How Much Money Do I Need to Get By?

This isn't so much a personal finance post as it is an exploration of the sheer amount of wealth that CEOs and other corporate luminaries can accumulate.  This drive towards wealth also causes companies to maximize every incremental dollar of profit under the expectation of "increasing shareholder value."  

Of course, maximizing profit is only one facet of increasing shareholder value.  ESG investing has taken its lumps in recent years among the backlash against wokeness, but I don't find it a stretch that businesses can also create shareholder value by contributing to a healthy society and economy rather than solely chasing growth and hoping (or ignoring) some other factor will counteract any instability.

In this post, though, I want to focus on the personal accumulation of wealth and, specifically, how it intersects with my own goals as a solopreneur.

I'm going to base my discussion on the Pew Research Center's definitions of income levels.  People can, of course, disagree with the assumptions, but you'll find that relative numbers like $250K or $350K don't really matter much to the overall theme of my essay, especially at the net worth values we're discussing.

The baseline I'm running against is a $250,000 income for a family of 4.  According to Pew, that meets the criteria for being upper-middle class in both the San Jose and NYC metro areas - two of the three most expensive areas (Hawaii being the 2nd) in the US according to Kiplinger's.

How much wealth do you need to meet that criteria without lifting a finger ever again?  Prior to jumping into my own venture, I used FIRECalc to do a lot of my own financial modeling.  I love the premise it follows for its calculations (note - I'm not addressing the FIRE movement and its pros and cons here.  Regardless of whether or not you agree with the movement, the calculator is still extremely useful for financial planning).  Rather than make assumptions about the future, the calculator runs through all scenarios from the past over a specified period since the inception of the stock market and returns the likelihood of success based on those aggregate scenarios.  

For instance, if you started with $10 million and wanted to know if you could comfortably withdraw $250K for 40 years, it would run every 40-year scenario starting around 1880 (so, 1880-1920, 1881-1921, 1882-1922... through 1983-2023) and determine if you always came out positive (spoiler alert: You have a 100% chance of withdrawing $250K for 40 years with that starting capital and not going in the red).  And, yes, this takes into account inflation over the same period.

For the purposes of this exercise, I'll only look at 100% successful scenarios.

So, how long can you draw out an inflation-adjusted $250K from a starting lump sum of $10 million?  At least 120 years (the tool can't reliably compute more than that duration, and every run is successful even at that duration).  You can feel reasonably secure at that juncture that you can provide for yourself and your children through your collective lifetimes.

But maybe that's not enough.

One particularly wealthy delusionary claimed it's impossible to live on less than $400k per year and probably not less than $2.7 million because his plane "eats $2.7 million a year."

So, let's take him at his word and further assume that anyone making that amount of money is concerned about passing on too much generational wealth and is only going to accumulate enough money for their own lifetimes.  As a result, we'll cap the analysis period at 80 years, which is about 4 years greater than the average life expectancy of 76.3 years.

Since we don't want anyone to scrape by at only $400K a year, let's tack on another $100K.  If that's the case, you'd need a bit more than $10 million in the bank.  You'd need to up your net worth to $16 million.  Keep in mind this is still for a family of 4.  You could probably get by on a bit less if your family's smaller.

But what if you really need that jet rather than flying first-class a couple of times a year to exotic locations?  Let's assume that a jet is going to be your greatest expense, but you don't want to be "airplane poor."  It seems reasonable that you'd need an additional $2.3 million per year just to ensure you don't have to clip coupons every time the help goes to the supermarket.

At $5 million per year for 80 years, you'd need to amass $155 million.

But, if you've got a private plane, you're gonna need a boat too.  Costs for a 70-foot yacht spanned a wide range during my search, but an additional $2.5 million per year should cover it.  You may have to save up for 1-2 years to buy the yacht, but moguls are good at delayed gratification.  That's why they're moguls, right?  

At $7.5 million per year for 80 years, you'd need a stockpile of $235 million.

You'll notice that none of these numbers approach anything near $1 billion.  I'm not against improving your station in life and, while I find some of the trappings of luxury to be a bit ridiculous and past excessive, if you think you need a yacht, then, hey, you need a yacht (just make sure it's one that can sail through Amsterdam).

Let's say it's reasonable that you want to amass $500 million just in case you need a yacht on both coasts and need to hedge against an increase in the price of eggs.  Seems fine.  But, what does an incremental dollar get you after that other than bragging rights?

At that point, your net worth is probably tied up in investments, so you're helping the financial industry out, but you're not directly investing in or donating to other entities (a common reason the wealthy don't want to be taxed is that they create jobs).  So, why not take that additional cash and dump it into start-ups and charities and show everyone that you are a captain of industry as well as a captain of two yachts?

Or is it more important to have the biggest, um, number, and once you accumulate a certain amount of wealth, it's meaningless to you and you begin to compete on things like yacht size or who can beat whom in an MMA match because day-to-day life no longer has value?

As a new small business owner, I'm interested to know what people consider success.  I believe a lot of businesses start and fail because people set their goals too high.  The term unicorn is fairly prevalent in Tech now as a reference to the $1 billion market cap for startups.  But what if you down-sized your dreams even a little bit and made a solid living for yourself and your family while generating value for the community?  Or, hell, dream bigger and start a small business that employs 100 people and has a similar positive effect on the world?  Is that a failure if you don't reach the $1 billion mark (or the $10 million mark)?  If so, why?  What does it say about reaching a solid achievement vs. your need to fill some internal void about your self-worth that can't be sated even if you're a trillionaire?

Until next time my human and robot friends.