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Thursday, December 16, 2010

$250,000 in Income = Spend Wisely

I'm not quite sure how $250,000 in income (an income level unimaginable to me, or in the words of the article "an unattainably high annual sum") became the threshold of "rich", but somehow that number is thrown about both in our world and in the outside world.

While the magical quarter-of-a-million dollar figure can certainly make a family comfortable (especially if the distribution of the income earners is favorable), such income is not indication that one can throw conscious to the wind.

One of my readers (as well as my husband) pointed out this financial article that is making the rounds, Down and Out on $250,000 a Year. What can we learn from this article and it's eight city analysis:

1. Location, location, location: Living on either coast is expensive. If you can manage to earn a high salary away from the coasts, you will automatically be better off.

2. Location, location, location: Even better if you can earn a high salary in a income tax-free state or in a location where property taxes are more under control.

3. House, house, house: Especially considering the couple presented uses public schools, it makes a lot of sense to live in a better area which can be costly, but this presentation is a good argument for "moving on up" and rolling the money one is able to *save* while living in a nice, but less expensive, area with good home resale when the kids are younger. No matter how you cut it, paying a mortgage (even with 20% down) on a home in an expensive area is hard to sustain, especially if the financial situation changes for the worse.

4. Savings, savings, savings: Saving the max in a company's 401k tax plan makes a big difference in your tax bill and allows you to put away from the future. If you don't do this, your tax bill will be even higher and every additional dollar you earn will be worth less.

5. Used, used, used: Your car that is. Two car payments when you make a quarter of a million makes just as little sense as two car payments when you make a lot less.

6. Debt, debt, debt: Student debt of the couple presented isn't particularly "high" but it, combined with the high mortgage and the car payments is a killer. Getting rid of debt is key to getting and staying ahead.

7. Shave, shave, shave: Even though our couple doesn't go overboard with expenses, if they want to get ahead and stay ahead, they need to shave expenses from each area of their budget. That would be the "little" expenses including activities for the kids, annual vacations, entertainment, dog, transportation (public transportation makes a lot of sense given parking and gas in this budget!), cleaning help, dry cleaning, and food (both take out and lunches--brown bag it!), in addition to controlling he big expenses listed above including the mortgage and automobiles.

As a final note, I have a rule to NEVER include investment income in a regular budget and was a bit surprised to see it included here, although the article shows two bottom lines, one with only earned income and one without earned income. It is a style issue, but I am of the opinion that investment income is best kept in a separate budget and then moved into other investments. If you need your investment income to meet your bottom line, you are way over budget, even if you include 529 college savings in the budget. My preference is to create a separate budget for such investment income and fund other investments from the spin off, or put away the extra for every-ten-year purchases. (Clarification based on a comment: my rule to not include investment income in a regular budget is not actually a never, ever. Obviously, a family in retirement will be relying on their investment income. My comments were more based on the type of budget I would create for a young/youngish family that has limited investment income. To get ahead, I highly recommend that such income should be used to strengthen one's financial position, not building such income into the budget for consumption and meeting regular expenses).

Even if it is hard to relate to the (young) $250,000 couple (there is still $15K in the budget for childcare) and it is easy to imagine that as the kids get older some of the expenses could ease, the article underscores just how important thrift is at all budget levels. And, it underscores the difficult situation that higher income earning couples in our own communities have when tuition is piled on.

P.S. I do realize that some of the out-of-pocket medical expenses are also exaggerated for a family without major issues. I don't know how one gets to over $4000 dental and over$5000 medical with insurance and without (bli ayin hara) major issues. However, the point of the article and anaylsis is still infomative and educational.


JS said...

Well, $250k in income is not "unattainably high," it's just very hard to attain! You just need to be in the top 3%. So, it's kind of stupid for the article to say "unattainably high" for the average person - that's kind of the point, isn't it? Just like being 6'7" is unattainably tall for the average-height American.

Either way, I'd say rich has more to do with a state of mind, but in a more economic sense I'd say it has to do with not worrying at all about when income comes in and debt payments go out within your chosen lifestyle.

