really really think you personally need to look for a job you hate a little less!!

This seems to be the real heart of your argument, so I'll address it head on.

I'm also in favor of earning your own way in life, and I'm not suggesting there is any value in leaving your children a fortune so they can watch tv for 85 years.  Having said that, I still see more value in having that fortune, in reserve, than in not having it.  Not having it means potentially being wiped out by a natural disaster, or an illness, or a bad divorce.  Money in the bank can only be a good thing, when you think about it as a safety cushion.

I also agree that earning money through hard work is beneficial, and I hope to instill the desire to do so in my own kids.  But I don't want them to ever be in a position where if they CAN'T work hard and succeed, their life turns to misery as a result. 

I would like them to pursue a career that is meaningful to them.  If that happens to be engineering and they make their own fortune, then they can add to the family stash and pass it on.  If it instead one of them is really moved by modern dance or competitive swimming, I don't necessarily think it would be evil to support them in those pursuits.  Do you?

I like my job.  I intend to keep working past the point where I am technically financially independent, because my job is an integral part of my lifestyle.  I could buy myself a sportscar and a daily latte, since I intend to work longer than necessary, or I could bank the surplus and provide for my children.  I think the latter is a more noble goal, but if you think the sportscar is the more morally defensible choice then I won't begrudge you your decision.

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Re: Becoming the 1%
« Reply #36 on: June 19, 2012, 08:43:56 PM »
I expect to work to at least 70.  I like work.  I like my job.  I like security.  I expect our house will be paid off when I am 58, but we could pay it off earlier and retire earlier for sure.  But I don't really want to.

I guess it's "FU" money to me at this point.  What I see of the economy these days...I don't like.  My company has many "older" people working there (60+) and they are awesome.  I'd like to think that my spouse and I will fall into that category - still healthy, vibrant, strong workers with a lot to bring to the table (assuming that's where we want to be). 

But.  I see a lot of unemployed and underemployed 60 somethings who are not at all ready for retirement, financially, who are really struggling.  By working longer and saving more money now, I hedge against that happening.  I may not WANT to retire until  70 or 75, but if I'm "forced" into before then, I want the financial ability to handle that.

Therefore, retirement, to me (whether voluntary or involuntary), will likely involve a lot of volunteering.  I like to be busy.  I have many outside interests: the library, quilting, sewing, gardening, schools.  My retired and semi-retired quilting friends?  They do a lot of volunteering, and it's pretty amazing to watch.

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Re: Becoming the 1%
« Reply #37 on: June 19, 2012, 11:14:05 PM »
The 1% do not produce any of this value you're talking about.  They're not farmers or architects or carpenters.  Their full time occupation is managing their money, moving around imaginary numbers between imaginary buckets, allocating some perceived store of value to wherever they think it should go.

That's just baloney.  Sure, there are some of that sort in the 1%, but a lot of them got where they are because they invented stuff, or started companies that produced things people wanted to buy.  Take a look at the Forbes 500 list sometime.

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Re: Becoming the 1%
« Reply #38 on: June 20, 2012, 06:16:53 AM »
You've really switched your rhetoric around in the last two days or so. First, it was "everyone needs to work to create a $20M charitable foundation because that's the only valid way to give back to your community" (with your pal chipping in a helpful side of "people who retire early are lying about volunteering and owe society more than 10 hours a week of their time", an utterly reprehensible view), and now it's "everyone needs to work so their daughters can be ballerinas". Spending your money to support your family is fine, and spending to support a charitable cause is fine, but you can't spend the same dollar twice.

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Re: Becoming the 1%
« Reply #39 on: June 20, 2012, 06:44:59 AM »
I think what's missing from this discussion is that becoming wealthy/financially independent, and staying that way, forces you to develop the habits that get you there--it forces you to become the type of person that is financially independent.  It is much more rare for someone to accidentally get there (e.g., inheritance, lottery, lucky stock picking), and even more rare for those accidentally wealthy people to keep their wealth--because that is not who they are.  Their habits will lead them to lose the wealth.  See all the examples of celebrities and athletes that became suddenly wealthy through signing a fat juicy 7 or 8 figure contract, and then went bankrupt a few years later.

