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Most Millionaires Say They Need $3 Million To Feel Wealthy
Mar 28

Liam Gibson | Wealth of Geeks

Is it possible to be a millionaire without being considered rich? New research suggests most millionaires don't feel more financially secure than the rest of us.

Once viewed as the ultimate milestone in wealth creation, millionaire status is losing some of its luster, at least among wealthy Americans.

According to an Edelman Financial Engines study conducted in December, very few people, even millionaires, consider themselves wealthy in the current economic climate.

The firm surveyed more than 2,000 Americans, including an oversampling of affluent respondents, with household assets between $500,000 and $3 million, and found that less than one-third of millionaire respondents reported ''feeling wealthy.''

Fewer than half of all millionaires (44%) reported feeling ''very comfortable'' about their finances. Also, roughly four in 10 (41%) affluent respondents said they felt less ''financially secure'' than they hoped to be at their age.

Most respondents (57%) said they would ''feel wealthy'' with $1 million in the bank, yet that wasn't the case among the wealthy. Most affluent respondents (53%) said they would require over $3 million to feel the same, highlighting the gap in perception. What's more - one-third (33%) of affluent respondents would need more than $5 million.

Increasing Costs Means Less Buying Power
Money is only as valuable as the goods and services it can buy. Recently, prices
have been rising across many products and services, with the consumer price
index surging to levels not seen in over four decades.

With relentless inflation eating away at Americans' bank accounts and a shaky stock market threatening their portfolios, many feel they need a lot bigger nest egg before they can comfortably retire.

''Many of the higher net worth and affluent families I serve are generally aware of the '4% rule' and understand that $1 million or even $3 million today is not worth what they thought it would be when they started saving 25 years ago due to the effects of inflation,'' said David E. Barfield, CFP, Financial Planner at Datapoint Financial Planning.

The '4% rule' is popular among financial planners and suggests that retirees can safely withdraw 4% of their savings annually to cover the cost of living.

''A couple earning $250K annually, for instance, may look at their $3 million portfolio and realize that it can only 'safely' sustain around $120K per year in retirement withdrawals based on the '4% rule','' he adds.

Matter of Perspective
Yet, sometimes a number is just a number. Obtaining more money for the sake of
it can be fueled by irrational psychology and hard to break.

Many millionaires really do have enough money to support even an extravagant lifestyle, yet they still cannot step away from earning and saving more. It's vital to focus on the correct metrics.

''There is a behavioral component - many people who have diligently saved for 20- 40 years have a strong habit. Trying to unwind that habit at a certain net worth number is extremely difficult,'' says Ian Weiner, CFP and owner of Bespoke Wealth Solutions.

To step off the hamster wheel, it's vital to focus on the correct metrics.

''The problem with setting a net worth goal is that it really focuses on the wrong thing,'' Weiner adds. ''You don't live on a net worth, you live on the income that is created.''

For others, it's about who they compare themselves to.

By The Associated Press, Copyright 2023

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