So, $250k may or may not be rich depending on how money is spent and the type of lifestyle you want. What really kills people that are not self-employed and have all earned income is the taxes. There's no ability to control taxation, you have no ability to control deductions for the most part, and you get killed by the tax code (marriage penalty, AMT, AMT, AMT, inability to deduct real estate taxes, phaseouts on student loan debt and other credits, etc). At the end of the day, $250k in income may only leave you with around $150k after taxes.

And that's the killer. You may earn $250k, but you have to learn to live like you're only making say $200k or less. So, if you're not careful, you can get into trouble. It really sucks if you're earning that much money and you have to calculate a "dry cleaning budget line item" that just seems "wrong" on that income level, but maybe that's what it comes down to.

The picture can change a lot too based on how early in your life you're making that $250k, when you had kids, and how much you had saved up (and how many large expenses were out of the way) before major regular expenses hit (yeshiva tuition, college, mortgage, etc.). A couple under 30 making $250k+ and no kids yet and living in an apartment can do QUITE well and will not be nearly as constrained later in life as compared to a couple making $250k at say 35 and kids at 25 and a mortgage.

Miami Al said...

Really, why is that a lot for medical/dental?

Going to a good dentist, getting full battery of tests, any orthodontic work or whatever, it adds up fast.

I do NOT agree with the "trade up" for a better school district. It rarely makes sense.

You'll generally get more bang for your buck staying in more affordable housing and paying for private schooling. You'll get a better education for your children, and if you suffer a major economic problem, you can downsize to a "good" public school a lot easier than you can unload a house in a ritzy area.

I'll never understand the families with 1 child that need a "fancy school district" so they pay an extra $15,000/year in mortgage payments and $10,000/year in property taxes to get a "great" public school... they'd be much better off with a $15,000-$25,000 prep school, which will cost them the same money and get them a better product, one that they can downsize if need be.

Public schooling is a great way to get a baseline education for no money, but even a great public school is still a public school.

Dave said...

If I recall correctly, the average employee health participation (co-pays, deductibles, insurance premiums) is around $4k.

Baltimore Yid said...

While the point of the article is well taken many of the numbers are simply ridiculous and if there is logic behind them then it is specious. I won't do a line by line analysis but just a few quick call outs. (I live in MD so I'll use the MD figures)

1) Gasoline $6167 - Assuming $3/gallon which is still above the national average although currently common in MD that gives you 2055 gallons per year. Assuming a 17 gallon tank (going a little high here) and 2 cars, that gives each car 60 tanks per year!! What average non-traveling salesman needs more than a tank a week especially if you also have parking fees at work? In most areas it would be cheaper to have a car service!

2) Medical $4213 - this amount is not bad although in reality, anyone making that much money (who is not self-employed) works for a firm with a moderately good health plan. Unless they are spending on lots of cosmetic surgery there is no excuse why they would not have hit their out of pocket maximum much below $5000 so this figure is nonsense.

3) Phone tax $350 - I honestly don't know what this is but my USF fee on my phone bill is a heck of alot less that $30 per month. Anyone have any ideas?

4) Phone/Cable/Internet $2400 - Maybe I'm missing something here but if this couple has so little free time (as indicated by the author under the justification for extra activities for the kids) why would they need the super premium packages of these items? I have a nice package in a monopolistic area (so they upcharge us on everything) and I still only pay $160/month. Additionally, how can they claim the same figures on these for all areas. Competition is everything in these markets. My friends in Fl pay less than half of what I do and get more features.

Again, a nice eye opening article but if any family spends this poorly they deserve to be in the red because they must be literally burning money to reach these figures.

Orthonomics said...

Seems like a lot of out of pocket for a young family without special needs or tons of prescriptions. Once you are dealing with braces, it doesn't seem as massive.

Changed the wording on the public school issues, noticed I wrote spend, not save. My assumption is that a careful, high income family will be able to save more for a home in a better area if they deem that necessary (you are correct that with only one child the calculation could be faulty).

I don't agree with you that a public school is still a public school. There are public schools with specialized programs that are difficult to rival. There are also private schools that offer a far better environment, but each kid is different and what is good for one kid might not be right for others.

Education is a difficult issue. Buying in a reputable public school area or district helps the odds of providing something reasonable.

Miami Al said...

This article, like all on this group, demonstrates why the $250k crew doesn't consider themselves rich, they consider themselves upper middle class.

If you have children and are earning that kind of money, you either have your kids in a top notch public school and live in an expensive district, or you have your children in private school.