Based on all the evidence I've seen, it *does* help to have to suffer some, to have to overcome challenges, and to have to work to become wealthy, because in that process you figure out the skill of how to become wealthy, and you develop the discipline of living on less than you earn.  I'm not arguing to throw every kid in the slums and see who rises above it, but I am saying that wealthy parents have to be more careful about how they raise their kids, because the absence of suffering and challenge can cripple their kids ability to learn how to work, learn how to generate income for themselves and their families, and to learn how to control their spending.

I can tell you in my case, I've been pretty successful in life, and nobody has ever given me a dime of inheritance.  I'm not exactly a rags to riches story either, because I grew up in a wealthy neighborhood and went to top quality schools.  At the same time though, my parents went bankrupt while I was a teenager.  I had punch cards for subsidized lunches in the cafeteria.  I went to a very expensive private university, but I paid for most of it with an Army ROTC scholarship and student loans.  I didn't want to join the Army by the way, I did it because it was the only way to afford that school.  Even relative to my siblings, my parents gave a lot more to my brothers and sisters than they ever gave to me--and I'm glad for it.  I earned my own way, paid for everything.  I became successful.  If I had been given a pile of money, or if someone picked me up every time I fell, I don't believe for a minute that I would have developed the same ability to generate income, to manage investments, to bounce back from failures, or to spend less than I earn and save.  I am glad that I had to learn to make it on my own, because it caused me to do so.

I think it's a huge fallacy to think that the money can accomplish the same thing without the experience of earning it.  You can talk all you want to your kids, trying to teach them all the right lessons.  How did you learn what you know, how did you develop your habits?  From what your parents told you?  Or was it from your direct life experiences, the challenges you had to face, the obstacles you overcame, the failures and successes you've had?  I know my answer.

Back a bit more towards the main post, I'd suggest you take a look at the book Thou Shalt Prosper.  It's not a preachy book so please try to get past that if you're the anti-religious type.  It sets out to explain why Jews have been more successful as a group than many other groups, and it's written by a Rabbi.  The essential message is that working, contributing, running businesses, etc. are good things, it helps everyone.  It argues that engaging in the society around you through work, and making money in the process (which directly shows that you've added value to others' lives), is exactly what people should do.

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Re: Becoming the 1%
« Reply #40 on: June 20, 2012, 08:19:51 AM »
But I don't want them to ever be in a position where if they CAN'T work hard and succeed, their life turns to misery as a result.

Given that people don't become less happy even when they permanently lose the use of their limbs, what sort of misery do you see befalling your children that money would have the ability to alleviate?

I'm sure that many of us here have punched our data into retirement calculators, and played around with our retirement age to see what happens.  I know I have, and it is definitely fun to punch in '65' and see that exponential curve crank up nearly vertical on the right side of the Net Worth graph as the avalanche of money starts to bury us in later years.  For a second, I think 'whoa, that would be awesome!', but then after a few more seconds, I realize 'what would I actually do with way more money?', and instead move to the conclusion that it would make me happier to stop working than it would to have that huge pile of money.

When faced with a graph like that, certainly different people have different reactions.  But given that the reaction of our MMM (bristles be upon him) was to stop the accumulating snowball by retiring early, and most people here were presumably attracted to the particular life-path that MMM has taken, I don't think it should be surprising that many look askance at the idea of creating dynastic wealth. 

On the other hand, maybe you have discovered one of the few remaining untapped niches in the personal finance blogosphere: Frugaling Your Family To Dynastic Wealth!

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Re: Becoming the 1%
« Reply #41 on: June 20, 2012, 08:54:35 AM »
The 1% do not produce any of this value you're talking about.  They're not farmers or architects or carpenters.  Their full time occupation is managing their money, moving around imaginary numbers between imaginary buckets, allocating some perceived store of value to wherever they think it should go.

