“Her husband also had mental health issues so she couldn’t rely on him.” (The subject of the photo is a model.) – Getty Images/iStockphoto
Can you work minimum wage and retire with $2 million?
A gentleman reader asks this question: “We read news about 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 at Walmart for minimum wage – worked for almost 60 years – and retired a few years ago, got sick of her portfolio of 28 of dollars.She owns two houses and lives with a disabled son and her husband had mental health issues so she could not rely on him.She may have done this with start up money from her husband and yes she may have done this without it.
Living paycheck to paycheck means different things to different people. For someone making $100,000 or $200,000 a year and living paycheck to paycheck, they’re probably balancing their (tight) bookkeeper every month because they’re also contributing 6% of their paycheck to their 401(k) or IRA; 30% on mortgage payments (rather than rent) so they benefit from the increase in property value over the life of the mortgage); and thousands of dollars in their children’s tax-advantaged 529 college plans, on top of monthly expenses for food, transportation, vacation, leisure, gym and utilities.
As Americans try to navigate (or wait for) their way out of the current “affordability crisis,” six-figure earners are accounting for a much larger share of consumer spending. In fact, the top 10 percent of earners—those households making about $250,000 a year or more—have made huge gains in recent years because of the prolonged bull market and the rise in real estate and other assets. They account for nearly 50 percent of all spending, up from 36 percent three decades ago, according to Moody’s Analytics data published by The Wall Street Journal.
His Taiwanese girlfriend, given what she says about her early years and the fact that she couldn’t rely on her husband to increase her financial security, could have been a Walmart WMT skid from being on the street if she didn’t have a wealthy family as a social safety net. Moreover, she may also have sent money home to her own family of origin. That’s what the American dream is made of, but first-generation immigrants also have language barriers that can restrict their career prospects.
So how did he do it? One penny at a time and a lot of sweat, sacrifice, patience, endurance and maybe involvement in the plan to buy shares associated with the company. If she moved it to age 20 and saved $200 a month for 60 years and invested that money gradually, with capital appreciation (where interest and principal grow as stocks grow) and a typical long-term return on the stock market after inflation, she would have just over $2 million after 60 years. It’s more than it sounds. Here’s the secret: more than 90% of the money he made came from compound interest.
Of course, this is a result of a laboratory experiment. There is so much we don’t know about her circumstances and the luck she’s had along the way. If they earned the current federal minimum wage of $1,160 per month, it would be nearly impossible for them to consistently save $200 or more over 62 years covering basic expenses such as food, utilities, transportation, clothing, etc. 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 spectacular (ie, double-digit percentage) returns. A modest $50,000 home 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 her Walmart salary. Being able to get on the property ladder early can be one of the biggest incentives for financial independence later in life.
Here’s the secret: more than 90% of the money he made came from compound interest. – MarketWatch illustration
Peter C. Earle, director of economics and economic freedom and senior fellow at the American Institute of Economic Affairs, offers some serious thoughts on the minimum wage. “Essentially, a minimum wage law sets a legally binding cap on wages, meaning employers cannot pay workers below a certain hourly rate,” he writes. “Certain employers may be exempt from minimum wage laws, such as small businesses with fewer than a certain number of employees, those that employ seasonal or agricultural workers, and family businesses that employ only close relatives.”
This lady from Taiwan may have started at Walmart making minimum wage, but I bet her improved experience and language skills allowed her to advance, further her education, and/or find a higher paying role. Or moved to a new sector. Multi-millionaires – always multi-millionaires make it look easy – sometimes like to advise low-wage workers to dream beyond their shifts. In addition to their primary income, they recommend side hustles and/or starting their own businesses, dividends, rental income, capital gains from investments, etc. Advice can be predictable, if not downright inaccurate.
The minimum wage can keep you in poverty because Walmart is one of the top companies that receives federal aid in the form of Medicaid and food stamps. “The intention, as is usually said, is to ensure that even the lowest paid jobs provide a basic standard of living,” adds Earle. “However, the minimum wage does not operate in a vacuum. Its effects depend on broader economic conditions, labor market dynamics, and the relative bargaining power of employers and employees. When a minimum wage is set above the market equilibrium rate—the wage at which labor supply and demand naturally balance—it can lead to unintended consequences, such as reduced employment opportunities.”
The $2 million woman is a miracle of human dignity and perseverance. “One of the most troubling effects of high minimum wages is their disproportionate impact on marginal workers—those with the least experience, lowest skill levels, or greatest barriers to employment,” adds Earle. “People with limited education often struggle the most to secure jobs when wage levels are high, as employers prioritize hiring more experienced or highly skilled workers. This can create long-term economic disadvantages because job seekers cannot gain the experience needed to move up the career ladder.”
Wealth is also relative. Americans believe $839,000 is needed to be “financially comfortable,” according to Charles Schwab’s SCHW, up from $778,000 last year. That figure has been $2 million, give or take a few hundred thousand dollars, over the past five years. Respondents cited the impact of inflation, a weakened economy and higher taxes among the reasons they believe it takes more to feel rich. Higher interest rates and their impact on the ability to borrow money have taken their toll. (As the reader’s friend would tell you, the 30-year mortgage rate topped 16% in the early 1980s; now it’s just over 6%).
About 25 million US households earn less than $30,000 a year. The minimum wage, for the record, is about $15,000 a year. The share of US adults living in middle-class households has declined over the past five decades, to 51% in 2023, from 61% in the early 1970s. Inflation clearly plays a critical role in defining wealth, especially when it comes to housing. The median home value in the U.S. is $363,932, unchanged from last year, according to Zillow. In California, however, it’s $763,288. In New York, it’s $806,834. Wealth building is aided by longevity and diversity.
Oh, and one more thing. His Taiwanese friend may have gotten tenants for her rental and I guess avoided getting into credit card debt while raising his family. She may have avoided those pitfalls by working overtime and relying on her immigrant community for childcare and other household duties. She did it alone, but she probably didn’t do it alone. Friends, neighbors, extended family, and those small daily rewards made her the example she is now.
Related: My mother is selling my late father’s multi-million dollar real estate portfolio in California – should I sit idly by?
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– Where are we vulnerable? My husband and I are in our 50s. Our $450,000 mortgage is paid off. We have $500,000 in our IRA.
My 81 year old mother in law is guilting us into paying for her ‘bucket list’ trip to Italy. Do we say no?
“It’s a dangerous choice”: I was offered a part-time job. Do I file for Social Security at 67 or 70?
