# The millionaire next door drives a 4 year old car , lives a frugal lifestyle and doesn't take on consumer debt or show their wealth..



## Laughahalla (29 Oct 2019)

Just finished reading the millionaire next door(by Thomas J. Stanley) Very interesting book and well worth a read. A page turner for nerds. I had it read in two days.

Basic concepts are frugality, not spending your money ( that you give up your precious time for) on frivolous consumerism.
Staying out of debt permanently and Investing in dividend paying stocks in the most tax efficient way.(Which I guess for most PAYE workers in Ireland is through a company Pension or PRSA)

Most likely the person in the street with an expensive watch, clothes and car are spending everything they make to maintain a lifestyle or as the book calls them "under accumulators of wealth". ( Compared to their income)


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## NoRegretsCoyote (29 Oct 2019)

Laughahalla said:


> Staying out of debt permanently



An owner-occupied dwelling with mortgage finance paid off by retirement age is a no brainer.

Would you really recommend saving up for a house?


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## Laughahalla (29 Oct 2019)

Saving up for a house may not be realistic for most but I would say  paying off in 10-15 years is realistic *if* that was made your priority.


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## fistophobia (29 Oct 2019)

Your home is not an investment. Too many people got caught in this fantasy about 10 years ago.
While its sensible to pay off a mortgage early, the investment only gets realised when you sell it.
Call it, geo-arbitrage.


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## SPC100 (29 Oct 2019)

I'd also recommend the book or it's follow up the millionaire mind.

The summary I remember from reading it about a decade ago: most millionaires don't look like millionaires, and that is a significant part of the reason they become wealthy.


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## Sarenco (29 Oct 2019)

fistophobia said:


> Your home is not an investment.


Of course your home is an investment!  

It's an asset that you expect to appreciate in value over time and that saves you rent that you would otherwise have to pay for your accommodation (economists often call this "imputted rent").


fistophobia said:


> Call it, geo-arbitrage.


Sorry, how is owning your own home "geo-arbitrage"?


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## Saavy99 (29 Oct 2019)

fistophobia said:


> Your home is not an investment. Too many people got caught in this fantasy about 10 years ago.
> While its sensible to pay off a mortgage early, the investment only gets realised when you sell it.
> Call it, geo-arbitrage.




It is when you come to retirement age, a huge asset. Who wants to be paying huge rent out of their pension income?


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## Andrew365 (29 Oct 2019)

Laughahalla said:


> Just finished reading the millionaire next door. Very interesting book and well worth a read. A page turner for nerds. I had it read in two days.
> 
> Basic concepts are frugality, not spending your money ( that you give up your precious time for) on frivolous consumerism.
> Staying out of debt permanently and Investing in dividend paying stocks in the most tax efficient way.(Which I guess for most PAYE workers in Ireland is through a company Pension or PRSA)
> ...



or maybe that person with the flash watch and flash car is just richer.


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## Laughahalla (29 Oct 2019)

Andrew365 said:


> or maybe that person with the flash watch and flash car is just richer.



That's not what the research showed though. 
They might have money but didn't have wealth.


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## Gervan (29 Oct 2019)

Sarenco said:


> Of course your home is an investment!



If the home-owner can let out a room or two, that asset earns an income, as well as saving on an expense.


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## Steven Barrett (30 Oct 2019)

I absolutely love this book. There are two other books in the series, The Millionaire Mind and The Next Millionaire Next Door, which was written by his daughter Sarah Fallaw. Sadly, Thomas Stanley was killed in a car crash a number of years ago.  



Andrew365 said:


> or maybe that person with the flash watch and flash car is just richer.



They may well be, afterall, there are lots of millionaires. Stanley's point is that you should buy the flash car or watch until you have made it. People are too often in a rush to have a €100k car when they don't have the wealth to buy it. So instead of accumulating wealth, they are using their money to pay down the debt they took out on a car loan. 

The location of your home has a huge impact on future wealth as the cost of lifestyle in an area will have an impact on your ability to accumulate wealth. If you neighbour has the car, golf club fees etc, you may want it too. Or your wife may want it. Or your kids will want what the others kids have. 

It's a great book, well worth the read. I have a load of copies of it that I give out to clients. 


