Building Wealth for Early Retirement

Happy New Year Everyone!! The last part of 2018 was definitely a wild ride, not only for the stock market but personally. I wrote about how you can deal with the crazy stock market by having a solid investment plan and sticking to it. You can read about that here (Crazy Markets, Smart Plan).

Personally, 2018, was the start of our adventure. We sold off most of our belongings including our principal residence and decided to slow travel across South East Asia and surrounding countries.

Slow Travel

What is slow travel? Slow travel to us is about living in a particular country a little longer to truly experience life as a local or expatriate. To really immerse ourselves in the culture and food. This would give us a taste of how life could be if we decided to move to these locations.

Since we’ve only started our journey, we’ve lived in Chiang Mai Thailand for 2 months and have been in Kuala Lumpur, Malaysia for approximately 3 weeks. Our plan is to stay in Malaysia a little longer before we move to our next destination.

Cost of Living

As many of you may know the cost of living in Thailand and Malaysia is much lower. You can eat at a local food stand for as little as $2.00 to $3.00. The rent is also inexpensive (relative to North America). Alicia and I lived in a modern one-bedroom condo in the trendy part of Chiang Mai for 18,000 Thai Baht. That works out to approximately $750 CAD or $561 USD. You can read about our experiences living like a local and our cost of living in Chiang Mai here (Cost Of Living Chiang Mai).

The low cost of living made me wonder what the average salary in Thailand and Malaysia are. I found that the average annual salary in Thailand in 2016 was 161,844 THB (source: CNN Money). That is just under $6,805 CAD or $5,046 USD per year. The average annual salary in Malaysia 35,364 MYR or approximately $11,517 CAD or $8,541 USD per annum.

Average Income

The average salary in Canada in 2016 was $49,512 CAD or $36,717 USD. In the United States, the average salary was $44,952 USD or $60,616 CAD. The world average income in 2016 was $20,328 USD or $27,411 CAD. Here’s a graphical representation of the world income World Data. This representation is for 2015.

Top World Income Map

Net Worth by Country

This information made me wonder how wealth is distributed around the world. There’s no surprise that income levels correlate with wealth distribution.

World Net Wealth Map

As you can see there are only a small number of countries with an average net worth of over $100,000 USD. According to 2018 Global Wealth Report from Credit Suisse Research Institute that would put those individuals in the top 10% of worldwide wealth. To be exact you would need $93,170 USD. You need a net worth of $871,320 USD to be among the top 1% globally. In terms of income, all you would require is an annual income of $32,400 USD Global Rich List. Earning $100,000 USD would put you in the top 0.08% globally; $100,000 CAD would put you in the top 0.11% globally.

What does it take to be in the 1% in Canada and the US?

To be among the top 1% earners in the U.S. a family needs an annual income of $421,926, this is the bottom threshold. The average income of the top 1% is $1.32 million (CNBC). The actual net worth thresholds were much harder to find but I did find several articles referencing Sam’s data (below image) from the Financial Samurai. Sam also has several great articles on net worth and the top 1%.

Top 1% Net Worth

In Canada to reach the top 1% of income earners, you would require an income of $191,000 CAD or $142,800 USD. According to Worthmeter Canada (Frugal Fringe), you would need a net worth of just under $6 million to be among the top 1% in Canada.

Although there is a large difference in income for the top 1% income earners in the US vs Canada, the net worth difference isn’t as large. Here is a list of net worth by country. The US is number 21 on the list with a median income of $61,667 and a mean income of $403,974. The mean is the total wealth of the country divided by the number of adults. Countries with a high concentration of wealth will have a higher mean net worth.

Country net worth

Income and Net Worth correlation

As you would expect there is a strong correlation between higher income and higher net worth. Both the Federal Reserve Survey and Stats Canada shows that highly educated individuals are more likely to have higher incomes and thus higher net worth.

In Canada, over two-thirds of the top 1% income earners held a university degree. Of the top 1% with a post secondary qualification, 87.4% studied in one of three major fields: business, health and engineering.

In the U.S., the mean net worth of an individual with a college degree jumped significantly (almost 450%) compared to the next closest with some college degree. That is huge!!!

Net Worth and Education

Final Thoughts

Although earning a high income is important to building wealth, it is useless without the other two components, savings and investing. There are countless stories of high-income earners forced  to work well into retirement because of their lavish lifestyle.

If you’re not a high-income earner, don’t despair. There are just as many success stories of modest income earners obtaining high levels of wealth. Here is a story of a janitor who amassed $8 million (Daily Mail) and left $6 million to the local hospital and library.

You just need to live a modest lifestyle, save excess earnings and invest those earnings in assets that will provide cash flow (dividend/rent) and/or provide capital gains.

I’ve outlined the best practices for early retirement (Steps To Early Retirement) and the process we took for our early retirement. Ultimately, there are many paths to reach your retirement goals but there are common themes. Earn as much as possible through your career, a side hustle or a business because there is only so much you can do to reduce your expenses. Save as much as possible after expenses and invest in assets that will grow your wealth.

Sounds simple but in this era of consumerism, it’s not easy for everyone.

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