Your children have expensive activities.

You need to save for college, because based upon your income, you will be expected to pay full boat, and that is expensive and can't come out of current income.

Does the life of a family on $250k look more like a family earning $50k, or more like a family earning $1M+?

The $250k family has nicer cars than the $50k family, but still carries a car loan. They have a nicer house, but still pay a mortgage. They might have their children in private schooling, but are still worried about college. In short, the $250k family's life is measurably better in all aspects than the $50k family, but is "similar" in that it's the same concerns.

When you get into the truly wealthy, where they are making their money on investment income, etc., the life gets different. Sure the annual vacation goes from drive to nearby themepark and/or family @ $50k -> Disney World + Amenitites @ $250k, but you still are taking 1 vacation... you're not taking luxury 20 day vacations and other voyages of the truly rich.

There is a threshold where life just changes and the pressures go away, but it's not $250k... depending on region, it's probably between $350k - $750k.

Baltimore Yid said...

Just to clarify my previous post, I was calling the $5000 out of pocket medical expense nonsens, not the premium.

Orthonomics said...

Baltimore Yid-Yes, a lot of those numbers are out of whack. On the other hand, I think it fair to say that the student loans are underestimated, perhaps quite severely. The families I know that will reach the quarter million dollar mark are strapped financially by their loans, which amount to well over $6000 a year.

Miami Al said...


Comparing the best public school in our district with our best private school...

The best public school offered more extra curricular activities because of more students, and slightly more AP choices. They had massive programs, and a reputation with colleges nationwide, they are a sports rival with a top tier independent Catholic school, and academically used to compare themselves to Bronx Science.

The best private school likes to compare itself to the prep schools in NYC/Boston, has freshman class < 15% of the side of the public school. They have many extra curricular activities, and with a smaller class size, there are more leadership opportunities... for example, both schools have a year book with an editor, if you graduate 175 students, than 1 of them is the editor, if you graduate 800 students, 1 of them is the editor, so a smaller class size and similar number of activities means that more of your students have an opportunity to assume leadership roles... 75 leadership positions goes MUCH further in 175 students than it does in 800.

Both schools sent comparable number of students to top colleges... number of students, NOT percentages.

Private schooling means that your well funded programs are available to students. Public schooling means that less well funded programs have to serve more students.

The career path for college admissions counselor is to then go into an independent school where they are well paid, NOT guidance counselor for a public school. There is a revolving door, help get students in from private schools, you get a better job when you leave the university for better paying pastures.

There are truly elite public schools that offer tremendous educations. They still are at structural disadvantages to private schools.

If you have a brilliant student, top 1% standardized tests, straight As, lots of activities, they will do fine regardless.

If you have a brilliant student with an area of weakness, the stronger support network of a preparatory school will make a difference in terms of them getting into a top University despite a blemish or two on the application, since the guidance department is trained and paid to get students into top schools.

But nonetheless, I certainly see this push for top school districts. I understand moving to a crappy house in a top district, the costs may be similar to a nice house in a good district, and you sacrifice for better schooling.

I just think that if most families did the math, they'd realize that the cost of private schooling would make more sense than expensive school districts, with better results...

And I have watched family and friends pursue both paths.

Baltimore Yid said...


Point taken and certainly in much of the upper-middle-class private schooling would also significantly affect these numbers. My only true objection to presenting it like this is that it allows others to compare to it and say "well I'm spending 10% less on item X and I'm still strapped for cash so I must be doing everything right". The reality of course is that you should be spending 50% less on some items and 50% more on others. As you've written about many times before it all boils down to personal financial responsibility and not comparisons to (in this case literally) the Joneses.

Anonymous said...

They spend a tremendous amiunt on a cars & housing (5,000 for cleaning).

Orthonomics said...

Anonymous above, while I don't employ cleaning help and I've mentioned several times on this blog that cleaning help is one of the top 10 areas that I think frum families bleed money, I don't believe $5000 is a "tremendous" amount to spend for families that do employee regular cleaning help. This would be especially true if they are using an agency that sends a team such as "Merry Maids" rather than a person who was referred here or there.

I saw $5000 in the budget for maintence which seemed pricey at first, but if that includes gardening, it isnt difficult to hit such levels with a big repair or smaller project each year in an aging home. We were hit with a big whammy on home maintenence in both 2009 and 2010. I'm thinking 2011 might be the year we have to replace the HVAC.