Steven
www.bluewaterfp.ie


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## NoRegretsCoyote (30 Oct 2019)

Laughahalla said:


> Saving up for a house may not be realistic for most but I would say  paying off in 10-15 years is realistic *if* that was made your priority.



Pretty much. But if you are in a career that you like, and see yourself staying in it til retirement, then living well under your means is not necessary.

Frugality is a method, not an objective.


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## Laughahalla (30 Oct 2019)

In the book , The factors that the millionaire next door had in common were as follows
1. They lived well below their means
2. They believe that financial independence is more important than displaying high social status
3. Their parents did not provide financial assistance to them in adulthood (14% inherited something from their parents when they died)
4. Their adult children are economically self-sufficient (once finished education)


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## Laughahalla (30 Oct 2019)

fistophobia said:


> Your home is not an investment. Too many people got caught in this fantasy about 10 years ago.
> While its sensible to pay off a mortgage early, the investment only gets realised when you sell it.
> Call it, geo-arbitrage.



Robert Kiyosaki made a similar point in his book rich dad poor dad. He maintained that anything that took money out of your pocket (i.e. mortgaged home) was a liability and that anything that put money in your pocket was an asset (stock that paid dividends, rental income, royalties e.t.c.)


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## Brendan Burgess (30 Oct 2019)

Laughahalla said:


> Robert Kiyosaki made a similar point in his book rich dad poor dad. He maintained that anything that took money out of your pocket (i.e. mortgaged home) was a liability and that anything that put money in your pocket was an asset (stock that paid dividends, rental income, royalties e.t.c.)



But if you do not own your own home, then you will be paying rent. It does not really matter whether the money you are spending on your accommodation costs is labeled "rent" or labeled "mortgage interest".  

In Ireland, owning your own home has huge financial advantages as well as the other non-financial advantages. 

The interest on a mortgage is a lot less than the rent being paid for a similar property.

I would say that the "millionaire next door" is very unlikely to be a tenant. 

Brendan


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## so-crates (30 Oct 2019)

Brendan Burgess said:


> But if you do not own your own home, then you will be paying rent. It does not really matter whether the money you are spending on your accommodation costs is labeled "rent" or labeled "mortgage interest".
> 
> In Ireland, owning your own home has huge financial advantages as well as the other non-financial advantages.
> 
> ...



I would have to agree. Although I have a mortgage to pay, the interest cost is negligible and the overall repayment (interest and principal) is lower than the cost of renting in my area. I am quids up every month on that basis.



SPC100 said:


> ... most millionaires don't look like millionaires, and that is a significant part of the reason they become wealthy.



I recall some time ago now, chatting with a colleague about EuroMillions (it must have been a big jackpot), she was saying that she wouldn't know what to do with even a €1m, jokingly I suggested she ask the millionaires she knew, her reaction was that she didn't know any, her draw dropped when I demonstrated that she knew several, including the one she had just said good morning to in passing.


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## Laughahalla (30 Oct 2019)

I agree 100%.
One of the key indicators you see in a household with a net worth greater than a million is a paid off home.


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## EmmDee (30 Oct 2019)

Brendan Burgess said:


> But if you do not own your own home, then you will be paying rent. It does not really matter whether the money you are spending on your accommodation costs is labeled "rent" or labeled "mortgage interest".
> 
> In Ireland, owning your own home has huge financial advantages as well as the other non-financial advantages.
> 
> ...



Rich Dad, Poor Dad is well worth reading - he deliberately changes the nomenclature for "assets and liabilities" but really what he is doing is putting things into cash flow terms. And just as with a business, very often people run into issues because of cash flow.

So he terms an "asset" as something that generates cash flow and a "liability" as something that drains it. He also defines "wealth" as the period of time you can live your current lifestyle if your income drops to zero. Yes you are correct in terms of proper terminology but what he is really doing is have the reader think of their cashflows. So a significant house with significant repayments is sometimes considered a big asset, if your income drops off it is likely to reduce your ability to survive irrespective of assumed value in the property (e.g. the last 10 years where people went under water very quickly along with a sudden drop in income)

Rent is something people already think of as an expense / liability. But it is one that can be changed relatively quickly if your income changes. A mortgage takes a lot of time to change and if the market has moved, it is possible that you can't cover it. And in the meantime it eats into your "wealth" (as he defines it).

