By Dr. James M. Dahle, WCI Founder
I've seen a few studies about your “chances” of becoming a millionaire. In reality, those studies are really just descriptions of who millionaires are, and have little to do with your personal likelihood of becoming a millionaire. Few were surprised to see that the percentages were higher for the highly educated, elderly, and white and Asian Americans.
Lots of bloggers picked up on that for various reasons. But something entirely different stood out to me, and that is how pretty much any random millennial should become a millionaire at some time in their life. Now, of course, I'm barring those with physical or mental disabilities that prevent them from being able to contribute in a way that society values monetarily. But for everyone else that still has their career ahead of them? There's really no excuse. Stay with me here.
What Would It Take for the Average Median American to Be a Millionaire?
Income
The average median household income in the US is $65,712. Average. Median. Lots of people make more. But I think it's fair to say that if you pursue any sort of reasonable education and you work reasonably hard, you can get yourself to that level relatively early in your career. Certainly by your mid-30s or so. Even if you're in a career that doesn't pay that much, there are still other options.
First, it's a household income. Even if you only make $40K, all you have to do is find a partner who will contribute another $25K — basically $2,100 a month, or $480 a week. That's a mere 40 hours at $12 an hour for your partner. You can also, I know this might sound crazy, but maybe, just maybe, one of the partners could do a little overtime or pick up another job in the evenings or on the weekends. Or open a side business. Or go back to school to learn something that would earn more. At any rate, $65K is not some incredible hurdle to reach. Very, very doable.
Savings Rate
Now, the household needs to save some of that income. Let's say 15%. Personally, I think 15% is quite doable. Certainly, just about every family making $65K has someone who lives down the street who is living on 85% of that amount. Live like them and save the difference. 15% of $65K is $9,856 a year. Chances are good that this partnership won't even have to cut spending by that much. At least one of the two partners is likely eligible for a 401(k) with a match, and even if they aren't, they could use fully deductible traditional IRAs, which would lower their tax bill significantly. If they make just a little less, they might even qualify for a saver's tax credit. At any rate, the point is that they can get to a 15% savings rate without cutting spending by 15%.
Invest
Can They Become Millionaires? Running the Numbers
This couple doesn't have to start at 18 nor work until 70. Let's assume they don't start until 25 and retire at 65. That's 40 years. Can they become millionaires? How much do they end up with?
=FV(8%,40,-9856,0) = $2.55 Million
That's right. Not only do they become millionaires, they become multi-millionaires.
But wait, there's more. We haven't counted anything but their investments. What about all that stuff they bought? Their house has value. Not only did it likely appreciate over the years, but they probably paid off a mortgage. All that home equity counts too. And technically, a net worth is everything they own minus everything they owe. Maybe not at full retail value, but all those cars, boats, furniture, and everything else certainly counts. If we assume their house and stuff adds up to the median US home value of $325K plus $50K for everything else, they only need the investments to get to $625K to reach a million dollars. In reality, they could wait to start investing until they were 37. Or they could just save 5% of their income. Or they could just earn 4% nominal on their investments.
But wait, there's more. We're not even counting inflation here. Let's assume that $65K household income and the average house value increase with inflation 3% every year. After 30 years, the average household income would be $158K a year and the average house (and stuff) would be worth $910K. It won't take much saving discipline or investing skill to get well over a million from there.
In fact, in 30 years, being a millionaire will probably be viewed like being a “hundred-thousandaire” today. Certainly much better than being broke, but hardly an unusual achievement. Many people already look at it that way, especially when they realize that per the 4% rule, a million bucks only provides a safe retirement income of around $40K a year — less than the median household income.
Just the average American multi-millionaires
My point is, if you're a millennial and you can't manage to become a millionaire in your lifetime, something is very, very wrong with the way you're living your financial life. Sure, understanding and implementing the basic principles of personal finance might be a superpower, but it is the most easily acquired superpower. Make a plan, stick with it, and you too can be a millionaire.
Why Aren't Doctors Millionaires?
Now, let's turn our attention to the high-income professionals who happen to be the target audience of this blog. If Jane and Joe Average are going to have no trouble whatsoever with becoming a millionaire, what's your problem? Why aren't you a millionaire?
Yes, I've heard the excuses.
“But we can't start saving until we're 35.”
(Never mind that residents are paid the average American household income.)
“But we start out in the hole by $200-500K because of our student loans.”
(Never mind that almost any physician can completely eliminate their student loans within 2-5 years of residency completion simply by living like a resident while earning like an attending.)
But there are some among us who don't think they can do it. Even worse there are some among us who don't do it. Survey data shows that 11-12% of physicians in their 60s have a net worth under $500K, and nearly 1/4 have a net worth under $1M. Imagine the Financial M&M Conference on that?