There are two car payments loans in that budget, so that part seems accurate with those facts. But the gas seems massive.

Dave said...


Of course, if you want to have a large family, that extra mortgage and tax expense is fixed, regardless of the number of children you have in school. Private school tution is not.

As far as home maintenance, if you are figuring in amortized costs for multi-year expenses (painting, water heaters, appliance repair), plus normal recurring costs, plus money for sudden emergency expenses, that doesn't seem unreasonable to me.

That is of course assuming that in years when they don't hit that, the money is going into savings for the years that break the bank.

Miami Al said...


Agreed. With kid #3/#4, the prep school costs eclipse the tax/property cost differences.

But most of the families you see in this "See, they send their children to public school" and the "They live in a high tax district with great public schools" invariably have 2 children.

I think that many upper middle class families with small families make a huge mistake worrying about school districts instead of just paying for schooling.

tesyaa said...

Al - I don't know about Florida, but in NY/NJ, generally, a place with a good school district is also a nice place to live.

(The converse isn't always true: in some frum areas, we see that a nice place to live doesn't have good schools.)

Mark said...

Orthonomics - But the gas seems massive.

I also thought so but then I did the calculation.

Say $6000 for gas buys about 2000 gallons. Let's further say that they own one minivan that gets about 15 miles/gal, and one SUV that gets about 12 miles/gal. So the 2000 gallons gives them about 13,500 miles each. While 13,500 miles is a more than my wife and I drive, it is well within the average range of driving for commuters in the USA. Obviously they could save money if they drive fuel efficient cars, but people who earn $250k don't drive Corollas :-)

Seems like a lot of out of pocket for a young family without special needs or tons of prescriptions. Once you are dealing with braces, it doesn't seem as massive.

$5k out of pocket seems a little high, but add in a few ER visits and hospital stays and average out over the years and, while still high, it doesn't seem quite so outlandish anymore. Same for the dental expenses, though an average of $4k a year seems to be very high, I mean who gets a new crown or two each and every year?

These discussions always include braces, but we must remember that braces are a one-time* expense and really shouldn't be considered an annual expense, or at least should be amortized across 18 years per child.

* I know of a few kids that required braces twice, but that is a rarity.

The line for sales taxes seems to be a bit low to me. For the average sales tax of 6%, $2000 means they only spent $33,000 on things that require sales tax. That seems low to me considering their other spending. Plus we have to consider that two new cars every 3-4 years at $45k each will cost $5,400 in sales taxes alone!

And finally, why is parking so expensive in Naperville, IL?

Orthonomics said...

Maybe it isn't so massive if the cars get lower mileage. We put on about 15,000 total. I imagine if we were both commuting to work, driving places on Shabbat, and going on regular errands, our gas bill could get up to some ridiculous point.

I read an article long ago about families leaving the suburbs to be closer to reliable public transport. There was a calculation of the point where moving close (higher housing cost) made sense. The financial analyst considered wear and tear on cars, gas, and some time. Maybe I can find that article.

Anonymous said...

I am an attorney and make $250k a year, I live in Baltimore and commute to Washington DC. I have two cars that are ten years old. I do not have cable or TV. I have two small children and a third on the way and a stay at home spouse. Between carpool and other things, my spouse racks of the miles and the gas on his car, and I rack up the fees for parking and commuting. I took out $24,000 in loans to pay for law school, and am still paying that off (will end up paying $100,000 over 30 years). Add into that yeshiva tuition. We burned through our $4000 FSA without a thought between co-pays, glasses for the kids, and other expenses. I dont save for college, I barely save for retirement, and I barely make even. I do not have cleaning help or babysitting. I do not go out to dinner, movies, and have not been on vacation for 5 years. Still just scraping by. So not $250,000 really is not as much as everyone thinks it is.

Dave said...

It isn't that "$250,000 really is not as much as everyone thinks it is".

It's that you want to spend more than you make.

You are making five times the US Median Household Income.

Anonymous said...

