What is really frustrating to me, is the notion, which goes largely unchallenged, that families earning $250k per year are the "rich." I'm fortunate (perhaps even lucky); my family income is greater than $250k per year...therefore, I'm rich! Further, our president is fond of saying that those of us earning over $250k are the "fortunate" and the "lucky." It's our responsibility to forego tax breaks, pay higher taxes and fees, so that we can transfer our hard earned money to those "less fortunate." What is it that differentiates the fortunate from the less fortunate?
Is it just our current family income? Why is income the only measure of the fortunate? How about someone who comes from a wealthy family, inherits millions, but doesn't choose to work, so has a lower income. Is that person less fortunate? How about the many kids I grew up with, all of whom had the same opportunities as me, but chose different paths, perhaps easier paths, and now earn much less than I do? Are they really less fortunate? How about an athlete receiving a full ride to college, but who didn't bother to study or get a useful degree, and is now making low wages. Is that person less fortunate?
I am a non-union professional, and always have been. I come from a modest background; my father was a middle school counselor, and my mother couldn't work due to chronic illness. I paid for 100% of my college education. My first job after college paid me $28.5k per year. I've worked hard to get to this level of income, and its taken 25 years of long hours and strong job performance. I've never been fired from a job, but I've always been an "at will" employee, with the threat of job loss ever present. Is that "luck?" Perhaps.
I don't have a pension awaiting my retirement, I have to build my own pension with a 401k, rollover IRA (the Chump portfolio), and regular savings. I may or may not have social security when I retire in 15 years or so. The Social Security website places an asterisk next to my benefits, which states that by 2030 (my retirement year), there will only be enough money to fund 77% of projected benefits. Hmmmm
As someone who enjoys more than $250k in annual income, I also DO NOT qualify for many useful tax benefits and programs including:
- Can't deduct IRA contributions
- Don't qualify for a Roth IRA
- Pay a higher federal tax rate on earnings
- Don't qualify for any college financial aid
- Can't deduct 529 contributions from state tax
- and many, many more
Is $250k really indicative of a "rich" person? In my family, after federal and California state taxes, $250k becomes $162k. A mortgage in CA, or a rental for that matter, is around $3k/month, or $36,000. And when you add in property taxes and outrageous prices for gas, electricity and water, mello roos and hoa fees, etc...housing consumes around $50k per year. That leaves $112k.
Food, gas, home insurance, life insurance, car insurance, autos, clothing, healthcare, cell phones, cable, and other expenses for a family of five eat up around $50k per year, taking me down to $62k for non-essentials. Among the non-essentials are things like vacations ($10k), the kids sports and hobbies ($12k). Another frustrating non-essential cost is education. The public schools in California are among the worst in the country, thus, we pay for supplemental tutoring for our 2 younger kids ($5k), and are likely to try and send them to a private high school ($13k/year). My oldest is a freshmen in a California public university...at a cost of $34,000/year. Ignoring private high school for the moment (I have a year before it hits, whew!), I'm left with....drumroll....$1,000. That's right, after all of the above, I would have $1,000 left!
Oh, and let's not forget about retirement. I need to send money to my 401k for retirement, into a 529 account for three kids college, where I'll need to pay 100% of their education, and I have to find some savings for our regular (taxable!) savings & investment account for emergencies and rainy day!
Could I spend less? Of course, and we do. We can take fewer and cheaper vacations, we can drive older cars (we do) that are 100% paid for. We can eat out less, buy new clothing less frequently, and cut back on sports and hobbies. We could even sell our modest 2,600 square foot home and find a smaller one.
But I ask you, is this what "rich" families do?
Thank goodness I've been socking away a few bucks from every paycheck into my 529 account. I now have enough saved to pay for my son's four years of public university, and I'm on track to have enough for my two daughters when they hit college ages.
I definitely consider myself rich, but its because I have an incredible family, some great friends, and we're blessed with good health, not because of my income.