Another article about the challenges of saving despite high income

[NW-Bound]

Why do you say this? I didn't believe there was currently any type of means testing in SS payouts.

It is more obvious, if you do your own tax. I use TurboTax, I just add SS, no tax at first, the minute I add other income, 85% of SS is taxed. If that’s not means testing, what is ?

Not a direct means testing, but definitely a "clawback" of a portion of the SS payout.

We are all resigned to this, but it would not surprise me to see more clawback implemented in the future to address the SS fund shortfall.

 

[Mdlerth]

Knocked it out of the park

Looks like you have bigger problems to worry about Urn2befree. Both Ha and Fedup announced above that they are with your wife!

This wins Best Comment of the Week.

 

[mrWinter]

It is more obvious, if you do your own tax. I use TurboTax, I just add SS, no tax at first, the minute I add other income, 85% of SS is taxed. If that’s not means testing, what is ?

Did not know it worked that way. Bummer. Is that Fed tax or state or both?

 

[Fedup]

Did not know it worked that way. Bummer. Is that Fed tax or state or both?

Federal. But you can also look at your state tax there too. In California, SS is exempted from state tax. So taking it late means you can duck paying a lot of state tax.

 

[foxfirev5]

Some forum members are irked by the irony of saying you're retired, while running a money-making blog about how to retire.

Exactly. These blogs are a gross misrepresentation of your situation. There are those of us that highly value the fact that we do not have to lift a thumb to preserve our lifestyle.

 

[Dtail]

Exactly. These blogs are a gross misrepresentation of your situation. There are those of us that highly value the fact that we do not have to lift a thumb to preserve our lifestyle.

+1
Don't wish to ever work again (non volunteer)

 

[RunningBum]

again, since this is an ER forum, that's the relevant context for discussion.
...
and remember it's not just the mortgage - property taxes, maintenance are all proportionally higher on a $750,000 vs. $250,000 home.

The point is, don't go fishing over in non-ER forums and newspaper articles complaining about people not living an ER lifestyle. Some people are perfectly to content to have more things now and work til 65 or 67. And that's fine.

And you obviously have no clue what $250K buys in their area. I checked zillow, and the only thing I saw under $250K was land, and one 2BR home that looks like a double wide or similar type construction house.

 

[unclemick]

No guts no glory. Aka agile, mobile and hostile.



Younger Sis and BIL were not math challenged. Lived in general vicinity of Covington, Ravensdale, Kent, Auburn , Seattle .

Last ten years or so before retirement rented the guest apartment of an airplane hanger.

heh heh heh -when you cut expenses to save, you cut expenses. You don't dink around. Where are the 'Four Yorkshiremen' when we need them. .

 

[urn2bfree]

As far as "wasteful" spending-
1)second home as a rental that apparently costs more than it generates
2)second mortgage used to improve home while still paying off student loans?!
3) maintaining a car just for racing and participating in weekend races until his financial makeover
4) 2 dogs - look like they could be purebred, but who knows? Wasteful? Well, clearly 2 dogs are not a necessity

That nothing in the article even questioned the last two items screams of an obliviousness borne of entitlement.
I hope those who think these sorts of people won't run out of money and then ask for a bailout from us savers are right, and I am wrong. I am skeptical.

 

[NW-Bound]

The mortgage payment by itself should not cause them financial difficulties. They bought their home for $659K, and assuming a mortgage of $600K over 30 years at 4% the payment is $34K/year.

They should be able to pay that mortgage out of a gross income of $150K. We just do not know the rest of their expenses. Maybe two nice new cars, deluxe European vacation or cruises, children in private school, Italian clothing, etc... There are so many ways one can "blow the dough".

 

[RunningBum]

As far as "wasteful" spending-
1)second home as a rental that apparently costs more than it generates
2)second mortgage used to improve home while still paying off student loans?!
3) maintaining a car just for racing and participating in weekend races until his financial makeover
4) 2 dogs - look like they could be purebred, but who knows? Wasteful? Well, clearly 2 dogs are not a necessity

That nothing in the article even questioned the last two items screams of an obliviousness borne of entitlement.
I hope those who think these sorts of people won't run out of money and then ask for a bailout from us savers are right, and I am wrong. I am skeptical.

Now you're upset because they have 2 dogs?

 

[Dtail]

Now you're upset because they have 2 dogs?

haha
Seeing many more families with 2 dogs now.

 

[Lukeee]

perhaps the 2 dogs are a source of income for them.

I was about to attach a pic just in case there were questions about how 2 dogs could be a source of income... but i like this place and didn’t want to be banned.

