Wealth consists not in having great possessions, but in having few wants. -- Epictetus
That's great, Epictetus, but most of us do want some things -- such as a pleasant home, ample food, the ability to access healthcare, the ability to put our kids through college, and, ideally, have a comfortable retirement. For such things, money is generally necessary.
Image source: Getty Images.
What's wealthy?
You may think that you need to be wealthy if you want to attain all your financial goals, but "wealthy" has no standard definition. Different people define it differently. The folks at Charles Schwab surveyed 1,000 Americans in 2023 and found that, on average, your net worth should be $2.2 million to qualify you as "wealthy."
Interestingly, the same survey also found 48% of respondents viewing themselves as wealthy -- with an average net worth of only $560,000!
Of course, what really matters to you is how you define wealthy. For lots of people, the minimum net worth would be $1 million, and for lots of others, $1 million isn't enough if you want a comfortable retirement.
Reaching your financial goals
To arrive at your own threshold of wealth, you might think of what your financial goals are and how much they're likely to cost. Then think of how you might reach those goals. It can help to see how much money can be amassed over time if it grows at an unremarkable rate:
|
Growing at 8% for |
$7,000 invested annually |
$15,000 invested annually |
|---|---|---|
|
5 years |
$44,351 |
$95,039 |
|
10 years |
$109,518 |
$234,682 |
|
15 years |
$205,270 |
$439,864 |
|
20 years |
$345,960 |
$741,344 |
|
25 years |
$552,681 |
$1,184,316 |
|
30 years |
$856,421 |
$1,835,188 |
|
35 years |
$1,302,715 |
$2,791,532 |
|
40 years |
$1,958,467 |
$4,196,716 |
Source: Calculations by author.
As long as you have enough time ahead of you, you can grow quite wealthy -- if you stick to your plan and sock away meaningful sums regularly. You can even achieve that "average" standard of wealth, $560,000, within about 15 to 20 years, depending on how much you sock away and how quickly it grows.
Note that you stand a reasonable chance of averaging 8% annual growth over a long time in your portfolio if you stick with a simple, low-fee index fund such as the Vanguard S&P 500 ETF. The overall stock market has averaged gains of close to 10% over long periods.
If a comfortable retirement is one of your goals, it can be smart to set up multiple income streams for it, so that you're not relying solely on one or two. There's Social Security, of course, but that will probably not deliver as much as you might hope. As of May, the average monthly Social Security benefit was only $1,917 -- or about $23,000 on an annual basis. (Note that there are ways to increase your Social Security benefits.)
Other sources of retirement income can include dividends from your stock portfolio, monthly fixed annuity income that you bought, some part-time work in your first few years of retirement, or even a reverse mortgage.
If you're not wealthy by most standards, keep a few things in mind. For starters, remember that it's all relative. Per World Vision, "9.2% of the world's population were living in extreme poverty, defined as surviving on less than $2.15 per day, by the end of 2020" (based on World Bank data). That's less than $800 per year.
Know, too, that whatever your financial condition is now, you can probably make it much better via saving and investing -- even if it means taking on a side gig for a while. Come up with a plan, and then stick with it.