The book isn't contrary to what many people talk about here - it's a cash flow analysis approach


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## Steven Barrett (30 Oct 2019)

It is widely accepted that mortgage debt is different to debt to fund lifestyle. 

In the book, those questioned all take out mortgages to purchase homes. But they take out a manageable level of debt and don't buy in areas that they can't afford. 

Taking out loans to pay for holidays, cars etc are different and something that you are advised to avoid. 


Steven
www.bluewaterfp.ie


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## Daddy Ireland (30 Oct 2019)

Do I and my wife consider ourselves millionaires ?
House value 400k.  Mortgage 25k.
Investment property 150k no mortgage.
Cash on hand 70k.  Shares 10k.
My pension in pot 210k.
Spouse pension pot 150k.
We don't think we could classify ourselves as millionaires as our home is our home.  If we would be classified as millionaires then I imagine there are lots of us around.


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## Sarenco (30 Oct 2019)

Daddy Ireland said:


> Do I and my wife consider ourselves millionaires ?


By my calculations, you have a joint net worth of €965k.  So, I'm afraid you don't make it into the millionaire club just yet!


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## Andrew365 (30 Oct 2019)

Laughahalla said:


> That's not what the research showed though.
> They might have money but didn't have wealth.



I read that as an observation rather than a researched back comment



SBarrett said:


> They may well be, afterall, there are lots of millionaires. Stanley's point is that you should buy the flash car or watch until you have made it. People are too often in a rush to have a €100k car when they don't have the wealth to buy it. So instead of accumulating wealth, they are using their money to pay down the debt they took out on a car loan.



I was suggesting that we shouldn't assume that because somebody has a flash watch and car that they have taken it in debt. Although with cars I can see Irelands obsession with the latest reg. Cars are ridiculously overpriced here. It would be an interesting study to see if car sales would be affected if the registration did not state the year it was bought. 



Brendan Burgess said:


> But if you do not own your own home, then you will be paying rent. It does not really matter whether the money you are spending on your accommodation costs is labeled "rent" or labeled "mortgage interest".
> 
> In Ireland, owning your own home has huge financial advantages as well as the other non-financial advantages.
> 
> ...



I agree and in Dublin it makes sense to buy as rent is generally > mortgage. I have lived in other cities where it is the opposite by a long shot, so the point should be to do which one makes the most economical sense.


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## Daddy Ireland (30 Oct 2019)

Sorry investment property misquote should read as 190k and not 150k.


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## Laughahalla (30 Oct 2019)

According to the Oxford dictionary you are the Millionaire next door. Congratulations.

noun: millionaire; plural noun: millionaires
a person whose assets are worth one million pounds or dollars or more.


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## Brendan Burgess (30 Oct 2019)

Daddy Ireland said:


> Sorry investment property misquote should read as 190k and not 150k.



Well done!

You are now worth €1m and €5k 

Welcome to the club.

Your membership card is in the post.

Brendan


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## Sarenco (30 Oct 2019)

The Millionaire Next Door was first published over 23 years ago.

The club has become a lot less exclusive in the meantime.

A nickel ain't worth a dime anymore...


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## Daddy Ireland (30 Oct 2019)

Laughahalla said:


> According to the Oxford dictionary you are the Millionaire next door. Congratulations.
> 
> noun: millionaire; plural noun: millionaires
> a person whose assets are worth one million pounds or dollars or more.



I must get the book. 
I personally don't consider my PPR which I'll never sell as part of a millionaire tot up figure.  Many might but I personally don't.  Fine perhaps if I was to sell it or consider selling it and in that case I would be downsizing anyway.  So my PPR will go to my grave when my millionaire status might click in in my net worth that will be there for dependants.  Thats the way I see it be it right or wrong thinking.


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## llgon (30 Oct 2019)

Laughahalla said:


> According to the Oxford dictionary you are the Millionaire next door. Congratulations.
> 
> noun: millionaire; plural noun: millionaires
> a person whose assets are worth one million pounds or dollars or more.



I think it's a little more complicated than the definition in the dictionary and open to all sorts of variables.  Firstly the currency. 

Including the full value of a pension pot - how much of that will be taxed?

Likewise with other assets, should capital gains tax be factored in?