“So doctor, after 30 years of physician level paychecks (perhaps $5-6M+) and despite the miracle of compound interest, you've only managed to accumulate $300K in net worth. To what do you attribute that incredible misuse of your resources?”
How dumb would that look? All those Joe Averages who earned the median household income and saved 15% of it are millionaires, and you're not. Have I embarrassed “Future You” enough that “Present You” is now willing to save a little more of your income? Good.
Running the Numbers for the Physician Millionaire
Let's say you are a primary care physician earning $232K. We'll assume you get out of residency at 30, but spend the next 5 years not saving or investing at all and simply pay off your student loans. So now you're 35 years old. Let's assume while you're building this nest egg that you're acquiring $200K worth of home equity and stuff. Let's also assume you're saving 20% of your gross income starting at age 35 (what, you can't live on $185K, do you know how dumb that sounds–especially to Joe Average–when you say it out loud?) and earn 8% on it. How long will it take you to get that savings up to $800K (remember you get to add in $200K of stuff)?
=NPER(8%,-46400,0,800000) = 11.26 years
So you're 46. Mid-career. Like I said, no excuse. And this all assumes you spent a full 5 years doing NOTHING financially but paying off your loans and that your spouse NEVER works and your income NEVER goes up.
“But what about disability?”
Buy disability insurance.
“But what about divorce?”
One house, one spouse, but even so, still no excuse. You should be able to cut your net worth in half once and still reach this goal.
“But what about pediatricians?”
Do you know any making less than $65K?
“But what about non-traditional students?”
Were you planning to have a career shorter than 13-16 years?
“But I live in a high cost of living area!”
Great! You can become a millionaire just by paying off your mortgage.
“But a million isn't that much money now and will be even less later.”
That's right. You'd better get started on that first million right away so you can then get the other ones you'll need.
“You're being insensitive to my problems.”
Your problems don't give you a pass on math.
No excuses. Become a millionaire. Make a plan today.
How to Become a Physician Millionaire
- Live like a resident until the student loans are gone.
- Then save 20% of your income.
- Invest it in some reasonable manner.
- Give it a decade.
Voila, you're a millionaire and well on your way to financial independence. This millionaire stuff isn't that hard. You owe it to yourself to become a millionaire. Just do it. We did it in seven years after residency on an average income of $180K (three living like an attending and four living like a resident) and many “white coat investors” did it faster than that.
What do you think? How long do you think it should take the average doctor to become a millionaire? How long did it take you out of residency? Comment below!
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“Thank you for all you have taught me. So far, you have saved me $85K after-tax dollars per year. That’s quite a return on the course price.” — David G.
Well, it’s certainly easier to become a millionaire earning a couple hundred thousand a year or more, but the math does support the possibility of a disciplined and diligent median income household also reaching that goal. But life happens and difficult choices have to be made. Despite the post from the other day about budgets and spreadsheets being sexy, most people don’t view their investment accounts or net worth as a status symbol. Sometimes, the 15% savings is eschewed for another expense that is either deemed necessary or simply sexier than a bigger balance.
To answer the question, I think we hit seven figures at about the same time as you — it was probably six or seven years after finishing residency, although I was earning double what you were. It took me a bit longer to start really honing in on optimizing my investments and tracking net worth.
The beauty of becoming a millionaire is that the first million is the hardest. Assuming you stay on a similar path, the next million and the one after that come much quicker.
Cheers!
-PoF
p.s. Good morning Physician Philosopher. Hope you have a great day!
Hello POF
I really enjoy reading your work and I am trying to share the message with my colleagues at work. I have 10 K to invest in an individual investment account (this is outside of my retirement account). I am trying to pick the best strategy here, should i choose and index fund vs ETF or should I pick an index ETF? Would appreciate your opinion on this.
Starting a taxable account, eh? That’s awesome!
You can read about the differences between ETFs and mutual funds in many places, including here on WCI. The differences are minor and from a 10,000 foot view, more or less inconsequential.
ETFs can be purchased throughout the day at the current price. Mutual funds can be purchased once a day at the closing price. Ith ETFs, you pay a premium called the bid/ask spread, which is usually but not always quite small. In some cases, ETFs have been described as a tiny bit more tax efficient, but I haven’t found that to be true with Vanguard.
I’ve used mutual funds exclusively, and if you’ve got $10,000, that qualifies you for Vangaurd’s admiral funds, which have the same low expense ratios as their ETFs. So that’s the direction I woud go (for example VTSAX = Vangaurd total stock market). Schwab and Fidelity have similar low cost funds. ETFs are not a bad choice, either.
