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Comment by iso1210 | Hacker News Reader

If your 10 million pot increases by 4% per year above inflation, and each generation has 3 kids, after 25 years it's 33 million, each kid gets 11 million (adjusted for inflation). They can take 1 million and still pass on 10m each to their kids.

That 1 million is $40k a year, which is enough to live. Especially when part of that 10m is a house which costs very little to maintain (compared with rent). Crucially it's a great safety blanket too, you don't have to work 2 full time minimum wage jobs to afford to live, which increases the chance of getting a good job to top up that wealth.

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> That 1 million is $40k a year, which is enough to live. Especially when part of that 10m is a house which costs very little to maintain

This doesn’t happen. People with $10 million net worth aren’t living on $40K per year.

Expensive houses aren’t cheap to maintain or furnish or keep upgraded.

> Crucially it's a great safety blanket too, you don't have to work 2 full time minimum wage jobs to afford to live,

Why is this a comparison? Minimum wage jobs are actually extremely rare right now, but it doesn’t make sense that a family with $10m net worth would even have minimum wage no-skill jobs on their radar.

I think you’re looking at this from an extreme early retirement (FIRE) scenario for the entire family, but that’s not how people do this at all. Even wealthy kids get (expensive) educations and go on to have productive careers. Wealthy families aren’t just opting out of society and FIREing with $40k of spending per year.

10m wouldn't be the house, you live in a normal 300k house and pay no rent, the 40k covers all your day to day expenses, and you don't need to work. In reality you can probably levarage your security and contacts to get yourself a nice cosy consulting job.

Of course you could decide "I have 10m, I'm going to spend it". Thats your choice.

With 10% growth and 2-3 kids you can pass that on indefinitely to all your children even if all you do is a typical middle class office job.

You lost an order of magnitude in your math: 4% of $10M is $400k.

There is $400k/year to spend per year.

The 400k would have to be reinvested to grow the pot enough in 10 years to be able to split to 3 kids and have the same pot as before.

I agree it is possible to be frugal and maintain the wealth - however there will be great difficulty adjusting to living off 40, 80, or even 120k a year after a lifetime of having multi-millionaire parents. I think that is what the original author was trying to convey - they just left out my original point about the division of the estate.

That depends on the frugality of the multi-millionaire parents.

No one who grew up rich is going to live in 40k a year.

No, but none of them do nothing to increase their wealth either. They leverage the opportunity of being born wealthy and use it to increase their wealth in ways that are completely unavailable to lower classes.

If...

The other thing is people don't inherit when they are 20, rather when they are 50 or older. Children of well off families do get a leg up, first because they can afford to take more risk, have better access to education, also because of what they learn from their parents. But inheritance is typically something that come much after they key years of one's career.

After 100 years, you have:

Gen 1: 3

Gen 2: 3 + 9

Gen 3: 3 + 9 + 27

Gen 4: 3 + 9 + 27 + 81

Assuming the Gen 1 lives to 100 and each Gen has 3 kids every 25 years, then at the end you have 120 mouths to feed.

100 years of 4% growth above inflation would be rough 50x so 500M. But that assumes no consumption over the 100 years. Either way the growth of people overcomes the growth of resources over time.

Why would you assume 3 kids for every generation when birth rates are currently below replacement level? Also, add in rich people marrying people of similar socioenomic status, and you end up with quite wealthy families down the line.

For the wealthy when people refer to growth versus consumption the context is almost always against the return generated from their portfolio, and the two are separate figures. That "4% growth above inflation" does not include what the capital owner is drawing for his own income. It's almost certainly more like an 8% - 10% return gives 3% to taxes and inflationary pressure, 3% - 4% for income, and the rest to growth.

And, yes, it's quite easy for the wealthy to get investments that return 7% - 8% with low to modest risk of loss. It's much harder to get more than that, but it's not difficult to generate substantial returns from even a modest portfolio in the low 7-figure range.

5% sorry. It's a reasonable long term return.

25 years per generation.

Year 0: 10m Year 25: 33.8m. 3 kids, give them 10m each, leaving you with 3.8m for the rest of time

This repeats as long as you want.

Over 100 years at 5% you have 1.315 billion over 120 people, which is 10.95m each.

At 4% you'd have to have a 29 year generation, which is certainly more realistic (I know very few people who had the first kid under the age of 30). And would everyone have 3 kids? Don't forget to account for kids who die before they reproduce too.

So where can I get into that 4% above inflation investment that is financially secure (ie: low risk of capital loss)?

Over a long enough time period index funds are pretty darn secure. The key is the long time period. And since the beginning of records, the inflation adjusted return is around 6-7%.

Of course if western capitalism finally crashes you'd be screwed. But then everyone in the west is.

I guarantee you that almost nobody with a net worth of $11MM lives on the income produced from 10% of it and lets the rest sit as if it doesn't exist. They can--and do--live on much more than that (at least $300k/year, for ultraconservative draw on the capital) and still watch it grow substantially.

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