That's just baloney.  Sure, there are some of that sort in the 1%, but a lot of them got where they are because they invented stuff, or started companies that produced things people wanted to buy.  Take a look at the Forbes 500 list sometime.

That's because sol is misusing the term "1%" in the same way everyone is misusing it this days, thanks to OWS.
Yes, the literal "1%" is mostly upper middle class people who saved and invested well.  It only takes a million or two in net assets to be in that group - including property and retirement accounts.  Chances are there are some on this forum, might not even know it. 
But what he really means is the top 0.1% or 0.01%.

The Forbes 500 list is irrelevant, because it is looking at companies, not individuals.  So obviously everyone in that list is producing something. 
Looking at the world's richest individuals, 1/2 of them inherited their fortunes: http://www.therichest.org/world/richest-people/ and 1/2 of the rest earned it through investments, casinos, or name-brand fashion, all of which one could argue isn't much better than hedge-fund manager in terms of real value to society.

Among the top 400, 30% inherited their wealth: http://www.forbes.com/sites/kerryadolan/2011/09/21/richest-families-on-the-forbes-400/

Which is much lower than in the past.  Apparently much of why that percentage is decreasing is for exactly the same reasons we have been talking about here - the rich realize that it may benefit their kids more to NOT hand them a fortune, and are giving it to charity instead:  http://money.cnn.com/2012/06/18/pf/rich-inheritance/index.htm

grantmeaname

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Re: Becoming the 1%
« Reply #42 on: June 20, 2012, 09:15:45 AM »
I think the only people who would argue that financial professionals don't contribute anything to society are the ones who have no clue what financial professionals do (like the OWS crowd).

Casinos strike me as more of an expensive entertainment option like resorts or cruises than they are an insidious method to keep the poor down, addictive gamblers excepted, but that's neither here nor there.

sol

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Re: Becoming the 1%
« Reply #43 on: June 20, 2012, 09:28:14 AM »
You've really switched your rhetoric around in the last two days or so. First, it was "everyone needs to work to create a $20M charitable foundation because that's the only valid way to give back to your community" (with your pal chipping in a helpful side of "people who retire early are lying about volunteering and owe society more than 10 hours a week of their time", an utterly reprehensible view), and now it's "everyone needs to work so their daughters can be ballerinas". Spending your money to support your family is fine, and spending to support a charitable cause is fine, but you can't spend the same dollar twice.

You're adorably prickly, Grant.  Maybe a little high strung, though.

My  "rhetoric" for why a person might choose to accumulate vast wealth is completely irrelevant.  I didn't start this thread to say that anyone should do this, or to justify a particular way to spend such money.  I was just pointing out that seemingly everyone could do it, if they chose, using the techniques MMM preaches. 

I don't care how you spend your money, or whether you choose to retire early instead of working longer, I just don't like to hear people talk about how unfair the world is and that they can't ever get ahead because the game is rigged.  If you can retire early, and I think everyone can, then you can become hugely wealthy.

I am saying that wealthy parents have to be more careful about how they raise their kids, because the absence of suffering and challenge can cripple their kids ability to learn how to work, learn how to generate income for themselves and their families, and to learn how to control their spending.

This basically agrees with what Bakari was saying, and I think it's a good point.  Growing up without wealth teaches you how to manage money, and I can totally see how growing up in a mansion with a butler might stunt that learning, might teach a sense of entitlement instead.

But an average-wage Mustachian with a 50% savings rate who accumulates 20 million in savings over a 42 year career is not living in a mansion with a butler.  Any kids that grow up in that household grow up seeing an apparent family income that is very modest, lower than MMM's even, because all of that surplus income is being socked away to build the stash.  They don't even know their family is on the path to dynastic wealth.

Given that people don't become less happy even when they permanently lose the use of their limbs, what sort of misery do you see befalling your children that money would have the ability to alleviate?