Best,
-PoF
thanks POF
I just finished reading “the simple path to wealth” by JL Collins. He loves VTSAX. So that will likely be my choice. I only read three financial blogs (POF, WCI, and http://jlcollinsnh.com/about/)
I did read (http://www.mdmag.com/physicians-money-digest/investing/mutual-funds-versus-exchange-traded-funds), where Jim discusses the difference between ETFs and index funds.
It suggests as i copy and pasted below that index funds automatically reinvest the dividends but in a taxable account that’s not the best idea, so I will plan on setting up the index fund (VTSAX) without reinvesting the dividend.
“Dividend Reinvestment. One of the most convenient aspects of a TMF is that you can just have the dividends reinvested automatically. Although this may not be a good idea in a taxable account, as it creates a lot of small tax lots to keep track of, it is very useful in a tax-protected retirement account. Unfortunately, this feature is generally not available for ETFs (although some brokerages are starting to offer this feature, but sometimes only for their own ETFs). Dividends must be reinvested manually. This introduces additional hassle and costs (primarily spreads and trading commissions).”
With mutual funds, you have the option of reinvesting dividends into any fund you like. I redirect all dividends to my Vanguard Money Market fund. I could have them all re-invested into the same funds they came from, all into VTSAX or any other fund.
Redirecting to a money market fund automatically is a good way to avoid an inadvertent wash sale before or after tax loss harvesting (https://www.physicianonfire.com/tax-loss-harvesting-vanguard/) but then you do have to manually reinvest those dividends. For me, that happens four times per year.
Fortunately, with Vanguard mutual funds, there are no spreads or trading commissions to worry about.
Best,
-PoF
I know you get weekly emails like this. I know about this article https://www.whitecoatinvestor.com/how-to-fire-your-financial-advisor/
my plan is to get rid of my fee based financial advisor and switch all three accounts (individual, roth and solo K to vanguard), I invest through Baird, they will charge $150 dollars per account so that’s $450 dollars.
My goal is to put these three accounts into vanguard index funds, currently none of the mutual funds are in vanguard funds.
My individual investment account has 8K. (spread over 4 mutual funds and 3 taxable bond funds)
the roth has (7 mutual funds)
solo K has a variety of mutual funds and bonds as well
not interested in an “in-kind” transfer some of these ETFs have high expense ratios, I wanna simply this and take control of my money
I know that vanguard is going to charge me for selling each “non-vanguard fund”
I think cashing out the individual investment account (8K) and paying the capital gain taxes will cost more than vanguard charging me to sell each mutual fund
Are there any other charges that I am missing?
While I haven’t gotten there yet, my financial plan says I should be there by eight years out of training (Age 40), though I hope to make that happen a year or two sooner than that. As you have mentioned, the biggest thing that will allow me to do that is the cash flow I have right now as I live like a resident. And, in fact, I am living a little better than a resident.
I took a small lifestyle bump after fellowship (10% of my bump in pay goes towards this bump while 90% goes towards destroying debt and aggressively investing).
The truth is, you can really can do it! You just have to be disciplined. And, in fact, average Joe can too. That’s why I just sent my brother in law (who lives in a high COLA) Boglehead’s Guide to Investing. He can do it, too, even with the average income in an expensive area.
The biggest aspect of all of this is the emotional or behavioral side of personal finance. We must be disciplined and get out of our own way. Make a plan and stick to it.
Basic, but good post! Always good to remind everyone of the basic tenants.
One human flaw that I’ve noticed in my spending/savings is that it’s pretty easy to let the reins loose a little too early in working career. You save like mad during training, aggressively knock out your loans within the first few years after training, and feel like you’ve held back enough. You’re still healthy, you have a job, and things are going great. The problem is that you still are growing into your income. Sometimes I feel tempted to modify down my financial plan because I feel that I’m being too harsh on myself.
Human nature at its best, I suppose.
It is really a sad statistic that 25% of Boomer doctors are not millionaires. I hit that milestone before 40. The reasons for this in my opinion is divorce (sometimes multiple) and poor spending habits. The other thing I see is complete inattention to personal finance and investing. I am optimistic that the millennials will do better. The one good thing the student loan “problem” has caused is a much earlier and deeper understanding of these issues.
Yeah, I’m not so sure. I’m in my late thirties, will turn 40 this year in August. I’ve had lots of partners in their fifties who I know or am pretty sure they haven’t hit the 7 figure mark in investments or have no idea what their net worth is or what it should be. Of course they know they can go to Vegas and drop 10 grand gambling and afford their car payments for their 80 grand ford raptor and their wife’s 80 grand Yukon Denali. It’s a bit curious, but don’t assume things are any different with the next generation of physicians.
