This is clearly not true - if you are making that much and are a constant (but not even especially frugal) saver you will have 10M by the time you retire. The top 1% includes people of all ages - including people collecting paychecks their whole life - not just people who are in their 30s.

Of course, in 20 years 10M will not mean as much, but nonetheless it is important to remember 20% of the population is at or near retirement age.

https://www.nerdwallet.com/investing/retirement-calculator

You can't fast-forward your net worth and leave everyone else's frozen in place. If 10M is the bottom of the top 1% now, In 20 years 10M won't be enough to be in the top 1%.

Assuming most of those people are 65+, wouldn’t most of them be dead in 20 years?

And passed that wealth along to their descendants?

Valid point. The counter-points I most often come across are:

- Estate taxes: the government wants its pound o' flesh

- Squandering: the wealth is generally gone by the 2nd or 3rd generation. I remember this from The Millionaire Next Door (W. Danko), which is from the 90's, but I haven't come across anything to date stating that the trend has been reversed.

But typically more than one descendant. That divides the pie.

Just because it's possible doesn't mean it's common. So OP is correct.

I ran the math -- If you are a married couple who earn $500k/year in California, you'd have to save 40% of your post-tax income at a 7% rate of return for 27 years to accumulate a net worth of $10M. It's exceedingly rare to make that much money for that long of a period of time.

And if they're making a 7% rate of return for 27 years, how's the person who already had $10 million in wealth and earning 7% per year ($700k per year in wealth appreciation alone from year 1) changing during those 27 years?

I take it you are assuming wealth appreciation in a way that doesn't create income, or at least isn't predominantly treated as income?

Honestly, I'd assume both income and wealth are part of an abstract concept I'd call, in this instance, 'capital'.

The specific ways both are taxed or regulated depend too much on individual circumstances and governments, but the main point is you can't use a simple model that shows a 'well-off' income earner can make it into the top n% in 27 years, if the assumptions required to get that to work also gives the n% a greater or equivalent benefit.

Investments are usually taxed at long term capital gains rates and only when you realize them.

So someone with 500k income can be putting away 250k a year into investments, while someone with a 10 million dollar portfolio can be having 700k in gains each year, only getting taxed when they sell something.

That was my point. You are assuming the wealth appreciation is mostly asset value appreciation that is not realized as a gain every year. Otherwise, this household would also be in the top 1% of incomes, and this thread started by talking about the distinction between top 1% incomes and top 1% wealth.

It's not the norm, but it's also not especially rare. A doctor married to a lawyer (or a big tech engineer) will easily clear that for most of their careers.

So, what is the income of a household sitting on $10MM+?

Precisely the correct question - cap gains at that same 7% would yield $700k/year and be taxed at a rate of less than half the income tax rate.

Cap gains of $700k per year would mean this household had an income of $700k per year, and so be in the top 1% of incomes.

Only if they choose to do so by selling their investment if I understood the previous comment correctly.

If they don't realize it, they don't get taxed on it. I read the comment as stating they are getting taxed every year.

And no inflation.

The 30 year inflation adjusted return on the S&P 500 is 6%, and if dividends are reinvested, 8%. Retrospectively, a long term 7% return would be unremarkable. I wouldn't bet those numbers will be quite as strong going forward.

... and by then $10M is worth $1M

If you assume 2% inflation (relatively high by current standards), $10M will actually be worth $5.85M.

Isn't wealth the red herring, and income the proper measure? After all, the median (50%tile) wealth is nearly zero. Amongst those with zero wealth, the top income earners clearly have better lives than the low income earners, since the top income earners can consume more.

The ultimate measure of resources is how much a person can consume a year. Income is equivalent to what you can steady-state consume. Wealth is just what you happened to save up to that point in time.

Since the wealth gap is larger than the income gap (since wealth is saved past income), the wealth gap tends to be pointed out by people who want to overemphasize inequality.

A person with $10M in wealth should be earning $500k a year taxed at capital gains rates. This person does not and will not ever live like a mere mortal (unless for show or sport). Assuming he's not an idiot, the $10M guy would have to try reasonably hard to become broke.

A person earning $500k/yr is reasonably likely to be a normal guy--maybe semi talented business person or tech exec paying regular income taxes (at least partly) that could quickly become broke or at least become a mere mortal again if he stopped working. I don't really have anything against this guy. He's not a pervasive driver of inequality. He's not at the tier of wealth where you're buying influence. He's likely stuck in an expensive COL place. Unlike Mr. $10M, he probably hasn't carefully shielded his funds from divorce, family, etc.

>Wealth is just what you happened to save up to that point in time.

Nobody just "happens to save up" $10m. You either inherited it, lucked into it or grinded for years or (more likely) decades with the express aim of a payday (and you got lucky enough to get one).

> the median (50%tile) wealth is nearly zero

That sounds way more alarming than whatever the median income is.

