What it takes to live the Life of Riley in 2021

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Rejoice everyone! The cost of living Riley’s life has fallen by a massive $ 700,000 this year.

That is the good news.

Unfortunately it was down from a staggering $ 7.7 million to a staggering $ 7 million. Unfortunately, because money doesn’t mean as much to us as work, the number of people who can live Riley’s life without the inconveniences of work is limited.

So be good to your job!

Yes, I did my Life of Riley Index’s annual update, a measure of what it would take in a simple portfolio of financial assets to earn an income that beats 75% of all Americans. For this year the income is estimated at $ 89,805, assuming inflation.

Some readers will mistake this for a starvation wage, unaware that the air we breathe, measured in dollars of income, gets thin pretty quickly. But if my estimates from actual IRS income statistics are anywhere near correct, that $ 89,805 is what it takes to get 75% ahead of American households.

That means three times as many people could wish they were in your condition than they felt happy, better off than you, poor devil. That $ 89,805 a year is also the area where surveys have shown that more income seldom brings more happiness or satisfaction with life.

Hence the Life of Riley Index. It’s an income comfortably higher than most of the others, but it’s unlikely to attract admiration from those who keep an eye on the Forbes 400 list of the richest people in America.

There is a problem here, however. According to the wealth distribution calculator on dqydj.com, with the required $ 7 million in financial assets, you’d be in the top 2% of all Americans. (Home equity doesn’t count because it doesn’t generate cash income.)

If you raise your eyebrows in question, don’t worry. It is strange to need wealth in the top 2% of households to have income less than 25% of what all households have just by going to work.

Who knew

And let’s take life with the proverbial pig really seriously: $ 89,805 a year wouldn’t be enough to pay for a tiny fraction of the imaginary lifestyle of the top 2%.

To name just a few painful examples: $ 89,805 would not be enough to pay for daily flower arrangements at the entrance to your main house; the annual fuel cost for a decent yacht that hibernates in Antigua; or the property taxes on a simple $ 4.5 million home in the higher areas of Dallas, Houston, Austin, or San Antonio. (In case you’re wondering, according to realtor.com, Houston has 88 homes priced at $ 4.5 million or more, Dallas currently has 43, Austin has 42, and San Antonio has just eight.)

But the problem we are facing is not rising inflation in the prices of everyday items that we buy and use. It’s rising inflation in the price of all the assets most people would like to acquire – houses, stocks, and bonds.

You can get an overview if you consider how much our Federal Reserve-developed low interest rates affect the wealth needed to sustain the Life of Riley lifestyle.

• Move half of the money that’s in five-year government bonds (yielding 1.28%) to 10-year government bonds (1.65% yield) and you’ll reduce the required assets from $ 7 million to just still $ 5.4 million.
• Go back to the good old days when stocks returned 3% and good bonds returned 5%, and the required wealth drops to just over $ 2.2 million.

That’s a lot less wealth, but it’s still in the top 5% of American households.

There are two big messages here.

First, if you are aiming for FIRE (Financial Independence Retire Early), it is time to redefine the carrot you hunt and find a way that is less about money and more about life.

Second, if you are hoping to retire at the normal time, be encouraged. Assuming a 4% payout rate and about 40% of your expenses are covered by Social Security benefits, Life of Riley’s nest egg needs drops to just over $ 1.3 million.

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