Fiscal cliff threatens number of US millionaires

The number of millionaires in the US could drop by as much 6% in 2013, and HNWI wealth by about $240 billion, if the so called ‘fiscal cliff’ is not averted.  WealthInsight has prepared 4 scenarios, detailing the likely impact of the US fiscal policy standoff on the US HNWI population.

cliff scenarios

 Key findings:

 The total number of US millionaires (high net worth individuals, “HNWIs”)is forecast to grow by 4.3% in 2013.

  • But if GDP growth were to drop to 0% in 2013, as the IMF predicts if the fiscal cliff isn’t averted, HNWI volumes would decline by 5.9% – a swing of over 10%.
  • Even if the fiscal cliff is avoided, or is short-lived, “tiptoeing around the cliff-edge” has the potential to undermine economic growth and impact the US HNWI population in 2013:

–        If the US were to “fall off the cliff” and GDP growth flatlines, the number of HNWIs would fall by 315,000 in 2013; HNWI wealth would fall by about $240 billion.

–        In our ‘retrenchment’ scenario, a slowdown in annual GDP growth (to 1% in 2013) leads to a decline in the number of US HNWIs of 26,000; HNWI wealth would fall under this scenario by only $40 billion.

–        In our ‘steady’ scenario, GDP growth continues as forecast (2.1% for 2013) and the number of millionaires increases by about 230,000 compared with 2012; HNWI wealth in 2013 increases by just over $1 trillion.

–        If the threat of the fiscal cliff didn’t exist at all, we project that the US HNWI population would be set to swell by 443,000 individuals next year and HNWI wealth would increase by more than $1.6 trillion.

  • Uncertainty created by the fiscal policy standoff is shaping wealth managers’ asset allocation strategies.
  • Fixed income products recorded the strongest growth between 2007 and 2011, driven by a movement to safer asset classes. Looking ahead to 2016, alternatives are expected to be the top-performing asset class for HNWIs.
  • As of 2011 there are just over 5.1 million millionaires (HNWIs) in the United States, only 165,360 fewer than in 2007, despite the financial crisis.
  • From the end of 2008 to the end of 2011, the US has added more than 1.1 million HNWIs, an increase of 28.6%, as the HNW population rebounded from the financial crisis.

According to WealthInsight analyst, Christopher Rocks: “With signs that growth in the US economy is decelerating, HNWIs will be worried about the economic uncertainty being created by the so called ‘fiscal cliff’. At the moment there is intense speculation among wealth managers over what exact course US fiscal policy will take in the short-term, which could have significant repercussions for America’s wealthy population.”