Al: What you say about public school v. private school may be true in Florida, but that's not true everywhere. There are tony suburbs in many areas (i.e. Boston) with spectacular public schools that send lots of kids to the ivies. Yes, you will pay more to live in those Towns, but notwithstanding the housing crash, homes in those towns have been a good investment. In towns with good schools, homes have lost value, but in the best Boston suburbs with the best schools, the values have generally held, and are now rising again. So, especially during periods of low mortgage rates, those who bought in those towns and send their kids to public school have done much better financially than people in the good or mediocre school districts who send their kids to expensive private schools. The families have also done better because mom and dad generally have shorter commutes, and the pricey towns have some more amenities in the way of parks, libraries that are still open Sundays, less crime, etc.

Anonymous said...

As a born-and-bred New Yorker, it's always seemed rather obvious to me that money doesn't go as far here as it does elsewhere. I've known for a long time the 250k in NY is nothing, even if you're not frum, no tuition, only 2 kids etc. I also think income is a generally poor indicator of wealth/financial health. Sure, we could nitpick at the budget, see what can be trimmed, etc. We can gripe about entitlement. But the fact is, 250k is a large number, large enough that only 3% of people in this country will ever get there, so it SHOULD make you rich. If it doesn't, then what incentive do you have to work hard to get there? If 50k gets me a used Corolla and 250k gets me the same used Corolla (granted, without the loan) plus yenem complaining that I'm rich and should be pulling more weight, why should I bother making 250k?

Anonymous said...

As a final note, I have a rule to NEVER include investment income in a regular budget and was a bit surprised to see it included here, although the article shows two bottom lines, one with only earned income and one without earned income.
Well,I have to disagree.I get a monthly income of about $6500.00 from my investments, and I would include that in my regular budget.
I wouldn't be paying the tuition or son inlaws without that money.

Orthonomics said...

Perhaps I should amend that statement. Obviously a retiree family needs their investment income for living expenses.

A young/youngish family with only$3000 in investment income should not be including such in their budget.

Anonymous said...

Miami Al: I was shocked by your comment that the life of a $250K family is not materially different from that of a %50K family. No, the 50K family is not just living in a somewhat smaller house or less nice house -- unless they are living in an area with super cheap housing (rural appalachia, a town in Ohio with 20% unemployment, etc.) they are not homeowners at all. They also aren't spending 4,000 a year on their kids' braces because their kids go without braces. They certainly aren't saving 33,000 a year in their 401(k) and 8,000 a year in their children's college accounts. They likely only have a few thousand in savings at most. They will be surviving in retirement on social security only. They don't have the comfort of knowing there are savings in the event of an emergency and that they are saving for retirement. While I agree that in some parts of the country $250k does not lead to the life of Riley, I am so tired of 250K people complaining about how hard they have it. If they have it hard, its because they are making poor decisions about how to spend that 250K, but all of them should spend a few years living on 50K. Yes, I have been a 50Ker and a 250Ker and let me tell you that all other things being equal (i.e. health) 250 is much, much better.

Miami Al said...

Anon 7:40,

Absolutely, the 250k family has a LOT more stuff. However, outside of major metro areas, most 50k families are homeowners (50k is the median income, and well over 50% of families are homeowners).

The family on 50k probably isn't springing for braces, and they don't save much in the 401k.

However, the 50k family, upon retirement, will have a much more "generous" social security benefit, social security will replace MUCH MORE of their income, so the lack of retirement savings affects multi-generation wealth building, NOT retirement.

You are right, the 50k family isn't saving $8k toward college. However, the 250k family will pay $200k/child i college costs, the 50k family will probably pay $8k TOTAL in college costs after grants, etc.

The 50k family has less stuff, but the reason I say it is similar:

Both families have a mortgage on one house (no vacation houses here).

Both families have cars with car loans (the 50k family might have started used and a cheaper car, but is making a monthly payment).

Both families are looked at an underfunded retirement, but not the poor house.

Both families probably get health insurance through an employer.

In contrast, the truly poor, below poverty, say < 20k...
Do not have a home, they either rent with section 8 or live in public housing...
Use public transportation or truly junker cars...
Get Medicaid for health care...

So in that regard, the 50k family looks more like the 250k familey than the 15k family.

Compare the 250k family to a family of wealth.

The wealthy family meets with advisors over investment of their trust fund, not goes to work.

Owns a home and has access to family vacation homes.

etc., etc.