When I was a resident the prevailing attitude among my friends was “we’re poor residents and can’t afford to save or pay loans” which in retrospect was ridiculous. I made IBR payments no problem and even threw a little extra money at the loans, but I think if I had been more aware of the fact that I was making the average American income (especially as someone single with no kids yet) I would have been more aggressive about starting retirement savings then.
I finished residency at 30, almost 4 years ago. Loans polished off last year. Goal is to hit a million by 40 but it looks like it’ll be earlier, barring a bear market at the wrong time. I too am shocked by those surveys which show some percentage of docs in their 60s are not millionaires.
As a resident, I had a better income than anyone in my family. I saved like crazy and was able to pay off the mortgage on a condo I bought at the start of residency. There are no excuses. So many people live on less. Now, someone must do a post about why everyone should be fit 🙂 That’s where I struggle, the work life balance…
Exactly. Everyone without an illness can/should be fit. Will they all be fit? Of course not. And why not? Lack of willpower. Lack of hard work. Lack of discipline. You can make excuses. It will be harder for some than others. But the fact remains it’s entirely doable.
Thanks to this website and bogleheads, I crossed the million mark at age 37. I didn’t actually start investing until my 32nd birthday when I paid off my last student loan. At the time I didn’t even know the difference between a stock and a bond and came very close to getting suckered into a whole life policy.
Big thanks to White Coat Investor for the guidance along the way!
Jim, one of your best financial-centric posts. Super direct, I loved it.
I’m not a physician, but I know, literally, thousands of people in my business network who make physician-level incomes, all over the world. They all need to read this post and get with the program.
Tough love! I love it! I’ve wondered what you thought about “living like a resident” for non-traditional docs. We are in our last year of residency, we have a signed contract, my husband will be 41 starting his career. If it was just him and I, I could easily see us living like a resident. But ee have 4 kids, the oldest will be 15. His whole life he has heard, “sorry bud, we can’t afford it”. Any advice on giving our kids a little more as far as activities go and still “living like a resident”?
Thank you so much for your blog and online class. I wish I had this information 10 years ago.
I started my career at 38, so not so far off from your husband. I hear what you’re saying about wanting to loosen the purse strings for your older kids. However, “live like a resident” is to give you a flavor of the goal. “Live like a resident” isn’t a literal rule. It’s to make sure you know that your debt is an emergency and that you can’t let loose when you start getting the fatter paychecks. A modest increase in lifestyle would still allow you to do both pay down debt AND enjoy a few more activities. Moreover, in my opinion, “we can’t afford it” is something kids should hear–it will be true for many of them as well, as most will not be physicians, so the resident/fellow salary (median income) may be the best they will get.
FirstHabit, thank you for this response. I think I just needed a little reassurance that this is all going to work out. We’re not planning on being excessive by any means. We just want the older kids to feel a little bit financial relief.
I had three kids by the end of our “live like a resident” four year period. Tell you what. Give yourself a 50% raise and live on $75K a year. It’ll slow you down slightly, but the goal isn’t to avoid lifestyle inflation, it’s to avoid a lifestyle explosion coming out of residency. Moderation in all things, but the more you spend, the longer it takes to build wealth. But I think I covered your point in the post. Ah yes, here it is:
“But what about non-traditional students?”
Were you planning to have a career shorter than 13-16 years?
Seriously though, what is it that you think your kids need that you can’t give them while living on $50-75K?
WCI is leaving out the biggest obstacle to becoming a millionaire. Or any xxx-aire.
As he clearly explains, it’s not a math problem, but maybe that’s an upcoming post or podcast. Good topic for it.
Great post! Definitely having the right partner on board with the plan is a key. A “spendy” or entitled spouse can hurt you as much or more than a divorce.
Household income 300k 45 and been a millionaire. Index funds and etf index investing along with commercial real estate. Live like a king on 130 spendable per year. No reason in the world for physicians or anyone making this kind of money not to be a multi millionaire.
Absolutely! I was lucky and married a superstar. I feel like we have everything in the world spending $160K (including our tax bill) living in a HCOL area (HI) and take great vacations and are generous with our kids. But being multimillionaires contributes a lot to the feeling of “how lucky we are”.
A million really show the the low-end goal for every millennial right now. As mentioned, after inflation that really won’t be that much money in 40 years.
I think a big challenge is lifestyle inflation. I know it really set me back. Get a big raise, why not get that bigger house we wanted? Why buy a used car when we can afford to pay cash for a new one? Why shouldn’t we take a European vacation?
Each of these, especially combined, can really derail wealth building plans.
The divorce excuse is interesting. I’ve coached doctors who used that one. Multiple 45 year old doctors with negative a net worth who blame it on the divorce. But they could have had all the student loans paid off before the divorce ever happened. There is always an excuse to be had for spending all the money and not leaving any for saving or paying off debt.
