John Beresford Tipton was “fabulously wealthy and fascinating,” his executive assistant, Michael Anthony, told millions of TV viewers each week, without even a whiff of exaggeration. After all, Tipton lived at Silverstone, a 60,000-acre estate, images of which swelled across the screen as Anthony spoke. The mega-millionaire owned other plush properties, too. And he had a singular hobby: anonymously giving away $1 million to people he had never met.
This was the opening of The Millionaire, a hit CBS show from 1955 to 1960, built on one compelling question: Would the mysteriously selected recipients be uplifted or debased by their bolts of fortune? Those bolts were made even more thunderous by the fact that Tipton somehow delivered them tax-free, in an era when the top federal rate was a withering 91 percent.
At the time, it was unquestionable that these lucky folks had been vaulted into the ranks of the rich. But would they be considered wealthy today?
Hardly. Oh, if someone handed you a million tax-free smackers now, your clothes-buying horizons could stretch well beyond Macy’s and Dillard’s. Ibiza, rather than the Upper Peninsula, might be your next vacation destination. And you could dump the CLA for a real Mercedes. But wealthy? Not exactly, because six decades of inflation have ravaged the purchasing power of that million by about 85 percent to 90 percent; $1 million today is worth $100,000 to $150,000 in 1955-1960 greenbacks. Sorry.
So just how much money do you need to be rich in 2015? Finding an answer to that question isn’t easy.
While there are official guidelines for poverty—last year, the U.S. Health & Human Services Department deemed as impoverished any four-person household with an income of $23,850 or less—there are no corresponding standards for wealth. In fact, wealth is somewhat like pornography, which, in Supreme Court Justice Potter Stewart’s famous observation, is hard to define, but easy to recognize. The comparison might be apt, at least when wealth erupts into the screamingly conspicuous consumption denounced as, well, obscene, by those concerned about the widening economic disparities evident in much of the world.
The eruptions take many forms. One is the Bugatti Veyron supercar, which can hit 60 mph in 2.5 seconds and can remove $1.9 million from its buyer’s wallet in the same amount of time.
Another is the 394-foot-long yacht owned by Russian billionaire Andrey Meilnichenko, apparently a man of few letters (except when it comes to his surname) but many rubles. His ocean-going toy, simply called A, cost $300 million.
More noteworthy, because it might create a hive of international riches possibly unprecedented in one residential structure, is 432 Park Avenue, a slender, super-luxe 96-story Manhattan condo scheduled for occupancy this year. About a quarter-mile tall, 150 feet higher than the Empire State Building, it includes 104 units that, combined, are expected to fetch about $3 billion and be peopled by buyers from all over the globe. The starting price for a cozy pied-a-terre is $7 million; a floor-through unit can fetch $75 mil, and the top-floor penthouse reportedly is spoken for, the operative words being something like “Ninety-five million? No problem.”
Anyone playing in the upper reaches of the 432 Park league is patently, obviously muy rich. But what we’re trying to define is less visible: plain, unspectacular everyday wealth, the kind fairly common in Sarasota.
Our quest began with phone calls to the University of Chicago, home of 28 winners of the Nobel Prize in economics, far more than any other outpost of academia. If you want to really learn about cooking, you go to Le Cordon Bleu, n’est-ce pas? But after a frustrating week of blind alleys, we began to suspect that the cooks in the Windy City sometimes are more interested in theoretical dishes—say, a virtual turkey seasoned with algorithms that a Nobel Prize panel might find tasty—than real ones. As a representative there said, “It would be much easier to find someone to answer you if the question wasn’t so practical.”
Next we began calling some troops on the front lines of wealth: members of the region’s financial community.
Tom Beames, a Sarasota-based senior vice president and managing director of SunTrust Private Wealth Management, jokes that studies have shown that there’s only one constant when the affluent assess their financial state. “For most people, being wealthy means having three times whatever they have. So if someone has $5 million, they wouldn’t consider themselves rich until they had $15 million.” However, he says, “The high net-worth space starts around $5 million.”
(Net worth, simply put, is assets such as a bank account or stocks you own, minus liabilities such as mortgage debt.)
Similarly, Jim Watrous, Regions Bank’s wealth-management chief for Sarasota, Naples and the rest of Florida’s west coast, observes, “For the lifestyles we have in this area, $4 million or $5 million in tangible net worth, by and large, is sufficient to be considered wealthy.”
In fact, in talks with a half-dozen financial advisors and wealth-management executives, the sweet spot did indeed come in around $5 million, although some included the net value of a primary residence in that number and others didn’t. In any case, $5 million employed in the financial markets today, with only moderate risk, should generate an annual return of 4 percent to 5 percent—$200,000 to $250,000. That would be enough for most retirees to live comfortably and would certainly help most working stiffs sleep soundly.
However, some firms and individuals would consider $5 million too low. Bessemer Trust, Neuberger Berman, and Brown Brothers Harriman are among the private wealth managers that won’t accept accounts below $10 million. And SCS Financial demands a very cool $25 million.
In 2013, as part of its ongoing research into investment attitudes and concerns, UBS, the Swiss banking and investment giant, asked U.S. investors whether they were wealthy. Of the 4,450 respondents, only 28 percent of those with $1 million to $5 million in investable assets said yes. In contrast, 60 percent of those with more answered affirmatively.