> the top income earners clearly have better lives than the low income earners, since the top income earners can consume more.

The top wealth owners clearly have better lives than low wealth owners because the former don't have to work, yet make more money and pay less in taxes than everyone else.

You haven't made a convincing case for why wealth shouldn't get more attention than income (or at least why it shouldn't get more attention, since the dialogue among politicians and in the media seems to exclusively focus on income despite income taxes being significantly higher than capital gains taxes).

It also seems that the title is misrepresenting the facts. Needing more to reach the top one percent of an arbitrarily separated population should suggest that the rest of the population is also benefiting.

E.g. if you needed less to join the top 1%, then it could be suggested that the gap is increasing. If you need more... well, it could just as easily follow that the bottom 99% percent have merely moved closer to the top 1%, effectively raising the bar (which, as an arbitrary point, shifts all the time anyways).

That said, it could be argued the other way - but the evidence for either direction is lacking. Because the issue is being raised by people who tend to overemphasize inequality, I tend to lean the opposite direction - perhaps we should re-evaluate the way we define upper and lower class.

No, because 10M generates a steady return in a growing economy. So the steady-state consumption of someone with a net worth of $10M is much greater than someone with $0, all other things (e.g., income) being equal.

> After all, the median (50%tile) wealth is nearly zero

Median wealth in the US ~97k. It’s quite stunning one could think a society would work with the 50-percentile being zero.

Median income in the US is much lower than 97k. It's around 65k. Median net worth is about 68k. Mean is slightly higher because the top .001 makes so much more than everyone else. It's definitely higher than zero. Not sure where your numbers came from?

According to Marketwatch [1] you are incorrect. The MEDIAN NET WORTH is $97,300. The MEAN is way higher at $692,100.

Also, note that this figure varies considerably by age and education, as you might expect.

[1] - https://www.nerdwallet.com/article/how-your-net-worth-compar...

Yeah, everyone knows means are lying, especially in super-unequal societies. No-one cares about the mean, you want to look at the distribution

A single person in San Fransisco with an income of $500,000 and the standard deduction has a takes home $288,646.

A single person in San Fransisco has a cost of living of $1125.83 without rent, according to numbeo (whatever that is). Median rent in San Fransisco is $3700 for a one bedroom.

That leaves a measly $230,736 of post-tax, post-living expenses money. Assuming this person does nothing more than hide a monotonically increasing pile of cash under a mattress, it takes just over 43 years to amass $10,000,000.

Presumably this financial cretan started working right after college, at the age of 22. This means they've acquired the full sum at the age of 65, which is not an uncommon retirement age. Cuts close, but checks out.

More realistically, if you get a 5% return on your investments (or ~2% after inflation), in 43 years you'd have $14,663,123.

I'm lucky enough to be making ~$400k at 30. At 21, I was lucky enough to be making $65k. Virtually no one starts off making $500k. Even if you start at the top 1% of income earners and stay there your entire life, live relatively frugally, never have kids, never take a break from work, and invest well -- even then, you're still unlikely to accrue $10M in wealth.

Geometric average returns for stocks are over 7%, and that accounts for inflation. The scenario presented to me included no investments, and a flat career.

I think the high cost of living in San Fransisco was a reasonable assumption for someone in the top 1% of income. I think the complete absence of investment in my analysis more than makes up for a flat career. It's not even clear that modeling a flat career growth increases the number, since income tends to peak around 48.

Yes, because someone earning 500k totally started earning that sum right out of college and will never get married or have kids...

I didn't set the parameters of the question. I didn't consider investing the money either, proving that I was literally just responding to the scenario as presented. I chose San Fransisco, because it's close to home for posters here.

But if they were dual-income, no-kids (DINKs) they'd get there even faster.

I don't think many people should expect to get into the top 1% of assets by just sticking money under a mattress. Presumably most would invest it and expect an average rate of return of 7% or so from decades of investing. Eventually the investment grows more from compounding than new income.

The compound interest of saving 19k/month @ %7/yr rate results in 10 million after 21 years, which is under half of 43 years.

And you can get 7% per annum on a savings account... where, exactly? Back in 1985 via a time machine, maybe?

S&P 500 index fund will probably average you around 7%.

I happened to look this up earlier today for a completely different reason - S&P results to date since 1/1/2000 is 5.6% assuming dividends were reinvested.

Ah, I was off a bit then. Thanks for the update.

No you weren't. That period includes one of the worst recessions in recorded economic history. The other guy either intentionally picked and chose his years, or is simply bad at research.

An inflation adjusted long-term trend is over 7%.

That's a fair point, but I don't think it's ridiculous to choose the last 20 years as a discussion point.

I think the more interesting question is, how many San Franciscans earn $500,000/year?

Discounting the homeless? Lots.

Exactly.

For example, if you have a $10M net-worth, according to Gabriel Zucman & Thomas Piketty, you get higher returns on average than the little guy. Not sure the exact number, but let's say an ~8% return on average (believe it's higher).