If a couple jointly own assets worth just over a million are they both millionaires?

Probably plenty of other variables as well


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## Sarenco (30 Oct 2019)

Does it really matter whether somebody "qualifies" as millionaire?

It's just a random number.


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## Brendan Burgess (30 Oct 2019)

Sarenco said:


> Does it really matter whether somebody "qualifies" as millionaire?
> 
> It's just a random number.



I wish you would stop taking the words out of my mouth!


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## Sunny (30 Oct 2019)

Sarenco said:


> Does it really matter whether somebody "qualifies" as millionaire?
> 
> It's just a random number.



Seems to matter a lot to women I have met over the years!!! And rejected by I should add.....Although that could be down to looks and personality but I think I could have overcome that with a millionaire tag!


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## Daddy Ireland (30 Oct 2019)

Not bothered whether I'm in the club or not.  Just asking the question if I am considered in the club and making the point that one's PPR as part of the figure could be questionable.  Agree with IIgon's post too that there are many variables includung tax on pension pots.


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## Palerider (30 Oct 2019)

In my previous life a millionaire client was assessed absent his or her principal private residence, they had to have access to cash or investments that would exceed €1 million if liquidated,  or a bar as those that like to boast refer to it.

This makes some sense as you have to live somewhere, there are lots of millionaires in this country, many more than the average Joe thinks.

Since the crash there are many more aiming for financial independence with gusto and they will also be millionaires...in time with some focus of course.


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## Buddyboy (30 Oct 2019)

"And so, Mrs. Corkboy, what first attracted you to the millionaire Corkboy?"

(to be honest, marrying her actually increased my net worth).


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## Steven Barrett (30 Oct 2019)

Buddyboy said:


> "And so, Mrs. Corkboy, what first attracted you to the millionaire Corkboy?"
> 
> (to be honest, marrying her actually increased my net worth).



Mrs Merton did it so much better


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## fistophobia (30 Oct 2019)

Having a "bar" or being a member of the "2 comma club "....  it is a big deal.
You need to set yourself targets, as a motivator. 1M may not be enough for some people on here.
Its not about keeping up with the Jones, or having the latest toys. I guarantee you, most of the new cars on the road are not bought with cash.
Whats important is, knowing when you have enough. If its 25X your annual expenses, or some other measure of income.
Notice, Im not saying 25X your income.


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## Sarenco (30 Oct 2019)

Palerider said:


> In my previous life a millionaire client was assessed absent his or her principal private residence, they had to have access to cash or investments that would exceed €1 million if liquidated,  or a bar as those that like to boast refer to it.


That's pretty much the definition of an "accredited investor" in the US (where you are considered to be wealthy/sophisticed enough to invest in private funds that have not been approved by the SEC).  

Moving on from the (IMO silly) idea that your home is not an investment or somehow does not form part of your net worth, it is probably worth bearing in mind that a typical Garda will retire with State-guaranteed pension entitlement with an actuarial value well in excess of €1m.

It's not remotely uncommon for Irish people in their 60s to have a net worth of €1m+.


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## SPC100 (30 Oct 2019)

Brendan Burgess said:


> You are now worth €1m and €5k



With 1m and 5k, including your PPR, and using pre-tax value of investments, you likely have some way to get to 'real' millionaire status

These are just different (underspecified) financial metrics, the ladder of Net worth ;-)
Net worth
Net worth (excluding PPR)
Net worth (excluding PPR) after all taxes paid

I think the main point is that they are some way to measure/track your own progress/wealth.



fistophobia said:


> Whats important is, knowing when you have enough. If its 25X your annual expenses, or some other measure of income.



I think that something like 'usable after tax' Net worth/annual expenses is likely a reasonable measure of personal wealth, especially for non defined benefit pension folks.



Palerider said:


> there are lots of millionaires in this country, many more than the average Joe thinks.





Sarenco said:


> It's not remotely uncommon for Irish people in their 60s to have a net worth of €1m+.



2.3% of Dublin inhabitants are millionaires. Irish times "It means there are almost 32,000 millionaires knocking around the capital". That survey by WealthInsight defines "a millionaire as an individual with net assets of $1 million or more, excluding their primary residence."