Drug addiction or substance abuse problems that might be treatable with the right intervention, or lead to homelessness if not.

A crippling disease like ALS or Crohn's that requires expensive treatments to preserve a basic quality of life.

Even a car accident that takes limbs away, like in your example, can be somewhat moderated if you can afford the right physical therapy and prosthetics.

I'm not saying a person can't be happy with Crohn's disease and no arms while living under a freeway underpass.  Maybe hedonic adaptation extends even to those depths.  But a family fortune can help that person have a better life.  Consider it insurance against a worst case scenario.

the rich realize that it may benefit their kids more to NOT hand them a fortune, and are giving it to charity instead:  http://money.cnn.com/2012/06/18/pf/rich-inheritance/index.htm

The Buffets of the world are giving their vast fortune to charity, but they are not letting their children twist in the wind, either.  They still provided a home for those kids, and health insurance.  I assure you that if every one of Buffet's kids got AIDS, he would pay for the drugs to keep them all alive rather than sit back and watch them die slow horrible deaths just because they couldn't afford the treatments.

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Re: Becoming the 1%
« Reply #44 on: June 20, 2012, 10:29:30 AM »
...
You're adorably prickly, Grant.  Maybe a little high strung, though.

My  "rhetoric" for why a person might choose to accumulate vast wealth is completely irrelevant.  I didn't start this thread to say that anyone should do this, or to justify a particular way to spend such money.  I was just pointing out that seemingly everyone could do it, if they chose, using the techniques MMM preaches. 

I don't care how you spend your money, or whether you choose to retire early instead of working longer, I just don't like to hear people talk about how unfair the world is and that they can't ever get ahead because the game is rigged.  If you can retire early, and I think everyone can, then you can become hugely wealthy.
I totally agree that it's feasible to do so, and the skills to do so are analogous to those required to retire early. And yes, anyone could do it by having money instead of spending money, and no, the game is not rigged. I'm with you on all of that. I'm bristling at what sounds like you suggesting that you have the one right way to spend a life and that your way of doing things is the most virtuous. If it works for you, that's terrific, but it feels like you're suggesting it's the highest moral calling for everyone.

mechanic baird

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Re: Becoming the 1%
« Reply #45 on: June 20, 2012, 01:04:42 PM »

Quote
"Heirs given money typically have a strong inclination toward spending the money on possessions, pleasures, or other purposes without lasting significance."

That's just poor parenting, then.  A parent's job is to instill the values you want to perpetuate.  Are those values compromised if you provide your children health care and a college fund?  If you provide them a roof until they're 18?  If you provide a car when they turn 16, or a house when they turn 30?  Why is the line arbitrarily written wherever you choose to put it?


Like Sol said, it's all coming down to parenting.. I thought Anderson Cooper has done really well.. and he is from the freakin beyond your imagination kind of rich family (Vanderbilt).  And then you look at Paris Hilton...

giving your children a sense of security does not do harm in my opinion. it actually helps them to be focused. Wealth also provides much broader options for them.. I see nothing wrong with it.. But it does require a pair of smart pants parents to do it right.

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Re: Becoming the 1%
« Reply #46 on: June 20, 2012, 01:32:05 PM »
The Forbes 500 list is irrelevant, because it is looking at companies, not individuals.  So obviously everyone in that list is producing something.

Sorry, I meant the Forbes 400 Richest Americans list - I'd forgotten all about the corporate list.  If you look at that list, you don't find a whole lot of people (other than the Waltons) anywhere near the top who inherited their wealth.
 
Quote
Looking at the world's richest individuals, 1/2 of them inherited their fortunes: http://www.therichest.org/world/richest-people/ and 1/2 of the rest earned it through investments, casinos, or name-brand fashion, all of which one could argue isn't much better than hedge-fund manager in terms of real value to society.