You would make ~$800K a year in "capital gains" and pay $133K in federal taxes. If you earned $500k in income, you'd pay ~$164K in federal taxes. You'd pay another ~$35k+ in states most people live in for about a 39.8% tax rate. Not to mention, your employer is paying another 5% in payroll taxes to employ you. So, really, it's a 44.8% tax.

But if your income comes from "capital gains" instead of working, you'd pay less than half that percentage in tax -- at 16.25%.

Why is there a distinction between "capital gains" and dividends and fixed income? Because only the very wealthy get most of their income from capital gains.

Even people with $1-5M in wealth... they're mostly the people that worked really hard and still got a little lucky with their investments. They're almost all old. They've paid off their house. So... 1) most of their wealth is tied up in their house, and 2) most of what's left over is tied up in fixed income like bonds -- which are taxed as "income" and not "capital gains".

If you invested it in muni bonds, you would pay zero tax.

(Ignoring state incomes tax of course. Since I live in Texas, I’m lucky enough to do that).

Your calculations are based on an erroneous model. Corporate profits are taxed twice. The effective tax rate of dividends can be as high as 39.8%. I'm not sure what typical numbers are, because I couldn't find 2018 data, and 2017 data predates significant tax cuts.

Did you read my comment? Dividends are considered income! Capital gains is a different thing, and the distinction exists largely because only a small subset of the population has the ability to make a lot of money from capital gains -- because, by its nature, it requires a lot of capital...

Qualified dividends are taxed as capital gains.

Capital gains are income and reported on Form 1040. What they are not is "ordinary income" subject to the income tax table. A person with $700k on capital gains is well inside the top 1% of income.

It doesn't really matter too much if it's taxed twice, the majority of people with 10 million dollars in a portfolio are passive investors of whatever liquid and hedgeable assets are available.

The complaint at issue is that a passive investor who happened to have 10 million dollars that they inherited at 30, sticks it in betterment for 50 years while drawing a top 1% of income 380k for expenses ( accounting for tax rate ) will eventually have 130 million dollars. They can easily pass this amount down to children at estate tax rates to enable the next generation to do nothing as well, or they could use any one of a number of tax sheltering methods to avoid or defray the estate tax as well.

Generational wealth, or "idle wealth" has been a concern in the US from Thomas Jefferson onward - capital gains taxes are merely one mechanism to restrict it.

> It doesn't really matter too much if it's taxed twice, the majority of people with 10 million dollars in a portfolio are passive investors of whatever liquid and hedgeable assets are available.

I'm not wading into that debate. I'm just concerned with accurate use of terminology, as multiple people in this discussion seem to be playing fast-and-loose with it.

lumost: Good idea: incentivize consumption.

I'm a bit confused as to what 'tax unit' mean here. Is that the amount of tax (in monetary unit like USD) one is supposed to pay if s/he hits certain percentage of wealth class? Thanks in advance for the reply!

I'll just copy/paste from the source of the chart, but a tax unit is everyone on a single tax return where a household is everyone that lives in a house. So if an elderly parent who pays their own taxes moves into their adult children's household, that property would consist of 1 household but 2 tax units. The net worth of the household would increase, even though the net worth of those two tax units stayed the same.

> "For most people, their tax unit and household are the same. But there are cases where a household would include multiple tax units. When an elderly parent moves in with an adult child with kids filing taxes separately to form a three-generation household there would be multiple tax units exist in one household. The same is true when a child moves back in after college or an unmarried couple moves in together. These are groups that we probably want to think about together because they rely on each other economically. On the other hand, a group of unrelated adults living together as roommates would also count as a household."

> We might prefer tax units to households for income trend analysis because household structure is not independent of economic circumstances. For instance, adult children move back in with their parents (Gallup reported that 14 percent of 24 to 34 year olds lived with their parents in 2013 and a Pew Research Center study showed this to be increasing). Similarly, homeowners sometimes take in boarders for economic reasons. In each of those cases, the tax-unit data captures the deteriorating economic situation associated with these types of living arrangements.

> In contrast, household data captures more earners under one roof, which increases household income. Imagine a group of three graduate students living together where each makes $25,000. They would show up as three different tax units but one household making $75,000. Now image that they all got $5,000 raises and decided to get places on their own. This would show up as a 20 percent increase in their incomes by tax units, but their household incomes would have dropped by 60 percent.

i find it interesting that top 10%, 5%, 1% wealth are inversely proportional... 1 mil, 2mil, 10mil. Top 1%.

Interestingly, 0.1% 'only' owns $45mil, and 0.01% owns $111 mil. It sounds rare, until 1 out of 10,000 own $111 mil.

I think it's household, so maybe multiply by the number of average people in a household (say 2.6 is US average household size, so we can say 1 out of 26K owns $111m)?