“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 on $2 million?
A gentleman reader asks this question: “We read news about some people making six-figure incomes 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 only because her portfolio got about $2 million. the owner of two houses and living with a disabled son.It is possible that she did it with seed money from her husband and, yes, it is possible that she did it without it.
Living paycheck to paycheck means different things to different people. For someone earning $100,000 or $200,000 a year who is living paycheck to paycheck, they are probably balancing their books (well) every month because they are also contributing 6% of their salary to their 401(k) or IRA; 30% on mortgage payments (instead of rent) in order to benefit from the increase in the value of their property during the life of the mortgage); and thousands of dollars in their children’s 529 tax college plans — in addition to monthly expenses for food, transportation, vacations, entertainment, 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% of earners — those households making about $250,000 a year or more — have made huge gains in recent years due to the long-term bull market and increases in their real estate and other assets. They account for almost 50% of all spending, up from 36% three decades ago, according to Moody’s Analytics data published by The Wall Street Journal.
His Taiwanese friend, because of what he says about her early years and the fact that she could not rely on her husband to strengthen her financial security, could have been one Walmart WMT pink slip away from being on the road, if she did not have a rich family as a social security net. In addition, she may also have been sending money home to her own family of origin. This is the stuff the American Dream is made of, but first-generation immigrants also have language barriers that can restrict their prospects for working life.
So how did she do it? A penny at a time, and a lot of sweat, sacrifice, patience, stamina, and, perhaps, involvement in the company’s associated stock purchase plan. If she moved it in her 20s, and saved $200 a month for 60 years and invested that money gradually, with the value of compounding (where interest and principal both increase as stocks rise) and a typical long-term stock return of 7% 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 she earned is from compound interest.
Of course, that is a result of the laboratory experiment. There is much we do not know about her circumstances, and the luck she had along the way. If she were earning the current federal minimum wage of $1,160 a month they would find it almost impossible to consistently save $200 or more over 62 years while covering basic living 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 money in the stock market in the 1960s and 1970s also enjoyed some spectacular returns (ie double digit percentage). A modest $50,000 home in California in the 1970s could easily be worth $500,000 today. Owning two homes adds hundreds of thousands of dollars to the reader’s friend’s net worth without her Walmart wages. Being able to get on the property ladder early can be one of the biggest rocket boosters for financial independence later in life.
Here’s the secret: More than 90% of the money she earned is from compound interest. – Illustration of MarketWatch
Peter C. Earle, director of economics and economic freedom and senior research fellow at the American Institute for Economic Affairs, offers some sobering thoughts on the minimum wage. “At its core, a minimum wage law sets a legally binding floor on wages, meaning that 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 less than a specified number of employees, those who employ seasonal or agricultural workers, and family businesses where only immediate relatives are employed.”
This Taiwanese lady may have started at Walmart earning minimum wage, but I’m guessing that improving her experience and language skills allowed her to move on, further her education and/or find a higher paying role. Or moved into a new sector. Multimillionaires — always multimillionaires 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 side hustles and/or setting up their own businesses, dividends, rental income, capital gains on investments, etc. The advice can be predictable, if not exactly inaccurate.
The 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 typically stated, is to ensure that even the highest paid jobs provide a basic standard of living,” Earle adds. “The minimum wage does not operate in a vacuum, however. 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 and increased automation.”
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, the lowest skill levels, or the greatest barriers to employment,” adds Earle. “Individuals with limited education often struggle the most to secure jobs when minimum wages are high, as employers prioritize hiring workers with more experience or high skills. This can create long-term economic disadvantages, as job seekers cannot gain the experience needed to move up the career ladder.”
Wealth is also relative. Americans believe they need $839,000 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 weakening 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 will tell you, the 30-year mortgage rate topped 16% in the early 1980s; now it’s just over 6%).
About 25 million households in the United States earn less than $30,000 a year. The minimum wage, for the record, amounts to 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, particularly when it comes to housing. The average home value 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. Wealth building is aided by longevity and diversity.
Oh, and one more thing. A Taiwanese friend of his could have gotten tenants for her rental and, I presume, avoided being thrown into credit card debt while she was raising her family. She could 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 have turned her into the example she gives us now.
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