This is from a comment thread on quora - about the distribution of net worth in USA - looks like 1 in 7 in USA can claim millionaire


> Top 0.1% in US: ~$60 million + primary home (Wealth estimates for 2019)
> Top 1%: ~$12 million + primary home
> Top ~10–12%: $1 million + primary home
> Top ~13-15%: $1 million
> ...








Sarenco said:


> The club has become a lot less exclusive in the meantime.



Wiki also says "one would need to have almost thirty million dollars today to have the purchasing power of a US millionaire in 1900, or more than 100 million dollars to have the same impact on the US economy."


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## SPC100 (30 Oct 2019)

I did a quick google, and then quick scan of https://www.tasc.ie/assets/files/pdf/the_distribution_of_wealth_in_ireland_final.pdf

The Median net wealth of irish households is 102,600, mean is 218,700. (definition is all assets - all liabilities) i.e. 50% of households have assets - liabilities of > 102,600.

But the report has lots of interesting data in it

"the most common form of financial asset is a savings account (deposits or savings accounts as well as positive balance on current accounts), owned by 88.6% of households. 13.1% of households have shares and 7.5% hold bonds or mutual funds. The median value of savings accounts is €4,500 while it is €4,000 for shares. While only 10% of households have a voluntary pension, the median value for these is €44,700 per household1 . The median value of all financial assets is €6,300 per household" . 

"Savings represent 54.9% of the total value of all financial assets with voluntary pensions next highest at 21.6%. Other financial assets such as shares and bonds and mutual funds were lower at 10.4% and 8.7% respectively of all financial assets."  => We really don't invest as a nation!


"The greatest concentration of wealth in Ireland as per the HFCS data occurs in land ownership. Only 10% of households owned any land and thus the value of land assets is highly skewed. But rather than being spread across the wealth distribution, land is highly concentrated amongst the wealthiest households. The Top 20% owns more than 90% of all land (by value), while the Top 10% owns 82%. The role of farm land in this is a contributing factor."

"When looking at the distribution of wealth by income group, the top 20% of income earners have 39% of net wealth, while those in the bottom 20% have 11% share of net wealth."

"The average median value of financial assets for all households is €6,300. This means that half of all households have financial assets worth less than €6,300"


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## Sarenco (31 Oct 2019)

Define "wealth"?  Define "financial asset"?

A 55 year-old Garda, with 30-year's service, will have accrued a State-guaranteed, inflation-proof, pension entitlement that would cost well in excess of €1m to buy in the open market.  Is that a "financial asset"?  Probably not.  But it's certainly an incredibly valuable entitlement.

I don't mean to pick on the Gardai.  Take pretty much any public servant and figure out how much it would cost to buy their accrued pension entitlement in the open market.  Those entilements have a value that I would suggest is simply ignored in these "surveys".


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## Steven Barrett (31 Oct 2019)

Sarenco said:


> Define "wealth"?  Define "financial asset"?
> 
> A 55 year-old Garda, with 30-year's service, will have accrued a State-guaranteed, inflation-proof, pension entitlement that would cost well in excess of €1m to buy in the open market.  Is that a "financial asset"?  Probably not.  But it's certainly an incredibly valuable entitlement.
> 
> I don't mean to pick on the Gardai.  Take pretty much any public servant and figure out how much it would cost to buy their accrued pension entitlement in the open market.  Those entilements have a value that I would suggest is simply ignored in these "surveys".



While a public servant pension is very valuable, it can't be counted as a financial asset when assessing someone's wealth. They can never cash it in or access the value of it. Beyond the spouse's pension, there is no value to be inherited. The same would apply for someone who purchased an annuity with €1m. 

I don't think it is too difficult to assess whether someone is a millionaire or not; their net worth outside the family home but before taxes. 


Steven 
www.bluewaterfp.ie


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## Sarenco (31 Oct 2019)

SBarrett said:


> The same would apply for someone who purchased an annuity with €1m.


Exactly.

So a retiree with €1m in an ARF is a millionaire, whereas a retiree that bought an annuity with their €1m pension pot is not.  Sorry but I don't see the logic.


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## joe sod (31 Oct 2019)

Even the "humble" state pension would cost a quarter of a million to buy, most people receiving it today would never have contributed enough in prsi or taxation to have funded it. Who is funding this deficit now?, it's the guys investing in negative yielding bonds, they are actually funding a lot of this.