Don't know about the world (you do get people like the British royals & Saudis there), but if you look at the US list, there are a lot of people who made their bucks in other ways - mostly computers, but other stuff as well.

Quote
Among the top 400, 30% inherited their wealth: http://www.forbes.com/sites/kerryadolan/2011/09/21/richest-families-on-the-forbes-400/

Which is much lower than in the past.  Apparently much of why that percentage is decreasing is for exactly the same reasons we have been talking about here - the rich realize that it may benefit their kids more to NOT hand them a fortune, and are giving it to charity instead:  http://money.cnn.com/2012/06/18/pf/rich-inheritance/index.htm

I don't think that explanation really flies, at least as the main driver.  Seems more likely that the percentage of inherited wealth is decreasing because so many new fortunes are being made.  Sure, maybe some day Bill Gates, Larry Ellison, the Google, Facebook, & Amazon folks and all the rest will have to decide whether to leave their money to the kids or to charities, but most of them are a long way from being dead yet.
« Last Edit: June 21, 2012, 12:24:03 AM by Jamesqf »

mechanic baird

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Re: Becoming the 1%
« Reply #47 on: June 20, 2012, 01:49:09 PM »
Back to the original post...

So let's say if in your life span, you consume X amount and produces X amount, you have just.... lived by not burdening anyone else.

But let's say if you consumed X amount, but produced Y amount and Y-X is much greater than zero and you contributed to .. well, not on yourself, be it your offspring, your community, whatever... You just made your life much more meaningful.. The mustachian way is to teach someone to reduce X, however, what about  Y here? And what do you do when your "Y" amount is much much larger than your "X" amount. What do you do with your excess amount? I think Sol is trying to say any average Joe can amass a huge amount of Y.

Sol chooses to help out the kids and give another part back to the community by engaging active retirement and work on his own terms. That's a pretty noble goal. 
« Last Edit: June 20, 2012, 01:53:06 PM by mechanic baird »

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Re: Becoming the 1%
« Reply #48 on: June 20, 2012, 02:04:30 PM »
I think everyone is ignoring how easy it is to keep making modest amounts of money even while semi-retired. You really don't have to choose one or the other. Work until you are financially independent (make sure you know when that is!), then decide if you would rather keep doing what you're doing, take a break, or do something else. The "something else"s over the years will likely end up being occasionally profitable.

I also don't see any reason you need to amass a vast fortune to leave a legacy to your children. Leaving them a paid-off house (or several) and several hundred thousand dollars, with no debt obligations, wouldn't be more than enough? If you've raised them to self-reliance they shouldn't NEED it anyway--it'll be frosting on the cake.

And I don't think anyone was actually suggesting they would leave their kids in the lurch if they got a horrible chronic disease or something, come on guys. I think we can assume everyone here is a basically decent human being and would care for their children's well-being, no?

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Re: Becoming the 1%
« Reply #49 on: June 20, 2012, 05:52:31 PM »
I'm bristling at what sounds like you suggesting that you have the one right way to spend a life and that your way of doing things is the most virtuous.

Sorry to get your bristles up.  I reverted to defending personal wealth when someone questioned its value, given the principles this blog teaches.

And like I said up front, most people here are on the path to early retirement through frugality, not vast wealth through frugality.  I only brought it up as an interesting alternative.

You just made your life much more meaningful..

I don't think any of us can really say what makes another person's life meaningful.  Our values might not align, and I've read too many books to believe that my ideas are right and yours are wrong.

We are each in control of our own destinies.  We can choose to retire early, or late.  We can choose to spend frivolously, or save furiously.  But in any case I would prefer to see people making a conscious decision about how to live their financial lives, rather than just playing along with whatever seems expected of them by the marketing departments of international consumer corporations. 

One possible choice, among many, is to live well below your means and work a long and productive career, contributing to the good of society through your meaningful employment while amassing a vast personal fortune.  Another is to save diligently in a job that you don't really believe in, and then retire from it to pursue other interests that you find more worthwhile.