And the super high earners, 1M plus:
Own a place in NYC and a weekend place outside the city
Vacation in Palm Beach in the winter when it gets too cold
Have a car at their vacation place, one in their regular home, and a car and driver
Travel relatively tax/cash free since they expense it to the company, company jet, etc.

My point is that the upper middle and lower middle classes have similar lives with very different quality of those components. The poor and rich have very DIFFERENT lives than the middle class components.

The upper middle class, which 250k includes, think of themselves more as middle class than upper class, because their life resembles the 50k blue collar family MORE than it resembles the multi-million dollar hedge fund manager.

Anonymous said...

Al: You are still smoking something a little too early in the morning. You think that living off of social security in retirement is not much different than living off of social security PLUS the income that can be generated by a $3 million nest egg? How about your statement that the homeownership difference only applies to major metropolitan areas? Well, guess what. Most people live within a major metropolitan area. I could go on, but I have to go earn a living.

Anonymous said...

It's interesting that the budget presented in the article contains lots of eating out, lunches out, take out, entertainment, holiday expenses and gifts, and an expensive mortgage, but nothing for life insurance and charitable giving.

Miami Al said...

Anon 8:23,

Over 67% of families in the US were home owners in 2009, might be a little lower now, but a median income family in the US probably owns their home. The majority of the country is NOT urban. So on 50k in NYC, you don't own your home, in most of the country, the 50k family does. That math requires it with a 67% homeownership rate, since 50% of the families earn 50k or less.

Regarding social security, check out this table:

At $50k, you have Social Security replacing 37% of income, apparently rises to 77% if you wait until 70.

At $200k, the social security replacement level drops to 12% (it caps at 100k, so it should cale to 8% for $250k).

So just saying "social security" is meaningless. For our middle class family, Social security replaces 37% of their income, they need retirement savings for another 38% to bring them to 75%.

For our upper middle class family, Social Security replaces 8% of their income, they need retirement savings of 67%.

To maintain their life style differential of 5x income, the upper middle class family needs 10 times the retirement savings as our middle class family, 5x income needed, 2x to replace 67% instead of 38%.

So for the $50k family to be equally well off as the $250k family, they need to assemble $300k of retirement savings, definitely hard to do, but not impossible. Especially since our $50k family in their peak earning/empty nester years don't have college tuitions for their children because of grants. They might actually be able to cobble it together. If they work until 70, they probably can do it without a huge effort.

So the $250k family is MUCH better off than the $50k family. It's a nicer home, car, retirement, etc. However, their lives look similar. Retirement is a struggle to fund, but manageable.

The $50k family still has a mortgage + car payments + 401(k), NOT section 8 + city bus + medicaid.

That's my point. No question, MUCH better to be the $250k family, but the $250k and $50k family have more in common with each other than the $50k and $15k families have, or the $250k and $1M families have.

Anonymous said...

Al I don't buy that the 50K family can get by in retirement on 1/10 of the 250K family. The low income family doesn't need 1/10 the food, heat, prescriptions, etc. There is a minimum needed for an acceptable standard of being able to cover the basics (heat, food, shelter, medical care, transportation) that the 50K family will fall below if they are living only on social security.

Abba's Rantings said...


"Get Medicaid for health care"

this is one area where the poor clearly have it "better." it varies by state, by where i live medicaid is better than probably every private insurance. often it's significantly better.

Anonymous said...

Abba: Good luck finding a primary care dr. who accepts medicaid.

Miami Al said...

Anon 10:17,

Are you trolling me or just not reading? I NEVER said 1/10th the income, I said 1/10th the wealth.

I assumed that in retirement, the families would need to replace 75% of their income.

For the $50k family, that's $37,500
For the $250k family, that's $187,500

HOWEVER, Social security caps out at around 100k, so while the $250k family pays a lot of income taxes, FICA caps out at $100k/earner, this math shifts if the $250k is two earners, but the example above of the lawyer was a single earner.

Social Security benefits for the $50k family should replace 37% of income, which is $18,750. To maintain a 75% replacement rate, they need another $18,750 in retirement income, at a 5% withdrawl rate, that's $375,000 in assets.