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## Susie2017 (31 Oct 2019)

Are Gardai not subject to the rules of the new single pension scheme. Will this not reduce the value of their pensions in future.


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## Firefly (31 Oct 2019)

SPC100 said:


> "When looking at the distribution of wealth by income group, the top 20% of income earners have 39% of net wealth, while those in the bottom 20% have 11% share of net wealth."



For all the bleating we hear of income & wealth inequality, I thought the the top 20% of income earners would own a lot more than 39% of net wealth. I wonder how this stacks up internationally. A socialist republic??


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## Sunny (31 Oct 2019)

If I die tomorrow, my wife will be a millionaire but don't tell her that.....


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## gianni (31 Oct 2019)

Sarenco said:


> Define "wealth"?  Define "financial asset"?
> 
> A 55 year-old Garda, with 30-year's service, will have accrued a State-guaranteed, inflation-proof, pension entitlement that would cost well in excess of €1m to buy in the open market.  Is that a "financial asset"?  Probably not.  But it's certainly an incredibly valuable entitlement.
> 
> I don't mean to pick on the Gardai.  Take pretty much any public servant and figure out how much it would cost to buy their accrued pension entitlement in the open market.  Those entilements have a value that I would suggest is simply ignored in these "surveys".



I think the Garda is always chosen as the example as they have a fast accrual pension. 30 years service is all that is required. Most other public servants have to pay 40 years of contributions.


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## SPC100 (31 Oct 2019)

Sarenco said:


> Define "wealth"?  Define "financial asset"?





SPC100 said:


> The Median net wealth of irish households is 102,600, mean is 218,700. (*definition is all assets - all liabilities)*



I'd have to reread the article to confirm definitions....

I doubt they are using a npv of defined benefit pension or state pension for that matter.

So arguably that would increase the wealth of many household.


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## Steven Barrett (31 Oct 2019)

Sarenco said:


> Exactly.
> 
> So a retiree with €1m in an ARF is a millionaire, whereas a retiree that bought an annuity with their €1m pension pot is not.  Sorry but I don't see the logic.



If you purchase an annuity, you are in effect getting a fixed salary. You not longer have a €1m asset, you have a salary. If you have an ARF, you have the full use of that €1m at any time (subject to taxation)


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## Protocol (31 Oct 2019)

Susie2017 said:


> Are Gardai not subject to the rules of the new single pension scheme. Will this not reduce the value of their pensions in future.



All newly hired PS are part of the new Single Pension scheme.


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## SPC100 (31 Oct 2019)

Firefly said:


> For all the bleating we hear of income & wealth inequality, I thought the the top 20% of income earners would own a lot more than 39% of net wealth. I wonder how this stacks up internationally. A socialist republic??


I was very surprised by this too. I wondered why it might be so.

Some of high wealth must be inherited. And there is no guarantee later generations will have high income.

They say one generation to make it, one to something(manage?) it and one to lose it.

Maybe like millionaire next door there are lots of middle income folks who have high wealth through frugality.

Maybe folks with high income obtain a lot of assets quickly and then spend more time at lower income. 

Maybe retirees with large pots but low income too feature here.


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## PMU (1 Nov 2019)

Sarenco said:


> A 55 year-old Garda, with 30-year's service, will have accrued a State-guaranteed, inflation-proof, pension entitlement that would cost well in excess of €1m to buy in the open market.  Is that a "financial asset"?  Probably not.  But it's certainly an incredibly valuable entitlement.  I don't mean to pick on the Gardai.  Take pretty much any public servant and figure out how much it would cost to buy their accrued pension entitlement in the open market.  Those entilements have a value that I would suggest is simply ignored in these "surveys".


We've had this before. A public service pension is not equivalent to an annuity.   The cost to the State is the retiree's lump sum plus the value of the pension payments, i.e. it's its capital sum. https://askaboutmoney.com/threads/t...of-state-pensions.200678/page-13#post-1489835.

Also public service pensions just don't fall from the sky – (a) you have to have the smarts to pass the entrance exam; and then (b) work for up to 40 years to get the pension.  The pension you get is based on how  your career progressed, not on investment returns.  It's not an entitlement; you've got to work for it.