Dr. Cory S. Fawcett
Prescription for Financial Success
At the risk of being a statistical nitpick, I think you mean the *median* household income is $55K (not the average). The average/mean income according to the US Census Bureau 2014 Annual Social and Economic Supplement, was $72,641 (skewed to the right due to all the billionaires).
Here is a simulation of how that average person’s net worth grew over the 40 years:
https://www.wealthmeta.com/incomespending/view/488653325/getting-to-1m-net-worth-on-an-average-income
It is interesting to me that it takes 30 years to get to the first million. After 20 years they only have about $377k. Speaks to the power of compounding.
obviously prolific saving is important but if you do not know how to invest with passive mutual funds and gamble with stocks, you lose big time
after 43 yrs investing, most need an advisor from the get go until they learn to do it on their own
as such will avoid mistakes and learn from where the fee based advisor puts your investment
vanguard advisor would be a great start at .3% fee
Did Ken just endorse the use of a financial advisor? I never thought I’d hear it.
Bear in mind that “fee-based” is not the same as “fee-only.”
I summarize it this way: do you want to have to work until you die? Modify that with disability insurance in case it isn’t even possible for you to work until you die, or life insurance if you give a crap at all about those left behind when /if you die while still working, and you HAVE to see you’ve got to save some amount and not spend it all now. I hear some people will be satisfied with dog food on social security but I doubt that’s accurate; still they claim they’re willing to take that gamble.
Me I didn’t even want to have to give up my house or cars if I could no longer work so I planned to cover my kids’ health insurance so they didn’t crop up “Mom I need a kidney” for which purpose I would live in my car, but hope to have covered by buying them health insurance if they don’t get it themselves. (Made the decision though that I won’t make that sacrifice for my sibs or parents. Sorry Sis, Bro. Might give you a kidney, but not all my savings and sell my house for you.)
Using otherwise identical numbers one earner working federal minimum wage 40 hrs a week gives future value of 600k. Two min wage earners able to somehow live on 25k (an assumption to be challenged) does get them to $1.2M.
As someone else already pointed out, you appropriately used the median but mistakenly referred to it as the average. Your hypothetical situation for “everyone” does not apply to literally half of US households. Half would have to earn more or save more or work longer or have more people working in the household.
Just a reminder for everyone to be thankful for all of the things you’ve been given that you had nothing to do with: year of birth, parent intelligence, parent health, (parent or parents period), genetic predisposition of your own intelligence or health, formal education quality, gender, race, citizenship, luck…
You missed the point I made early on that that half of US households could get to the median income relatively easily. I could list a dozen ways my wife and I could start making the median US household income next month that don’t involve anything we’re doing now.
Let’s say we go down the street to Home Depot. We both get a job making $10 an hour. We work there 160 hours a month. That’s $3200. Multiply by 12 months and we’re at $43,200. Now we’d like a little more money. So one of, just one, is going to deliver pizzas. I’ve seen estimates of $19/hour for this when you include all the tips. Let’s say 8 hours on Saturday and 4 hours a night on 3 other nights, so 20 hours a week total. 80 hours x $19/hour x 12 months = $18,240. Add that to the previous, and you’re at $61,440, over the median income. And we’re still in entry level jobs.
I don’t discount the value of every factor you list in your final paragraph. But I’m not talking about getting someone a six figure income, much less a physician income. I’m talking the median household income. I think there are very few (who are not disabled) who really want to get there who can’t do it by their 30s. Heck, go join the military. An E-5 with 6 years (typically a 24 year old) makes $2,925 a month not including BAH/BAS (another $1800 a month) for a total of $56,700. And that’s with one spouse staying home full-time! With a reasonable level of discipline, a reasonable savings rate, and a reasonable portfolio, that family should be able to become millionaires by retirement.
I question how *absolutely* easy it is for half of households to get to the median income, because literally 50% of households are not at the median income.
Your new example shows how a two earner household working 100 hrs a week at three jobs paying significantly above minimum wage can make a bit over the median. It reflects a value system where low skilled people should be partnered, both work, and work more than 40 hrs. It also reflects a value system where minimum wage jobs are only for dependents and people dependent on higher earners.
I would add to your last sentence, “and a reasonable income”. If your answer to the minimum wage earner is to get married to someone who works at home depot, go work for home depot and work 20 hrs a week delivering pizza, what is your answer to the person who takes over their minimum wage job? That minimum wage job is never going away – you have to agree that it’s not for living on alone or that the person working it doesn’t deserve to live.