Our $250k family needs $187,500 in income to sustain lifestyle. Social security, at 12% of income, gives them $30k... note despite MUCH higher income and over double the FICA payments during their career, our wealthy family makes about 60% more from social security. This leaves our $250k family needing $157,500. Assuming a 4% withdrawal rate (our wealthier family is more concerned about outliving their money, since dropping to social security only in their 90s wouldn't be the end of the world for our 50k family, but a disaster for our rich one, so we're a little more conservative.

That means that they need a nest egg of $3,937,500, or 10.5 times the retirement savings. They have 5 times the income, but need 10 times the savings.

Run the numbers, play with the assumptions, you might be able to reduce the discrepancy to 8x or increase it to 12k. The fact is, if our 50k family owns their home/cars at retirement, and cobbles together SOME savings, they are alright. Our high earning family needs a TON of retirement savings to retire and maintain their lifestyle.

No retirement savings and our $50k family drops to $19k in income, that's bad. Our $250k family drops to $30k in income -- that probably covers their property taxes. That's why for high earners, retirement savings isn't a "luxury" it's a necessity.

Abba, you're mixing up Medicare (which has decent payouts and limited paperwork and increasingly popular), and Medicaid, which no good doctor will take.

JS said...

To the Anonymous Attorney from December 16, 5:48PM, I'd like to hear more details if possible as to why you're just getting by. Something just seems off or maybe there's some detail being left out. 10 year old cars, barely saving for retirement, loans of just $24k, only 2 tuitions, likely no child care costs with a stay at home spouse. Where's the money going exactly?

Anonymous said...

"I am an attorney and make $250k a year, I live in Baltimore and commute to Washington DC. ... So not $250,000 really is not as much as everyone thinks it is."

So how do you expect those earning far less than 250k to live
as Orthodox Jews.

Baltimore Yid said...


I was wondering that too. We're making less than 1/4 of that, and have almost the same situation. Only few differences are: (1) only 1 tuition, (2) We go on vacation once a year (3) We have $30K in loans. We're not very comfortable but we stay in the black. Where is that money going?

I have to assume that having no TV nor cable you're sending your kids to one of the frummer schools in town. Their tuitions really aren't that bad, especially at the younger ages.

My only guess is that you bought one of the horribly overprices houses in the area. The b-more housing market (in the nicer frum area) is very overinflated and yet people continue to buy these repair nightmares every day. Baltimore city is an expensive place to live but when you're making that much it shouldn't be a problem.

Anonymous said...

"You just need to be in the top 3%. So, it's kind of stupid for the article to say "unattainably high" for the average person -"

It is impossible for the average person to reach 250K. Take away the obvious professions-physician, dentist, a few lawyers-very few will earn 250K.
Supreme Court Justices earn less than 250K

Abba's Rantings said...


"Good luck finding a primary care dr. who accepts medicaid."

i definately know of primary care doctors who accept medicaid. is it common? i have no idea (probably depends on the area?). maybe you're correct here.

but primary care is not the only part of medical care (or for that matter even the most expenseive part).

in my experience (admittedly anecdotal), i've payed hudreds of dollars out of pocket for a single visit to out-of-network doctors that do take medicaid. (of course part of the reason i paid hundreds of dollars is because they wanted to make back the $ they lost on the medicaid patient.) and there is one doctor that i can never get an appointment with because he works in medicaid clinic 3 days a week.

and with medications, which easily dwarf primary doctor costs, i know for a fact that medicaid (at least where i live) is the best. no one covers as many products (even OTCs, diapers, bandages, etc!), is so lenient with branded medications, with zero copay, zero deductible, zero coinsurance, zero (effective) cap, etc.

Anonymous said...

Anon 11:26: You are assuming only one member of the family is working. If two work, its much more attainable. Heck, there are a lot of police who make 125K once they get up in the ranks just a tad or work a lot of overtime. If that police officer is marrried to a high school principal in a good school district, they are all set. (They also get to retire early with a full pension, so they don't even have to save for retirement.) I know a self-employed plumber married to a self-employed hairdresser (no, not a shetle macher) with her own shop and they make around 250K.

JS said...

"It is impossible for the average person to reach 250K."

You're missing the point. If, by definition only 3% of workers are making $250k+, then the average person isn't making that much. It's silly to then say earning $250k+ is "unattainably high for the average person." The foolish implication is that it SHOULD be attainable for the average person. There's a reason only 3% get to that point and it's some combination of being smarter, working harder, being luckier, being in the right profession, being married to the right person, etc. Hence my example of "Being 6'7" is unattainably tall for the average heighted person."

