“Her husband also had mental-health issues, so she couldn’t rely on him.” (Photo subject is a model.) – Getty Images/iStockphoto
Can you work minimum wage and retire with $2 million?
A gentle reader asks this question: “We read stories of some people making six figures while living paycheck to paycheck. My Taiwanese friend moved here, couldn’t read or write English, married an American GI, moved to Texas, worked minimum wage at Walmart – worked for almost 60 years – and her husband retired at only 7. The portfolio is about $2 million and she is a She lives with a disabled son, so she couldn’t rely on him. It’s possible that she did it with her husband’s seed money and, yes, it’s possible that she did it without it.
Living paycheck to paycheck means different things to different people. For someone making $100,000 or $200,000 a year who is living paycheck to paycheck, they’re probably balancing their books (tightly) every month because they’re contributing 6% of their salary to their 401(k) or IRA; 30% on mortgage payments (instead of rent) so that they can benefit from the appreciation of their property over the life of the mortgage); And thousands of dollars in their children’s tax-advantaged college 529 plans — excluding monthly food, transportation, vacation, leisure, gym and utility expenses.
As Americans try to get out (or wait) out of the current “affordability crisis,” six-figure earners are making up a much larger share of consumer spending. In fact, the top 10% of earners—those households making about $250,000 a year or more—have made huge gains in recent years thanks to a prolonged bull market and growth in their real estate and other assets. They account for about 50% of spending, up from 36% three decades ago, according to Moody’s Analytics data published by the Wall Street Journal.
Given what her Taiwanese friend has said about her early years and the fact that she can’t rely on her husband to bolster her financial security, Walmart WMT could get away with staying on the pink slip road if she didn’t have a wealthy family as a social safety net. What’s more, he may have been sending money to his own family of origin. It’s the stuff the American dream is made of, but even first-generation immigrants have language barriers that can limit their work-life prospects.
So how did she do it? One penny at a time, and a lot of sweat, sacrifice, patience, stamina, and, possibly, involvement in the company’s cooperative stock purchase plan. If she moves him at age 20, and saves $200 a month for age 60 and invests that money at the rate of gradual compounding (where both interest and principal increase as stocks rise) and a 7% typical long-term stock-market return after inflation, she’ll have more than $2 million after 60 years. It’s more than it sounds. Here’s the secret: more than 90% of the money he earns is from compound interest.
Of course, that’s a lab-experiment result. There is much we don’t know about her circumstances, and the fate she had along the way. If she is making the current federal minimum wage of $1,160 per month it is almost impossible for her to save $200 or more covering basic expenses such as food, utilities, transportation, clothing, etc. hello Most financial advisors recommend saving at least 20% of your income ($232, in this case).
People who started investing in the stock market in the 1960s and 1970s also enjoyed some spectacular (ie, double-digit percentage) returns. A $50,000 tiny house in California in the 1970s could easily be worth $500,000 today. Owning two homes would add hundreds of thousands of dollars to the reader’s friend’s net worth without a Walmart salary. Being able to get on the property ladder quickly can be one of the biggest rocket boosters to financial independence later in life.
Here’s the secret: more than 90% of the money he earns is from compound interest. – Marketwatch illustration
Peter C. Earle, director of Economics and Economic Freedom and a senior research fellow at the American Institute of Economic Affairs, offers some serious thoughts on the minimum wage. “At its core, minimum wage laws establish a legally binding floor on wages, meaning employers cannot pay workers less than a certain hourly rate,” he writes. “Some employers may be exempt from minimum wage laws, such as small businesses with fewer than a specified number of employees, those who hire seasonal or agricultural workers, and family-owned businesses where only close relatives are employed.”
This Taiwanese woman may have started out earning minimum wage at Walmart, but her experience and improved language skills have allowed her to advance, further her education, and/or find a higher paying role. Or she moved to a new area. Millionaires — it’s always millionaires who make it look easy — sometimes like to advise low-wage workers to dream beyond their shifts. In addition to their primary income, they recommend setting up side hustles and/or own businesses, dividends, rental income, capital gains on investments, etc. Although the advice is not exactly wrong, it is predictable.
Minimum wage can keep you in poverty, as Walmart is one of the top companies to receive federal aid in the form of Medicaid and food stamps. “The intent, as generally stated, is to ensure that even the lowest paying jobs provide a basic standard of living,” adds Earle. “The minimum wage does not operate in a vacuum, however. Its impact depends on broader economic conditions, labor market dynamics, and the relative bargaining power of employers and employees. When the minimum wage is set above the market equilibrium rate—the supply and demand for labor naturally balance—it can unexpectedly reduce employment opportunities and reduce self-employment opportunities.”
The $2 million woman is a miracle of human dignity and perseverance. “One of the most troubling effects of higher minimum wages is their disproportionate impact on marginalized workers — those with the least experience, the lowest skill levels, or the greatest barriers to employment,” adds Earle. “People with limited education often struggle the most to secure jobs when wage floors are high, as employers prefer to hire more experienced or highly skilled workers. This can create long-term economic disadvantages, as job seekers are unable to gain the experience they need to move up the career ladder.”
Wealth is also relative. According to Charles Schwab’s SCHW, Americans believe it takes $839,000 to be “financially comfortable,” up from $778,000 last year. That number was $2 million, give or take a few hundred thousand dollars, over the last five years. Respondents cited the effects of inflation, a weak economy and higher taxes as reasons they needed more to feel rich. High interest rates and their influence on the ability to borrow money took their toll. (As a friend of the reader will tell you, the 30-year mortgage rate exceeded 16% in the early 1980s; it is now over 6%).
About 25 million families in the U.S. earn less than $30,000 per year. Minimum wage, for the record, is about $15,000 a year. The share of American adults living in middle-class households has declined over the past five decades, to 51% in 2023, from 61% in the early 1970s. Inflation obviously plays an important role in defining wealth, especially when it comes to housing. The median home price in the United States is $363,932, unchanged from last year, according to Zillow. In California, however, it is $763,288. In New York City, it’s $806,834. Longevity and diversification help build wealth.
Oh, and one more thing. His Taiwanese friend may have hired him to rent and, I guess, avoid running into credit-card debt while he was raising his family. She may have avoided those gaps by working overtime and relying on her immigrant community for childcare and other household duties. She did it alone, but she didn’t do it alone. Friends, neighbors, extended family, and those small, everyday rewards turned him into the example he sets for us now.
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