Help me understand your argument here. Are you arguing that someone working 40 hours a week at a job that requires a high school education and a few hours of on the job training deserves to be paid a wage that would give their household the median household income? Is that your argument? Because that’s what your argument sounds like. What do you think someone should have to do in order to earn, all by themselves, $55K a year? Let’s break this down. We’re talking 50 weeks a year, 40 hours a week = 2000 hours. $55,000/$2000 hours = $27.50 an hour. Do you think that a high school kid serving burgers at McDonalds should be paid $27.50 an hour? What about a brand new soldier who doesn’t know the stock from the barrel? $27.50 an hour? Or do you think he should have to gain a little experience/education and hustle a bit and make some commitments to get there? How about the immigrant who went to school for 5 years and recently walked across the border illegally, doesn’t speak a lick of English, and was just taught how to run a lawnmower in 10 minutes? $27.50 an hour?
No. I think if you want to get ahead you’re going to have to work hard, learn new skills, increase your education, take on a little liability, do some unpleasant tasks, risk some capital/time, treat people well, and prove yourself. But you don’t have to do a lot of that to get to $27.50 an hour. We always talk about how teachers are underpaid. Well, on average they make $55K a year working 9-10 months. That’s the median household income. All by themselves. How about garbage men? Not terribly intellectual work. Low educational requirements. But somewhat unpleasant. What do they get paid? Well, $27.50 is only the 80th percentile for garbage men. The really good ones make more. These two turned it into a 6 figure job: http://money.cnn.com/2016/02/24/news/economy/trash-workers-high-pay/index.html Plumbers- $26.50 an hour. Master carpenter- $26 an hour. What does it take to become a master carpenter? 144 hours of education and 2000 hours of on the job training. Basically a year. Sure, the new landscaping hire make $9 an hour. But if he busts his butt, hangs around for a while, learns the business within a couple of years he’s in charge of that truck and getting paid $15 an hour. Then he becomes the assistant manager and makes $25 an hour. Then he strikes out on his own, opens up his own company, borrows money from his dad and a bank and starts pulling in 6 figures a year.
I’m sorry. I don’t accept the narrative that getting to the median household income after 10-15 years of working is particularly difficult. I suspect many of those who believe that are being held back in their economic lives by those beliefs. And no. I don’t believe every job in America should pay $27.50 an hour.
Your narrative is the one concerned with the median income, not mine. You wrote a post about a couple making the median income saving 15% for 40 yrs. My argument is that is not reflective of “everybody”. It is the low end of the top 50% of everybody. 50% of households do not meet your standards for income and should work more or marry a worker or get more skills and get a new job. My argument is this reflects your implicit bias.
The point of the post is that many average people can become millionaires through hard work, saving 15% of their income, investing it wisely, and living within their means.
You can’t fault the “implicit bias” that many people could work more or take on side work if their goal was to become a millionaire. For better or worse, it is not a common goal, partly because people don’t think it’s possible. The post proves it may be for many. A hopeful idea.
Yes. I’m biased. I think people should work, get married, get more skills, and move up in jobs throughout their career. If you’re accusing me of being biased and that’s your idea of biased, I’m guilty as charged. And yes, the lower end of the top 50% is the median person. Seemed like a pretty good place to start. Where do you think I should have started other than the median?
If your goal was to show how the median household can reach $1M, or how some below it can increase their income to get there, I don’t disagree.
And yet:
“isn’t that hard”
“should”
“any random millennial”
“for everyone else there is no excuse”
“55k is not some incredible hurdle” (if not, you’d think it’d be more than half???)
“At least one of the two partners is likely eligible for a 401(k) with a match” — (??? ~50% employers offer, ~50% of those zero-match)
… are consistent with other posts that reflect an implicit bias that people in poverty are there because of lack of personal responsibility instead of systemic cause. The Waltons are smart, their full time employees on billions’ worth of public assistance are lazy. You get kind of touchy when somebody suggests you write from a privileged position.
Anyone born in the USA writes from a privliged position. It still takes hard work. Finish high school don’t have kids out of wedlock and chances are you won’t be in poverty barring some extenuating circumstances.
This is a blog written for high-income professionals by a high-income professional. It should be pretty obvious that I’m writing from a privileged position to a privileged position about first world problems. I think most readers can recognize that without putting it as a disclaimer on every paragraph I ever publish.
When I teach my kids about money, I teach them that life isn’t fair. When they’re young, they assume I mean that they’re on the “unfair” end of the stick, but as they get older they realize I’m mostly pointing out that they’re unfairly benefitting from privilege and that, in the words of Uncle Ben, with great power comes great responsibility.
