Another article about the challenges of saving despite high income

[Luvdogs]

They also "lucked out" on the recent run-up in real estate prices. So they bought their house for 659K in 2016 and two years later it is worth 850K. They owe 536K. So that's where 190K of their net worth came from.

If it had gone up at a more at a rate more like the rest of the country, their net worth would even be less.

Crazy they would spend that much on a house (and also the rental) with their income and that banks would lend it to them -but that's a vent for another thread.

 

[The Cosmic Avenger]

WRT W2R, I don't think math skills are the problem. I think it is more emotional thinking overruling logical thinking. Why is he "parking" the souped up money pit instead of selling it. Also, eating out less often - - - should be no eating out until retirement future is on sound footing.

My math skills are fairly challenged. But, I didn't need much computational talent to know that staying out of debt, owning modest homes, and maxing out my 401K (especially in peak earning years) where foundational to a life of leisure in my later years.

Been doing that life of leisure thing about 15 months now. Love every minute!

Absolutely, it's not at all about math, it's about the big picture, or maybe we should call it the long view. I'm very good at math, but I actually don't bother keeping a running budget. I started with a LBYM mindset, paid myself first (maxed out every pretax deduction I could, automatic transfers from our checking account to dedicated savings accounts), and then started letting the spending creep up as our incomes grew -- although I made sure that the savings grew much faster. So, for example, if we got a $10K raise, we might contribute an extra $8K or $9K to retirement or other savings.

Every so often I might draw a little from other savings and then spend a few months being more frugal, but I know that we have that flexibility, so it's not like I'm running up credit card debt. In fact, we have no debt except for a zero interest car loan that we took simply because it made more sense than paying cash, even though we had the cash to buy the car outright. After decades of a LBYM lifestyle, I'm OK with going into "debt" to myself once in a while.

 

[Dtail]

I’m with your wife. There is no reason to get upset about people you don’t know. I don’t get upset about people I know even. I had to LOL at your wife’s comment. This is why I read the internet. Comedy relief. Priceless. Everything else there’s MasterCard.

+1
We are retired, not worth it. Tomorrow is Monday. Plenty of comic relief also in some east coast state.

 

[Hermit]

The late DW was a mortgage broker. Most folks asked the mortgage broker how much house they could afford. No math involved. For someone in their income range, they would get the number provided by the bank. For lower income folks, they would get some very good and free credit counseling.

 

[RetiredAt55.5]

Number one- of course my wife is right- that should go without saying.

2- the second mortgage for fencing and kitchen upgrades certainly irked me

3 - the author of the article just drops in the little detail about his souped up race car and his weekend hobby of racing it being "on hold" as if that deserves no other attention

The implied sense of entitlement oozing from this article portends disaster for them, and ultimately somebody will be suggesting those of us "ants" with more will need to support these irresponsible "grasshoppers" someday. That's what gets my blood up.

$50,000 on fencing and kitchen upgrades. Lots of money locked up in a primary residence and little liquid assets.

Sounds like they'll do well with college financial aid. Maybe not as naive as they seem.

 

[ncbill]

What someone might be able to buy in your area has nothing at all to say about they will pay for shelter where they live and work. Buy or rent, it doesn't matter, in many places that are land constrained like most of the urban Pacific Coast, you pay more than seems wise or ruin your marriage and health with monster commutes. Seattle is not the worst, but the recent tax appraisal on my 670 sqft almost 40 year old condo is $335K. But not many people can walk to work in the center of Seattle's business district in 20-30 minutes, and we can. Also these central Seattle neighborhoods are very pretty. I have been campaigning to get us to commit to spending $45 -50K per unit for some basic let's make things good for another 40 years improvements. Luckily the economy has been good, so most everyone will be able to pay the needed assessments.

Ha

Sure it does.

This is an early retirement forum after all.

I've simply pointed out that if one chooses to live in a HCOL area, given the proportionately higher cost of housing there's a whole lot less money left over to put to work to pursue an ER goal.

And it's amusing to see the article referring to what their home is supposedly now worth, given the headline on another top story on that website is "Seattle home prices drop by $70,000 in three months as market continues to cool."