 

[Amethyst]

I agree pets are a luxury, not a real necessity, but what are they supposed to do now? Get rid of the dogs?
Having too many kids is not financially responsible, but the financial makeover isn't going to say "send them to the orphan farm."

Also I think the owner is right to idle the racing car for now, not try to sell it. It was probably a source of joy to him, and he likely would not get his money out of it (sort of like telling me to sell my jewelry - the $$-smart thing to do was not to buy it in the first place, but selling it now will net very little).

Unless there are lots of fancy meals out and vacations that weren't in the article, there seems hope for this family. They work, they earn, they seemingly stay out of trouble and they are not what I'd call over-housed. And she's got a pension coming.

Now you're upset because they have 2 dogs?

 

[mountainsoft]

I think some of us (myself included) sometimes forget about the life lived before retirement. We're so busy scrimping and saving for the future, we don't take a little of that money to enjoy today. Saving for tomorrow is great, but what if tomorrow never comes?

The family in the article still has two young kids and a mortgage. That's the stage of life they're in. He has a car as a hobby, probably an expensive hobby, but that's what he enjoys doing. Take that away and what is he left with?

I'm sure we all have areas we could cut back. I know I do. But I want to enjoy life now also, not just after retirement.

At least the family in the article is saving and planning for the future. They have way more set aside than I did at that age.

 

[imoldernu]

Not being very knowledgeable in the income, assets, liability analysis, my inclination is to first look at the household budget, (read that as to where the money is spent... not what looks good)

from here:
https://www.usatoday.com/story/money/personalfinance/budget-and-spending/2018/05/08/how-does-average-american-spend-paycheck/34378157/

.

Food: $7,203, which can be further broken down into $4,049 of food at home and $3,154 on food away from home.
Alcoholic beverages: $484.
Housing: $18,886, which includes mortgage payments or rent, property taxes, maintenance, utilities, household services and products, furnishings and appliances. On a monthly basis, this implies that the average household spends $1,573 on all of these expenses combined.
Apparel and services: $1,803.
Transportation: $9,049. In addition to the cost of vehicles, this includes gasoline, finance charges, maintenance, insurance and public transportation expenses.
Health care: $4,612, which includes the cost of health insurance, medical services, prescription drugs as well as other medical supplies.
Entertainment: $2,913. This includes in-home entertainment costs, as well as outside-the-home entertainment ventures. Certain other expenses, such as your pets, are included here.
Personal care products and services: $707.
Reading: $118.
Education: $1,329.
Tobacco products and supplies: $337.
Miscellaneous: $959.
Cash contributions (charity, for example): $2,081.
Personal insurance and pensions: $6,831. The largest expense in this category is Social Security payroll tax, but life insurance premiums and pension contributions are also included.
Personal taxes: $10,489, which includes the average household's $8,367 federal income tax bill, as well as state and local income taxes.

That doesn't address the original article at all, but sets some kind of guideline as to how an average family, with a $75,000 income, spends.

A far cry from our own income/expense, of a little more than half of the average, but some insight into how the average American family works and spends.

If I were asked to give advice on a similar situation, I think I'd ask first, for a comparison breakdown of the actual expenses... and where the dollars or percentages differ... to explain why.

Instead of a top down, a bottom up.

 

[daylatedollarshort]

Not being very knowledgeable in the income, assets, liability analysis, my inclination is to first look at the household budget, (read that as to where the money is spent... not what looks good)

from here:
https://www.usatoday.com/story/mone...oes-average-american-spend-paycheck/34378157/

.

That doesn't address the original article at all, but sets some kind of guideline as to how an average family, with a $75,000 income, spends.

A far cry from our own income/expense, of a little more than half of the average, but some insight into how the average American family works and spends.

If I were asked to give advice on a similar situation, I think I'd ask for a comparison breakdown of the actual expenses... and where the dollars or percentages differ... to explain why.

Instead of a top down, a bottom up.

We did exactly that when we started thinking about retiring. I put our budget in the same categories as the Consumer Expenditure Survey and looked for the items that were out of range. I couldn't do a lot about some categories, like housing, without moving, but other categories like groceries and hair salons were a real wake up call. I know now the groceries in my neighborhood stores are 2 - 5 times what they cost at the ethnic and outlet markets only 10 minutes from my house. Now I keep a price list so I don't get ripped off any more.

 

[ncbill]

I think some of us (myself included) sometimes forget about the life lived before retirement. We're so busy scrimping and saving for the future, we don't take a little of that money to enjoy today. Saving for tomorrow is great, but what if tomorrow never comes?

The family in the article still has two young kids and a mortgage. That's the stage of life they're in. He has a car as a hobby, probably an expensive hobby, but that's what he enjoys doing. Take that away and what is he left with?

