Semi-Daily Journal

Anyone want to guess what the numbers will be for 2002, after the stock market's 50% decline?

We can make notes now and delcare a winner in 2005.

Actually, these numbers seem low. The 1% threshold for income in 2000 was 313k. Perhaps the high earners aren't such good savers after all.

The numbers seem low because it's an analysis of estate tax returns rather than wealth of living people.

Based on other sources, I'd guess you'd need $3mm-$5mm to be in the top 1%, rather than the $1mm in this survey. Wealth peaks in the 60's, I believe.

Bad Jim

I thought the same thing, but it didn't surprise me. The book the Millionaire Next Door had an interesting analysis of this behavior. Its conclusion was that high income didn't necessarily result in great wealth because people spend it. The actual millionaire's studied in the book varied by income -- some as low as 70,000 per year -- but they were all focused on saving versus spending.

That's interesting data. As you expect from Zipf's law, it lies on
a straight line on a log-log plot (with r=0.999); the exponent is
surprisingly close to -2/3.

IE Excel tells me wealth = 51904 * [proportion]^(-.6752)

If you extrapolate over the population of the US, you expect the
wealth of the richest American to be around $20 billion, and there to
be about 120 billionaires: those figures sound about right to me.

Of course, if you extrapolate down to proportion=1, you expect the
wealth of the *poorest* American to be $51904 (nonsense), and median
wealth to be about $80k (which actually does sound about right if you
assume that more than half of Americans have at least half a house).
I'd be interested to see where the break in the curve comes, though I
don't know which information source you'd use to determine the wealths
of not-so-wealthy people.

Would love to see the same data for other countries.

This table suprises me. I am too high on the totem pole for the way I feel about my wealth. I have read somewhere how everyone feels they are just average or middle class and then again I have read about how eveyone thinks they are in the top 5%. Some kind of thought process disconnect here.
Maybe I just compare my situation relative to those around me. Living in the Mid Pen area of SF Bay area where, even with the dotcom bust, there is still a lot of wealth colors my estimation of my position in the food chain.
It would be intesting to see the numbers for just the Bay Area.

A couple of comments on comments:

1. Richard says household wealth peaks when the head of household is around 60, but this is a study of individual wealth, which peaks typically when assets which were jointly held by a married couple become singly held by the widow.

2. Dilbert Dogbert, too, may be thinking of his household wealth rather than his individual wealth. In the bay area, real estate equity will be a rather larger element of net worth than in other areas. Typically real estate is held jointly.

3. Tom Womack's probably right about the median wealth being on the order of $80K. There's a graph on p.75 of the paper which shows average wealth of the bottom 99% to be around $120K. Since the range runs from 0 to $1.15M, $80K seems a fairly good guess for the median.

There's a problem in defining wealth. Kopczuk and Saez don't, for obvious reasons, include the value of defined benefit pensions, but they do include the value of defined contribution pensions. It's hard to discern theoretical grounds for distinguishing them. The value of defiined benefit pensions, though, can be substantial. Recently, at work, there was the possibility of buyouts into early retirement, so I calculated the NPV of both income streams from retirement through life expectancy. What surprised me was the NPV of my pension entitlement, on any reasonable discount rate, is substantially larger than my conventionally calculated net worth (the value of my estate were I to drop dead tomorrow).

JAM makes an important point. A lot of the nation’s wealth is held in its pension system. Should we not count Social Security as part of a person’s wealth? You have a claim on a future cash flow and that’s worth something, and that something should be counted. After you work the required forty quarters to qualify for SS, don’t you become instantaneously wealthier? It’s true that you can’t bequeath your SS benefits (let’s say you’re single) like a stock, but that calls for some kind of adjustment to the wealth calculation, not making it zero. There are other kinds of non-fungible or semi-fungible wealth. For example holding a rent controlled apartment in New York City. This has real value for the tenant. What’s more you can even bequeath that right. In divorces judges have been known to take away the rent-controlled apartment from one spouse (usually the husband of course) and give it to the other. This kind of value should be included in any meaningful calculation of an individual's wealth.

"Should we not count Social Security as part of a person’s wealth? "

If you want to, the average value of benefits provided to a married couple at age 65 is somewhat over $300,000, measured by what you'd have to pay to the private sector to get them.

Then don't forget the value of Medicare. And of defined benefit pension plans, which hold trillions of dollars and growing, but which generally are not included in personal wealth data because their assets are not legally owned by plan beneficiaries (as opposed to the assets of defined contribution plans).

Do we really have a claim on future income from SS? I've been operating on the assumption that it will cease to exist long before I reach 65.

"Do we really have a claim on future income from SS? I've been operating on the assumption that it will cease to exist long before I reach 65."

Save and invest all you can. Remember, however, the baby boomers are a powerful voting bloc. Social Security and Medicare are threatened but will continue though the threats.

What about a dynamic economy? Do they just analyze the wealth of dead people? That's probably a lagging indicator, no?

And in a dynamic economy, fortunes are going to rise and fall more quickly. There may be a regression-toward-the-mean effect that offsets what would otherwise be a trend toward inequality. In the 19th century, a robber baron could accumulate wealth for most of his lifetime, and pass his company to his children. Not so easy to do today.

Wealth is awfully awfully easy to pass along, last I noticed, and I do notice.

Yeah, the estate tax repeal will make it pretty tough to pass money down.