As for college, the kids would be more likely to qualify for subsidized loans for public schools. Private schools do count home equity.

 

[MarieIG]

If they are prudent, they have the opportunity to save a great deal of $ for retirement. The wife's employer offers some very nice retirement benefits / opportunities for savings. Obviously, the husband could put more than 3% in his 401k, and they both could fund Roths yearly. But they would have to make retirement savings a priority.

 

[Moemg]

Not seeing a huge problem here. Certainly nothing to get outraged about.


Net worth of $627,000 while in their 40s. Could be a lot worse.

I totally agree !

 

[Scrapr]

Like the NBA....we make a lot of money but we also spend a lot of money.

20-25% on debt payments (assuming home mortgage) but that leaves a whole pile of other unknowns. Say taxes 25%. Washington has no income tax. That is 50% free cash flow. Let's say $60k. Cell phone & cable aren't eating that up. Did I miss something there?

I would worry about the real estate appraisal work flow if construction goes back to a more normal level. $9k in the bank is about 1-2 month expenses. Kids are on their own for college. Community College for both of them

They are a little behind but they need to find the black hole in the budget

 

[brucethebroker]

At least they are working and paying taxes, unlike some other bums who preach retirement at 30 and live off their blogs, aka Mr Mustachio. Even then, they don’t rile me up either, I just feel sorry for a wasted life.

So, you are upset because MM is not really retired ("live off their blogs") or because he is wasting his life?

If he is "living off his blog", he must be "working and paying taxes", right?

 

[Teacher Terry]

Fed, what’s wrong with earning your living blogging?

 

[RunningBum]

Sure it does.

This is an early retirement forum after all.

I've simply pointed out that if one chooses to live in a HCOL area, given the proportionately higher cost of housing there's a whole lot less money left over to put to work to pursue an ER goal.

Neither the article nor Bogleheads (which you referenced) are focused on ER. Just because we are doesn't mean we get to project our goals and desires on others.

 

[Golden sunsets]

I wondered why 20% of income being devoted to debt payment was a bad thing. That % is well below standard thresholds. Of course no debt is better, but most people need a mortgage to buy their home and a debt/income ratio of 20% seems pretty reasonable. The second mortgage is a bit of a red flag. I have to think that there are many splurges of the remaining take home pay.


Sent from my iPad using Early Retirement Forum

 

[JoeWras]

I wondered why 20% of income being devoted to debt payment was a bad thing. That % is well below standard thresholds. Of course no debt is better, but most people need a mortgage to buy their home and a debt/income ratio of 20% seems pretty reasonable. The second mortgage is a bit of a red flag. I have to think that there are many splurges of the remaining take home pay.

Avoiding "standard thresholds" is one reason I am FIREd. I know what threshold you are speaking of regarding mortgage debt, so let me take on another more extreme one to make a point.

The minimum payment of a credit card.

Here, the people in the know set standard thresholds called credit limit and minimum payment. Many, many, many people use these two thresholds as guidelines to spending. They pay attention to little else. I suspect this is part of the couple's problem.

There's nothing magical about 28 to 36% being a good number.

Yes, 20% is better. Why not shoot for lower? That's what we did. DW and I were in the 10% range at first, and it dropped as our income grew.

But how? One way is to save ahead and have more downpayment. Yeah, it is hard. But maybe now is the time if RE has reached peak in these HCOL areas. Save a few years and hopefully buy on the trough.

 

[Gumby]

I am convinced that one of the keys to our financial success was buying a house with a mortgage that was less than half of the amount for which we could have qualified. That was 25 years ago, when we were just starting out in our current careers. The burden became less and less as we moved up in those careers, with the concomitant rise in income. We have made substantial improvements and additions over the years, but only when we had sufficient savings to pay for them. Now, we have the perfect house that we could envision, but not yet pay for, all those years ago.

 

[Amethyst]

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

Fed, what’s wrong with earning your living blogging?

 

[Amethyst]

One thought I have is that self-discipline isn't parceled out the exact same way to everybody. Some people may be very disciplined in some ways, such as being good at their jobs, but have a more casual attitude about saving for retirement.