People in poverty are there through some combination of personal responsibility and systemic cause. Reasonable people can disagree about how large the role of each of those is. Since people in poverty can only do something about one of those two things, I suggest they focus their efforts there. Meanwhile, those of us with privilege can work on the systemic causes as best we can. One systemic cause is a lack of financial literacy and inspiration. I’m trying to provide that to other people, for free, 24/7/365. What are you doing to try to fix those systemic causes?
Don’t like what I’m writing? Ditch the anonymity. Send me a guest post. Start a blog. Get in the arena.
“Gideon and Mitchell estimate 79 percent of Americans work at places that sponsor a 401(k)-style plan. The good news is that’s more than 20 points higher than previous estimates. The bad news is that just 41 percent of workers at those employers are making contributions to such a plan—more than 20 points lower than previous estimates.”
I’m not sure availability of 401K plans is the issue. Participation is a bigger part of the problem.
That’s fine. The median means 50% of Americans can become multi-millionaires in 40 years without earning any additional income. You should at least give WCI half-credit without any argument for those people, right?
Completely agree re being thankful for unearned blessings. This is why I’m an advocate for charitable giving both before and especially after you hit that million dollar target. And for paying your employees well, tipping minimum wage workers generously, etx. But if you fritter away your wealth, you end up having less opportunity to help the unfortunate.
LOL @ “even pediatricians”! I’m one of them and my engineer hubby and I lived like residents for ~ 8-10 years. We have always been VERY debt-averse, so that made it easier early on. Have been debt free ~ 7 years. You’re right about the millions beyond the first coming easier…..compound interest is real. Reached the multi$$M goal 5 years ago when we became empty nesters, and the freedom feeling is fantastic. Love my job, though I’m planning on part-time starting next year, then winding down over the next 5 years. My spouse is 7 years older than and has been eligible to retire for the past 3 years….REALLY loves his job and says he will likely retire when I do…
Meant fee only per hour or vanguard advisor or betterment or other Robo advisors
Just think most docs and Americans do not want to self educate and many think it’s eay too complex to do it yourself
Numbers don’t lie. From observing the rest of humanity, especially fellow docs, overspending is usually the reason people don’t become millionaires. Taking international trips every year is great, but if it leaves you very little to invest, then they’re a bad idea. Yes, sometimes traveling can be a bad idea.
So many other things tend to take priority over investing. And really foolish things like luxury cars and fancy gadgets. It’s not too hard to live a good life while investing 20%+ of your income.
I finally made it in retirement money this year, but if you count my real estate equity, I guess I was a millionaire by about age 48.
I put NOTHING away from age 18 to 30. I maxed out my 401K from age 30 to now (minus a couple of years when I thought my work pension made me unable to…a miserable mistake at age 37-40). I have maxed out a SEP IRA on my side money since 2008. The SEP is now worth $100,000.
My pension is worth $25,000 a year from age 60 forward (about a half million if I live to age 80) I guess the pension is sort of equivalent to having another $625,000 nest egg to draw 4% a year on at age 60.
My house has $250,000 equity in it. My retirement cabin on 21 acres has $100,000 equity in it. When I sell the big house, it pays off the cabin.
The mistakes I made were not saving anything from age 18-30. Not living like a resident for a few years, taking 8 years to pay back my loans and building a big house ($500000). I also did not save enough for my four kids college, cutting into current retirement savings outside tax deferred accounts.
Still, having a net worth of 1.5 million at age 54 (in April) feels OK. I could have spent less in the McMansion. I could have saved more for the kids college, and taken fewer lavish family vacations ($4000-$6000 each, twice a year). But I didn’t. I’ve had a blast. I’ve enjoyed every year. If I die tomorrow, I die happy.
Great succinct account huckleberry
And the end statement about dying happy is uplifting. Not dwelling on some modest regrets but seeing the trips etc as positive experiences that improved your happiness.
I think most people who have a good income and spend freely will die happy if they die before they want to retire. Given you financial outlook with relatively modest savings for your age and income, will you be as happy if you die at age 90?
A few important points. I like the general idea of this post in that people need to feel more empowered about their ability to generate wealth on an individual level. But the post confuses some issues and does some one-sided book-keeping.
First, not *everyone* can be a millionaire. The title needs to be changed if the argument being made immediately shifts to the median household income. You also can’t make the argument that everyone can be a millionaire or perhaps even that every median household can using the logic applied here. First, if everyone saved at the rate you suggest there would be near economic collapse, lost jobs, and lowered wages. This market response would hit the lower to median income households more and wipe out some of the total combined savings (since some won’t be able to save at all without a job). Jobs will also be harder to find in this environment so you can’t just go out and pick up a random job as is suggested to bolster your reduced or lost income. Also, as an extension of the reduced spending markets wouldn’t provide returns at the rates suggested. The underlying fundamentals (earnings) would dissociate from prices (assuming people keep investing blindly into index funds), which would have to return to norms given active investors’ existence in the market.
