The Millionaire Next Door

Income/Net worth-Inherited wealth

For today only I am going to suspend the rules concerning wealth and income.  I have repeatedly stated that wealth is not income and income is not wealth.  Wealth is how much you accumulate.  It is the net of your assets less your liabilities.  Income is what you report on your personal income tax return.  For short, I will call it annual adjusted gross income.

The majority of news reports that focus on the so-called wealthy is really defining wealthy people in terms of income, not wealth.  But most of my discussions on the topic of the wealthy are in the context of net worth.  Why is it that so many in the media condemn the wealthy?  One of their arguments is that the wealthy did not earn their money, they inherited it.   Are they suggesting that high income people are living off the proceeds of a large estate?   Here are the facts.  According to my national surveys, 91.8% of households with an annual realized income in excess of $500,000 received less than 1% of their income from trusts, estates and/or gifts.  In terms of the percentage of net worth that these people received from an inheritance, 82.9% received less than 1% from trusts, estates and/or gifts.  And as income increases past the $1M annual level, the proportion of  “inherited income/wealth” decreases into the single digit percentage range.

Whether one focuses on the high income producers and/or those with high levels of net worth, the story remains the same.  Most of these people are economically productive as a result of their own efforts. 


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