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## Sunny (1 Nov 2019)

PMU said:


> Also public service pensions just don't fall from the sky – (a) you have to have the smarts to pass the entrance exam; and then (b) work for up to 40 years to get the pension.  The pension you get is based on how  your career progressed, not on investment returns.  It's not an entitlement; you've got to work for it.



Want to tell the majority of private sector employees that the reason they don't have a pension is that they didn't have the smarts to pass and entrance exam and that the work they do for 40 years doesn't count...…...

Still think it is not an entitlement?


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## Sarenco (1 Nov 2019)

PMU said:


> Also public service pensions just don't fall from the sky


Did anybody suggest otherwise?

I was simply making the point that a very significant number of public servants will retire with accrued pension entitlements that would cost well in excess of €1m to buy in the open market.

Those pension entitlements are extremely valuable but for some reason they seem to get ignored whenever there's a discussion about wealth.


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## NoRegretsCoyote (1 Nov 2019)

SBarrett said:


> While a public servant pension is very valuable, it can't be counted as a financial asset when assessing someone's wealth.



Of course it can! A 50-year old Garda retiree on his €40k pension can convert his income into wealth by buying assets with it. He could even contribute to a PRSA for a few years and claim tax relief on it!




SPC100 said:


> I did a quick google, and then quick scan of https://www.tasc.ie/assets/files/pdf/the_distribution_of_wealth_in_ireland_final.pdf



The TASC survey is based on a CSO survey based in 2013 which did *not* measure pension wealth, either in PRSAs, ARFs, DB schemes, public sector occupationals, contributory state pensions, *nothing*. Any conclusions based on this will be seriously flawed as there is no measure of pension wealth.

Much of the measured wealth by the CSO was in land (which is easy to count and value). On average you need to have about 110 acres to have €1m worth of farmland in Ireland. By that measure there are over ten thousand millionaire farmers in Ireland. Most of them would vigorously deny that they are millionaires of course, as their land is not something they ever intend to sell!

What I am getting at is that wealth is very hard to a) define; and b) measure.

At my age most of my wealth is my skills which should see me earn above-average wages for another few decades. How would you put a monetary figure on that?


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## joe sod (1 Nov 2019)

A public sector pension is not wealth, it is an entitlement, crucially it still depends on the state's ability to pay it when you retire. Remember when the eastern block crumbled in 1989, all those workers had rock solid pensions, indeed that was one of the few advantages of communism. The polish government still paid out the nominal value all those pensions but with seriously devalued polish zlottys. Yes this is an extreme example but it shows the difference between a state entitlement and hard wealth.


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## Sarenco (1 Nov 2019)

I have cash on deposit in my local bank.  But that doesn't form part of my wealth.  It is simply an entitlement to call on the bank to pay me the cash and crucially it depends on the bank's ability to meet its obligations to me.  Remember when all those banks started going bust in 2009?

No, my only real wealth is all buried in a biscuit tin in my back garden.


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## joe sod (2 Nov 2019)

Sarenco said:


> I have cash on deposit in my local bank.  But that doesn't form part of my wealth.  It is simply an entitlement to call on the bank to pay me the cash and crucially it depends on the bank's ability to meet its obligations to me.  Remember when all those banks started going bust in 2009?



A bank deposit as you well know is completely different to a pension entitlement, it is a highly liquid form of wealth. In your false analogy with 2009 you could have taken your bank deposit out of the bank and bought other assets, currencies etc as many people did then, you could not do that with your pension entitlement. If you remember one of the key reasons for imf bailout in 2010, was to allow the government to keep borrowing to pay those very pensions, it is not rock solid, yes the state would go to great lengths to avoid cutting these as was proven.
Also is not the old age pension  an entitlement? but increasingly it is becoming obvious that the state may not pay everybody this entitlement in years to come. Therefore you could never assume this as a form of wealth even though it would cost at least a quarter of a million to buy in the market.


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## Sarenco (2 Nov 2019)

joe sod said:


> A bank deposit as you well know is completely different to a pension entitlement, it is a highly liquid form of wealth. In your false analogy with 2009 you could have taken your bank deposit out of the bank and bought other assets, currencies etc as many people did then, you could not do that with your pension entitlement.


Can you not also buy other assets with your pension payouts?