So I agree that it’s ok to pitch the message to an individual that they can be a millionaire, but not everyone gets to have the shiny toy.
I think you’ve fallen for the consumption = economy false argument. The Chinese save over twice as much as we do yet their economy is growing far faster than ours. Hard to reconcile that with your theory about economic collapse if people heaven forbid saved 15% of their income.
Second, my argument is that if you’re not disabled you can get your income to the median household income and you can save 15% of it and that’s enough to become a millionaire. Which part of that are you arguing against? That 15% can’t be saved? Seems like a tough argument for you to win. That you can’t get your income to the median household income? Also a tough argument for you to win. Will a lot of folks have trouble getting to a six figure income? Sure. But that’s not my argument. I’m talking $55K by your mid 30s. For everyone (that isn’t disabled) that you can point to I can find someone in the exact same situation that did it.
You’re still not accounting for all factors and misunderstanding what I’m saying. I’m not saying that we can’t eventually get to a higher savings rate as a nation. And of course high savings rates and economic growth can occur simulataneously. But when you go from our abysmally low savings rate to a 15% savings rate as a nation, what do you think will happen? No changes and everything carries on without anyone noticing? We would proceed to suffer the biggest economic collapse this country has ever seen in a given year. It would make our GDP drop in 2009 look like a joke. And then what do you think would happen? Everyone keeps the same wages? Everyone can go out and achieve a median income? Doubtful with the job losses and economic decline. Even if we gradually came to a 15% savings rate over 5 years we’d still suffer severe economic declines. Your argument is a static one that doesn’t account for market responses. Also, the median income is such for a reason. The market, with job availability and population, has decided on a steady state of jobs and wages. You can’t just go out and change that in an instant. It takes time to change those factors globally.
So what you’re saying is anyone can be a millionaire but not everyone can be a millionaire?
I think that’s true — economically it would be quite problematic if everyone in America suddenly started doing what you suggest. But the odds of a wholesale change in the population’s priorities to have even a modicum of fiscal discipline are quite low, so I think your point remains valid for anyone willing to put in the effort. (China’s savings rate is not problematic for them both because it wasn’t a sudden national shift like ENT Doc seems to think you are proposing and because their economy does not rely on domestic consumption the way the US does. As net exporters, their high savings rate actually stimulates their economy since those savings can be used to extend credit to their customers — largely in the US)
Wow, your economic philosophy would tell people to stop saving in order to help the economy?
Good news for those upcoming Millenial millionaires in that case. The US has only broken the 15% savings rate one year out of the past 50+. I’d take that bet on the next fifty years even without considering that Amazon has tripled revenue in the last five years alone. I’m 100% confident that excessive savings will not be the downfall of the US economy during our retirement.
Some of my friends have also tried to raise the argument that if everyone saved an appropriate amount, it would tank the economy.
Well, as there’s no possibility of this ever happening, especially all at once, I guess we’re all safe.
Let’s not get hung up on $1 million. If we’re used to living on $200K a year we need a bit more than a $million saved by the time we hit 60. And if we make minimum wage our whole life, we need to 1- sort out how to survive on that AND 2- sort out how to survive in retirement. For such folk social security might be all, and adequate if they have mastered how to survive on minimum wage. God bless them.
Anyway those with below median income may need only a portion of a $million.
Multifactorial why people can’t save. I see it largely as we live in an over consumptive society. Just take your average meal at Olive Garden. It’s like enough calories to last me 2-3days. When my husband and I go out to eat we order ONE meal. All our basic necessities are this way…banks and realtors will oversell what you need. Cars are largely over excessive for the average need. On and on. People see money from their paycheck and spend it. When talking with friends, groups of people or posting on social media it is largely filled with what one spent money on….I rarely see posts or discussions about what was saved or invested. Just try to buy something at a retail store….first thing they do is try to sell you their credit card….just a vicious cycle of spending
Hey White coat Investor,
I noticed you stated the median income, then followed it with the word Average.
Based on your knowledge of doing calculations in the post, I think you know the difference between average / median and might want to change that.
Median is a much better number (which your using) since the top 1% would skew the average like crazy.
Also love the idea behind the post, for many millennials that find it hard to save 15% – I hope you change that mindset by reading the post!
For those in tough circumstances that feel like 15% is too much, start smaller and build.your way up. A little bit goes a long way 🙂
It used to say average, average, average. Then someone pointed out that I was really talking about a median, not a mean. So I changed it to median. But apparently I changed it to average, median, average. It is now median, median, median but kind of sounds funny to my ear. Hopefully it sounds better to all the math Nazis now and nobody else complains about it. Because I don’t know what else I can change it to.