However, the most popular determinant of wealth for both groups wasn’t a specific pile of dollars. Instead, it was “having no financial constraints on activities.” In other words, not having to worry about what they spend, or where their retirement funding or children’s education money would come from, and having the ability to buy whatever they want, within reason, without fearing going broke. Sounds like more than $5 million, doesn’t it?
More clues about defining who’s rich come from the Federal Reserve’s Survey of Consumer Finances. Released once every three years, it examines the economic health of families throughout the United States. The latest, published in September, covers 2010 to 2013. It lists $941,700 as the minimum net worth needed to be in the top 10 percent of all American households in 2013. But that’s merely the entry point. The most telling figure, median net worth—the level at which half of the people in this group were poorer and half were richer—was $1,871,800, while the average, pulled up by those at the pinnacle of the wealth pyramid, multibillionaires such as Bill Gates, Warren Buffett and the children of Sam Walton, Walmart’s founder, was $4,024,800.
Based on income, the minimum starting point to be in the top 10 percent was $154,600 a year; the median, $183,400; and the average, $361,200. But income is a fragile, flawed indicator of wealth—just ask the 78 percent of NFL players who, according to Sports Illustrated, are bankrupt or in deep financial distress within two years after their careers end, or the Wall Streeters, auto executives and mortgage brokers whose jobs were vaporized by the financial crisis.
To put all these numbers into perspective, the median American household had a net worth of just $81,200 and an annual income of $46,700 in 2013, according to the Fed survey. Keep in mind, too, that a number of studies have shown that the typical U.S. family doesn’t have enough emergency savings to fund more than three months of living expenses.
On the other hand, a family earning $46,700 a year would rank in about the top 1 percent or 2 percent of households globally, given the poverty grinding down much of the world. So even the average American family, as stressed as its finances might be, has much for which to be thankful.
The Fed’s report, which was based on interviews with 6,026 families, doesn’t plumb the uppermost reaches of Richistan; the top 10 percent is the best it delivers. That’s precisely the group that Ron Kurtz has studied closely for years and that he calls the “affluent market.”
A former executive in the cruise, airline and lodging industries, Kurtz publishes the American Affluence Survey, a twice-yearly study of the buying intentions and financial and economic outlook of the top 10 percent, which, he notes, account for almost half of all U.S. consumer spending and about a third of America’s gross domestic product
Kurtz sells his research to clients such as American Express, Ritz-Carlton, Condé Nast, Ferragamo, Four Seasons Hotels, Moen and BMW, all purveyors of upscale products or services and eager to find new ways to get 10 percenters to open their billfolds. However, he points out, there is one irony there: “Until you get into the top 1 percent, people have very little familiarity with the true luxury brands, and the price points of those products.”
To understand why this is so, he says, simply look at the make-up of the top 10 percent: “Eighty percent of them are self-made. They’re what Thomas Stanley wrote about in his book The Millionaire Next Door, people who own or sold a small business, maybe a small chain of convenience stores or dry cleaners, not people who inherited a lot of money. They came out of lower- or middle-class families, and they weren’t exposed to or educated about these products as they were growing up. They are careful shoppers, aggressive savers, they live within their means, and they’re not ostentatious consumers. When we look at where these people shop, we find it’s in very ordinary places—Costcos, Home Depots, etc., not luxury boutiques.”
This doesn’t mean that many of these folks don’t sometimes patronize upper-tier retailers, such as a Saks or Nordstrom, or don’t occasionally buy a Gucci handbag. It does mean that most might guess “Russian cosmonaut” if asked who or what a Vacheron Constatin is.
Kurtz, who publishes his survey from Alpharetta, Ga., formerly lived in Florida and is quite familiar with Sarasota, which he says is a perfect city to illustrate his point. “There are quite a few wealthy people in your town, and a lot of them are former Midwesterners who fit Stanley’s profile,” he says. “These are people who are the opposite of the kind of ostentatious and conspicuous consumers you might find on the east or west coasts, whether you’re talking about New York or L.A., or even the east coast of Florida, meaning Miami, Palm Beach and some other places.”
As for his own view of what is true wealth, he defines it in a number of ways, but a particularly salient one is about $10 million, which he says easily puts someone among the top 5 percent of all Americans in net assets. Take away, say $1 million to cover the value of a home that a person in this bracket typically might own and that many financial firms wouldn’t count in their assessment, and you’re left with $9 million.
In my view, that’s enough to be the entry point for real wealth today. Someone with that amount can put $5 million to $7 million to work in the markets, and have enough left to cover reasonable contingencies: tuition bills, aid for elderly parents, cars, trips to Paris, maybe remodeling the vacation cottage. It wouldn’t be enough to let you buy an upper-floor perch at 432 Park Avenue, but it would let you afford a very nice $1 million two-bedroom unit in many splendid areas of the country, including Sarasota.
Coincidentally, $9 million is almost exactly what would be needed in 2015 to equal the buying power of the $1 million that John Beresford Tifton gave away on the initial telecast of The Millionaire, back in 1955.
You might even say that the mysterious benefactor, who had handed out $206 million by the time the show’s run ended in 1960, didn’t know only what was needed to make someone rich in his day; he knew also what would be necessary to do the same 60 years later. He was not only “fabulously wealthy and fascinating;” he was prescient, too.
Sarasota’s Richard Rescigno, a former managing editor of Barron’s, wrote “The Collector’s Art” in our Platinum 2014 issue.