Middle-class Millionaires? Inflation Forces Many to Rethink Our Definition of Wealthy
Being a millionaire has long been a middle-class aspiration and a signifier of someone who has “made it” and enjoys an unparalleled lifestyle.
Yet the title may be losing a bit of its luster as more and more people enter the seven-figure club. Add to that historic levels of inflation, and a million dollars is starting to look less like a fortune and more like a sizable cash reserve.
Last November, famed investor and Cardone Capital CEO Grant Cardone said that single-digit millionaires were “not wealthy… (but) worried.” The celebrity entrepreneur clarified his point, “Millionaires are basically middle-class people who are worried about money.”
What does it mean to be a millionaire nowadays? Financial advisors share their input on what reaching the millionaire milestone means, and look at investing assets and tax strategies leveraged by the wealthy.
American millionaires are becoming a dime a dozen. According to Credit Suisse’s latest global wealth report, the United States gained 2.5 million in 2022 alone, with around 10% of the population now millionaires.
While the number of wealthy people is increasing, the value of their fortune is decreasing. Inflation is currently at around 6% in the US. Although that is a step down from the historic peak of 2022, prices are still near multi-decade highs, eroding the spending power of all Americans. If the 2020s become an era of sustained high inflation, as many experts believe is possible, it could alter what it means to be a millionaire forever.
“Inflation will dictate that the $1 million amount will become more common and necessary as time goes on,” says Mike Hunsberger, head of Owner, Next Mission Financial Planning. “At 3 percent inflation, the value of $1 million will be cut in half in 24 years.” This is a reminder that wealth, like beauty, is ultimately in the eye of the beholder.
“Saving a million dollars for retirement is a noteworthy goal, but it may not be the ideal target for everyone,” says Kevin Arquette, CFP and Managing Partner of WealthPoint Financial Planning. “People have unique financial needs in retirement, and a blanket savings goal may not adequately consider these needs. Some individuals may require more or less than a million dollars depending on their lifestyle and anticipated expenses in retirement.”
People differ greatly not only in their earning power but their spending habits too. Many average folks may hope that becoming a millionaire means they can afford to forget frugality and spend lavishly. However, that is far from reality.
“As the saying goes, ‘you show it, you blow it’ the same is true with money,” says Paul Doak, CFP and Director of ID. Financial. “(If) you buy fancy cars, have memberships everywhere, and fly first class…the money will not last long,” he adds. “Most people do not want, let alone ‘need’ a Bentley. They want to live comfortably.”
Invest like the Best
There are many roads to your first million. Some take the slow and steady route, gradually scrimp, and save over many decades, while serial entrepreneurs continually take risks to make it big with one or two successful ventures.
Studies show the majority of millionaires claim to be self-made. In recent decades, they have also tended to be self-employed. According to the best-seller, “The Millionaire Next Door,” which was re-released in 2010, more than two-thirds of still-working American millionaires owned their own businesses. Employees can become millionaires too, yet the self-employed are statistically more likely to do so.
Yet, regardless of which approach you take, most people will need to leverage investments to get there.
Investing in properties is among the most popular paths to accumulating wealth. Studies indicate real estate has marginally outperformed stocks and other assets in several developed countries across the 20th Century. Property is also less volatile than other more speculative asset classes, making it an enviable asset to own.
For those with a knack for renovations and a keen eye for neighborhoods, house flipping can be a profitable undertaking. Others may want to subdivide a property and collect monthly rental income. Despite its advantages, the barrier to entry into the real estate market is substantially high.
For those who are priced out of the market, especially younger generations of investors, alternative assets, such as stocks or exchange-traded funds (ETFs), may be their best bet. There are a number of niche-themed funds on offer. For most investors, the best ETF strategy centers around low-fee broad-based indexes that track the broader market.
There is an art to tax optimization, which most high-net-worth individuals are familiar with. For instance, contributions to health savings accounts (HSA) and company retirement plans can be listed as above-line deductions, potentially shifting you down a tax bracket or two.
For below-the-line deductions, charitable donations can be highly effective in lightening the tax load further. Donors can also “stack” their contributions into grouped clumps in the same taxable year. This may take their itemized deductions past the standard deduction threshold, giving them a larger tax discount still.
These are among the top tax strategies most commonly used by high-income earners, yet they can be leveraged by anyone on their journey to making their first million.
Hollywood stereotypes of the millionaire lifestyle are becoming increasingly dated. In the future, being a millionaire may be more synonymous with a life of relative comfort rather than luxury. At the end of the day, the value of money declines over time, and this impacts everyone, both rich and poor.
Josh is a financial expert with over 15 years of experience on Wall Street as a senior market strategist and trader. His career has spanned from working on the New York Stock Exchange floor to investment management and portfolio trading at Citibank, Chicago Trading Company, and Flow Traders.
Josh graduated from Cornell University with a degree from the Dyson School of Applied Economics & Management at the SC Johnson College of Business. He has held multiple professional licenses during his career, including FINRA Series 3, 7, 24, 55, Nasdaq OMX, Xetra & Eurex (German), and SIX (Swiss) trading licenses. Josh served as a senior trader and strategist, business partner, and head of futures in his former roles on Wall Street.
Josh's work and authoritative advice have appeared in major publications like Nasdaq, Forbes, The Sun, Yahoo! Finance, CBS News, Fortune, The Street, MSN Money, and Go Banking Rates. Josh currently holds areas of expertise in investing, wealth management, capital markets, taxes, real estate, cryptocurrencies, and personal finance.
Josh currently runs a wealth management business and investment firm. Additionally, he is the founder and CEO of Top Dollar, where he teaches others how to build 6-figure passive income with smart money strategies that he uses professionally.