I'm sure we all have areas we could cut back. I know I do. But I want to enjoy life now also, not just after retirement.

At least the family in the article is saving and planning for the future. They have way more set aside than I did at that age.

Still, it points out the impact of housing expense on one's ability to save for other goals.

At best, they've stretched their home expenses beyond the recommended, so something's gotta give.

Which is why we see so little retirement savings...with saving for college likely out of the question altogether.

Another risk is of course the fact that they've bet their main "investment" and most of their household income only on real estate.

It wouldn't take a "Great Recession" to drop local home values and also put hubby out of work.

 

[Running_Man]

I must be missing something, a couple of 40+ year olds that chose to invest in real estate in Seattle area instead of stock market have a net worth of $627,000 who work as a school teacher and an appraiser of real estate and they are doing poorly?

This is a tough crowd, there are 11 million households in US in this age group and they are in the top 12 percent of their age group.


https://dqydj.com/net-worth-by-age-calculator-united-states/

 

[Fedup]

They are a little lite on retirement savings but they are still young yet, both of my kids have very similar amount and they are in their 20s, and one is a creative type, so not high income. At least this couple is now aware of their problem, they are seeking help. That’s the first step toward getting FI, conscious about the lack of savings and perhaps a desire to contribute more.

 

[friar1610]

As far as "wasteful" spending-
1)second home as a rental that apparently costs more than it generates
2)second mortgage used to improve home while still paying off student loans?!
3) maintaining a car just for racing and participating in weekend races until his financial makeover
4) 2 dogs - look like they could be purebred, but who knows? Wasteful? Well, clearly 2 dogs are not a necessity.

That nothing in the article even questioned the last two items screams of an obliviousness borne of entitlement.
I hope those who think these sorts of people won't run out of money and then ask for a bailout from us savers are right, and I am wrong. I am skeptical.

I don't know their whole story so I'm not going to "bark" at them for having dogs. But as a dog-owner who recently paid >$1200 in vet bills for a minor problem with Fido, I have to admit that I picked up on the 2 dogs in the picture as being an expense that might not be essential.

 

[Independent]

I must be missing something, a couple of 40+ year olds that chose to invest in real estate in Seattle area instead of stock market have a net worth of $627,000 who work as a school teacher and an appraiser of real estate and they are doing poorly?

This is a tough crowd, there are 11 million households in US in this age group and they are in the top 12 percent of their age group.


https://dqydj.com/net-worth-by-age-calculator-united-states/

Yep. They are better off than most people, but they may have higher expectations about retirement spending than most people.

I see two issues, real estate exposure and college.

Half their net worth is driven by an attractive local real estate market. They believe they made $150k in two years on their primary residence. Maybe, maybe not. They think they have $150k equity in the rental. No information on how that happened. The fact that he is a real estate appraiser may give them an advantage in making money on residential property. But, still, $300k of their net worth is in their principal residence.

Annual costs at the University of Washington are about $28k. They probably want to fund 8 years of that, and they don't have any earmarked savings for it.

Figuring $150k gross income, $25k in taxes, and $40k in mortgage payments, the have $85k for other spending.

The Consumer Expenditure Survey that ImOlder posted has about $50k for expenses that could match up to that $85k. I'd recommend that they they track their expenses in the CES categories, and see what they can cut.

I'd like to see the planner's retirement budget. They probably can use a discussion on their priorities. Sounds like they are doing that.

 

[brokrken]

For what it's worth, the $850k house is where they lose me. DW and I combined make double what they make and live in a fairly HCOL (for the Midwest) and wouldn't think of buying a house that expensive, even though we can afford it.

 

[haha]

For what it's worth, the $850k house is where they lose me. DW and I combined make double what they make and live in a fairly HCOL (for the Midwest) and wouldn't think of buying a house that expensive, even though we can afford it.

Of course, you also would have no reason to buy a house that expensive. While you could overpay, the people here cannot underpay, as you would know if you had ever lived anywhere where residential real estate is expensive or very expensive.

Ha

 

[daylatedollarshort]

What you say? In state and living at home it should be less than half of that. The most recent resident tuition figure I have seen is less than $11,000. Still too damn much. It helps young people to pay their own way, and work. Many fewer of these students would drink their way through the years at college, and still fewer would take courses that while fun will have zero or at times negative career value.

True that the US post secondary education system is a swindle, but the young person does not have to cooperate in being swindled.

Ha

There are also many community college degrees these days that may lead to more promising careers than low demand majors at four year colleges. Besides less costs, there's an extra two years in the job market at a skilled worker salary.