A rental property is also an illiquid asset, does that mean it doesn't count in calculating wealth?

How about Government bonds?  Do you exclude these on the basis of a possible default?

Frankly, your arguments that an accrued public sector pension entitlements does not count as "wealth" make no sense to me.


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## NoRegretsCoyote (2 Nov 2019)

Pat is 70, has a sole income of a SPC, has no assets but has a life interest in a house. He doesn't own it but can live in it rent free until death.

Michael lives next door and is also 70, gets the SPC and an annuity of €500 pcm. He has no other assets and pays €1000 a month in rent.

Who is wealthier?


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## cremeegg (2 Nov 2019)

Daddy Ireland said:


> Do I and my wife consider ourselves millionaires ?



You are nearly 1 millionaire between you. You may have deferred tax liabilities which you haven't considered. You use 40% of your wealth to live in, so not quiet the same type of free wealth as cash. Your pension assets are also tied up by the pension rules so not totally yours to do with as you like.



Daddy Ireland said:


> If we would be classified as millionaires then I imagine there are lots of us around.



There are lots like you around, but owning a €400k home with (almost) no mortgage is not that common.


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## cremeegg (2 Nov 2019)

SBarrett said:


> The location of your home has a huge impact on future wealth as the cost of lifestyle in an area will have an impact on your ability to accumulate wealth. If you neighbour has the car, golf club fees etc, you may want it too. Or your wife may want it. Or your kids will want what the others kids have.



Very interesting point.


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## joe sod (2 Nov 2019)

Sarenco said:


> Can you not also buy other assets with your pension payouts?
> 
> A rental property is also an illiquid asset, does that mean it doesn't count in calculating wealth?
> 
> How about Government bonds? Do you exclude these on the basis of a possible default?



No because all these are assets that can be sold at any time in the open market, a state pension entitlement cannot be sold in the open market therefore it does not count. Even the riskiest bonds will always have a price on the open market so can always be sold however i cannot sell my greek or argentinian pension entitlement on the open market.


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## Palerider (2 Nov 2019)

Curious all the debate about am I or am I not in this thread, it's simples folks, can you liquidate assets without selling your family home ( downsize if necessary ) and have over €1m cash to hand ....if you can you are a millionaire and if you cannot you ain't.

Attempting to value any pension pot as part of this sum is futile, quite meaningless and irrelevant, cash or near cash please. Staff in the butcher shop, the jewellers, the travel agent and the local premium car dealer generally know you....except for the cute wans who don't display their wealth....too garish, I quite agree with either approach but they are out there and not all have K Club memberships and 192 Barges.


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## SPC100 (2 Nov 2019)

I discovered the term Liquid net worth, which is closer to your way to measure....








						What is Liquid Net Worth? | Calculate YOUR Liquid Net Worth
					

Liquid net worth matters because it provides a better reflection of the amount of money you have available if you needed to liquidate your assets.




					www.goodfinancialcents.com
				




Basically the idea is, if you had to cash in everything now in a hurry and pay off all loans what do you have in your bank.

On the pension topic, my view is that a defined benefit pension is part of you wealth. It's a future cash flow (that has some amount of risk). As would a life interest in a home count towards wealth.

I think it makes no sense to not include defined contribution or defined benefit in your wealth tracking. How to value them correctly though is an interesting question.


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## SPC100 (2 Nov 2019)

But if we can't agree a definition we can't easily measure how many there are.....


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## Gordon Gekko (3 Nov 2019)

The significance of being a millionaire is a very antiquated idea.

The smart way to think about wealth is the level of income it can generate; in my view, wealthy people spend income, not capital, and build capital to generate income.

What can €1m generate, realistically? €50k maybe?

In an Irish context, and this is just a personal view, I think “wealthy” means a net worth including one’s family home of €3m+.


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## goingforgold (15 Dec 2019)

Gordon Gekko said:


> The significance of being a millionaire is a very antiquated idea.
> 
> The smart way to think about wealth is the level of income it can generate; in my view, wealthy people spend income, not capital, and build capital to generate income.
> 
> ...


Again though, would this include as part of a couple, DC pension pot?

I probably agree although maybe I would class them as very wealty...as I don' think there are too many up at €3m+.  €1m+ would be quite common...


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