Most of the time God,Pratt & Whitney or General Electric, will give you another turn in the Barrel.

These are my opinions and my opinions only they do not reflect the opinions of any of my family members or their employer. Note we NOW have NO employers.

Back from a 5.5 Year PCS from the confines of the far Southwest corner of Bundesrepublik Deutschland. The Federal Republic of Germany and Retired.

Saturday, December 22, 2012

What is a millionaire

But what is a millionaire?  What do the various groups that are using the term (Democrats, Republicans, Liberal, Conservatives, Libertarians, Independents or any other group that you can think of) mean when they use the word?  What is the term “millionaire” a code word for?  To tell the truth I have no earthly idea at this point in time?
It used to be that when a person was a millionaire he or she current net worth (Assets – Liabilities) was equal to or exceed $1,000,000.00 Dollars.  It was not used as a term to describe someone who income (gross or net) exceeded $1,000,000.00 Dollars per calendar year.  I have no idea what one would call this individual other than possibly blessed and or extremely lucky.
So is a person who has a net worth in excess of $1,000,000.00 Dollars rich?
So is a person who has a net income in excess of $1,000,000.00 Dollars rich?
Lets take the first question.  The answer depends.
I have a cousin who is mentally handicapped he has the ability to function as someone in the third grade.  Both of his parents are now deceased.  After all was said in done the proceeds from their estate was worth slightly more than a million dollars at the time of his fathers death.  Based on various sources his most likely projected lifetime would be on the order of 26 years (the average of various life expectation tables).   We then performed calculation assuming a 4.0 percent inflation rate (computed average 3.23) and 4.0 percent net rate of return (25 year annualized return for SP-500 was 9.28), this calculation indicated that he could expend at most 35K$ per year for his assisted living arrangement and not out live his trust.  Would you classify this individual as a millionaire?  (Net Worth now is in excess of 1M$, but annual income below US Average)
Lets take the second question.  Again the answer depends.
I have another cousin (other side of the family) who is also mentally challenged he has the ability to function as a college graduate he actually graduated from college.  He has a position that has provided him and his family a 7-figure income for many years (Medical Sales will do that).  So on the surface his salary and bonus is slightly over  $1,000,000.00 Dollars (he is a very good salesman, he has almost sold me once or twice).  He lives in a very nice Mac Mansion (Not paid for), he drives a very nice high end Japanese luxury sedan (Not paid for).  He has his hobbies (not paid for).  His American Express bill some months is equal to significant percentage of Americans annual salary.  He has loved often but typically not wisely which has resulted in a cash flow hole that will end some 6 years in the future.  But at the end of the day he has a negative net worth, even with his company life insurance his creditor will still lose.  Would you classify this individual as a millionaire? (Net Worth is less than 0$, but is annual income is way above US Average)
So today what do we really mean when we say millionaire?
I think that in reality our government and individuals in our government actually uses both definitions, it just depends who is talking and what they are talking about. (They never really tell you which definition that they are using after all “In confusion there is Profit” (“Operation Petty Coat” Universal International, 1959)
The first definition (Traditional/Historical) is used when the Government is in the business of collecting estate taxes.  1M$ is a great deal of wealth transfer not to tax, whether you are a Republican or a Democrats.
The second definition (Non Traditional) is used when the Government is in the business of collecting income taxes.  Applying the current low rate to such large amount of income appears to be pure folly especially given the current fiscal situation.  Granted that the number of individuals making these high incomes is a relative few it is being made and it is being made because of the features, benefits and or accommodations of our current system of government.  It is highly unlikely that these individual would be as fortunate operating somewhere else in the world.  It should also be remembered that individuals or relatively large groups of individuals making incomes in excess of 1M$ is historically a relatively recent phenomena.
I am starting to think that more and more individuals are also using the nontraditional definition that a millionaire is an individual whose income whether earned or unearned is in excess of 1M$, but I suspect that will change if and when a relative dies and that relative has an estate in excess of 1M$ that they might share in.
To set the record straight by the traditional definition my wife and I could be classified as millionaires, we have a net worth in excess of $1,000,000.00 Dollars but at no time in our life have we ever received income in excess of $1,000,000.00 Dollars in income.
We have never met the requirements of the second definition, and I suspect that we will never will we are too old, and too slow, and quite frankly do not really need or want the hassle.  They do not pay you that kind of money because you look and smell nice, ok for a few select individual they do, but for most of us they don’t.
We both have college degrees, and we have worked for all of adult lives.  We own a modest house that is paid for (It has been our only house).  We made a concerted effort to pay off the mortgage as soon as possible (did not really care about the mortgage deduction since at best we put a dollar out the door in interest and received a deduction of at best 39 cents.  At the end of the day we were out at least 61 cents.  Pay off the house, and invest that dollar, give 25 cents to the Government and keep 75 cents, a much better deal.  One I am out 61 cents and the other I am up 75 cents.  It is a game of inches).
We own two cars, one (mine) is over 11 years old hers is 5 years old both are paid for.  It is cheaper to fix then purchase a new one.  A vehicles only real purpose is to get you from point A to point B in a safe, comfortable and most cost effective manner, nothing more nothing less.
We strive to live below our means, and yet we live comfortably.
We set about from the beginning on living on one of our salaries and saving the others salary.  We chose to live on the lesser salary and save the greater salary.  We did not get here over night.
We invested in the herds (Indexes Stock, REITs, Bonds, Foreign Markets). Our investments were diversified.  We did not nor do we actively trade.  We invested in funds with low expenses and fees.  Our expectations for our investments are modest.  We did not seek to out perform nor did we want under perform the market.  We know that we cannot beat the market.
We do not invest in things we do not understand or do not make sense.  The majority of our investments are in companies that make things that people need versus making things that people want.  Our investments are not exciting or for that matter entertaining (you want exciting and or entertaining try the movies or the circus).
We tend to our investments like a garden.  Periodically we do pull the weeds (losers) and compost them (reinvest the proceeds).  We will sell when it makes sense (High) and buy when it makes sense (Low).  Investments are for the most part spreadsheet driven it removes the emotions of the moment.  We practice the three-day rule on large purchases or sales of any investment, in other words no quick snap decisions.
We have found that the hardest thing to do concerning investing is that sometimes you must do nothing.  Do not have a clear idea of where to invest your money then let it sit in cash.
We periodically review our contribution allocations and make adjustments if the situation requires, it is not set it and forget it.  We keep enough of our investments in cash to pay our modest expenses for 12 to 18 months.

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