I save my outrage for stuff that actually affects me, of which there is plenty. I don't think these people are going to move the handout meter any time soon.

I have some thoughts about what I think is missing from the article (thoughts? - maybe outrage- my wife asked me why I was getting so upset about people we don't even know)

 

[ncbill]

Neither the article nor Bogleheads (which you referenced) are focused on ER. Just because we are doesn't mean we get to project our goals and desires on others.

again, since this is an ER forum, that's the relevant context for discussion.

housing costs can indeed be a killer for ER in HCOL areas.

best to take Gumby's advice if you or a loved one is purchasing in one of those.

and remember it's not just the mortgage - property taxes, maintenance are all proportionally higher on a $750,000 vs. $250,000 home.

of course, there are other negative aspects of paying such a large proportion of household income towards housing, such as the inability to save for the kids' future college expenses.

and another poster has already mentioned the precarious nature of hubby's job.

 

[mountainsoft]

This article about a Seattle area couple with decent income has the usual details of how poorly people manage their finances

I didn't see anything that really stood out as wasteful spending. Seattle is an expensive place to live. They bought a 2500 sq/ft house, which is bigger than I would choose, but it's fairly normal for most folks especially with two kids. In the photo it looks like a modest home, not one of the crazy McMansions most people buy these days.

The article mentioned the cost of the rental property, but I don't think I saw any mention of the income they earned from that rental. If they're earning more than the rental is costing them, I don't see a problem. If not, raise the rent or sell the rental.

The article also said the husband has a 401K worth 64K, an IRA work 24K, and the wife had an IRA worth 20K. At age 46 that's way better planning than we had. I just looked and my IRA was only 18K when I was 46 years old, before we really thinking about retirement. So they still have time.

It also said the wife is a PERS3 state retirement member. They posted a balance of 6500 but PERS is a state pension plan so her retirement income will be worth more than that tiny balance. My wife is PERS2 and I think her balance is only 80K or so, but we'll get a lifetime of benefits around 27K per year.

I think it's good they are starting to reduce their spending. I would focus on paying off those student loans and any credit card debt they may have. Then I would increase savings and pay more than the minimum on the mortgages to get those paid off.

Once the kids are grown and they retire, they always have the option to sell the home and move to an area with a lower cost of living.

 

[Fedup]

So, you are upset because MM is not really retired ("live off their blogs") or because he is wasting his life?

If he is "living off his blog", he must be "working and paying taxes", right?

Did I say I’m upset? I do not like his blog nor his followers, even if he is paying taxes now. He maybe paying some taxes now, but I’m sure he didn’t pay much in the beginning.

 

[Fedup]

Fed, what’s wrong with earning your living blogging?

I don’t thing he was earning a living in the beginning, he was preaching not working. But he was actually working.

In my book that’s equivalent of snake oil salesmen, or whatever the term for it.

 

[mrWinter]

The people without IRA/401k like this couple will be the ones who get full SS, while people with the same earned income who manage to save money will get penalized.

"To each, according to his needs", and these people will be needy. It could be smart, not dumb as we think.

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

 

[Fedup]

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 ?

 

[brett]

Seems to me that there is a notion out there that low and middle earners can be bad money managers and that high income earners and professionals are all good money managers.

Nothing could be further from the truth. Prior to early retirement, I worked for years with people who would be considered high income earners. Often with two of them in the family. They appeared to have just as much debt as anyone else. When retiring early, I had several of them comment to me that retirement before 65 was not in the cards for them.

It is not always a function of how much you make. It is more about how much you keep, living below your income, not above. I have two SIL's in their 60's and 70's who should be financially secure. Instead, they are dealing with credit card debt and not retirement savings. You cannot overspend for years, and fork out money to ungrateful childen, or buy/renovate more home than you need without it impacting your retirement.

 

[JoeWras]

Seems to me that there is a notion out there that low and middle earners can be bad money managers and that high income earners and professionals are all good money managers.

We've had entire threads dedicated to discussing the poor money management of some high earners.