Point being, there's just a fundamental misunderstanding of what an average is and what one needs to do to try to rise above the average. The difference with the height example is that you're limited by genetics to a great extent. But, with income you do have a lot of control (or at least moreso than height). There are lots of decisions one can make along the way to try to get the stars to align right if a high income is what one desires.

JS said...

To jump into the $250k/$50k debate, I'd like to make a few points:

The question of whether the $250k family is better off than the $50k family really depends on what you mean by "better off." For example, the $50k family may have a single income earner in a 9-5 low-stress job with a stay at home spouse while the $250k couple may both be working in 9-7+ high-stress jobs and only see their kids on weekends. If that's the case, score one for the $50k family. At the same time, the $250k family has more and better stuff than the $50k family: bigger house, paid off cars, renovations projects, funded retirement accounts, private school, no consumer debt. The $50k family mat have some of these things such as electronics and cars, but it's all debt-financed. Further, they have little if anything saved for retirement, mounting credit card debt, can't afford home repairs, and live more on the edge since a catastrophic cost can send them off a financial cliff.

The problem is that the expectations of each family are completely different. Both want their kids to be better off, but that means radically different things for each family. The $50k family is just trying to scrape by and has hopes that their kids will be more white collar and not have to struggle as much with debt. The $250k family is trying to set their kids up to enter the echelon of the truly rich - they're concerned with elite schooling through graduate school, making sure their kids have the right extracurricular activities, they dream of generational wealth, etc. When you match up those expectations, it's no wonder the $250k family can be miserable since they're trying to make a much larger leap than the $50k family.

Also, in the Jewish community, it's even worse since the $50k family is enjoying many of the same luxuries as the $250k family and the $250k family is struggling like the $50k family. The class conflict is bad and will likely only get worse under the current system.

Anonymous said...

Anon 5:48 - I agree 100%.
My income is around $250,000 and I simply can not afford to have a third child. I live in a simple house, eat simply and don't vacation.

JS said...

Details? This sounds unbelievable.

tesyaa said...

5:48 & 12:28 - I really don't understand, and I'm not criticizing. Are your housing costs high? Do you have a lot of student loans? How much is each tuition? Or are you socking it away in a 401(k)? There has to be some reason why a family can't afford 3 children on $250K.

Miami Al said...


I think you hit something about the 50k/250k and why there is a bit of a class conflict in the Orthodox world.

Shabbat -- HUGE luxury, one of the defining ones of Orthodox life. While the wealthier family has better food, both can attend the same Shul, Shuirim, Events, etc. So that luxury hits both.

Shul -- Shul is a big deal. The poor and wealthy can attend the same Shul, but the latter pay for it, the former do not. Nobody turns the non dues payer away from a class, etc.

Private Schooling -- a major luxury, and in some ways equally available to both families.

But back to the retirement savings. To the family on 50k, it seems like a luxury, they need to cobble together 300k-400k at some point, hard, but doable. Especially with wife entering work force (even for limited pay) after the kids are gone, etc.

The family making $250k needs $4m to enjoy retirement as they enjoyed life. That's WAY harder to come up with, even with more income.

Anonymous said...

I think alot of it is house- if you live in the NY area, even a modest home is going to run between 400-500K. Taxes on said modest home are about 10-12K. Homeowners insurance on Long Island is obscene. All in all, even with 20% down, many people will pay 3-4K on their monthly mortgage. This is manageable when a couple has 2, maybe 3 young kids, and they buy the home. They think that increases will match increases in tuition and other expenses, but between the tuition increases each year, another kid and phase outs of tax credits, every additional dollar buys them less,eventhough costs have steadily increased on their net income.

JS said...

"if you live in the NY area, even a modest home is going to run between 400-500K. Taxes on said modest home are about 10-12K. Homeowners insurance on Long Island is obscene."

I'm sorry, this is simply not true. There are plenty of communities where you can buy a modest, but nice home, for around $300k. In my previous community, I know several people who bought in the $200k range. Taxes can be half what you've described $5k-$7k. And homeowner's insurance? I have never heard of that breaking the bank. It's tied to the value of the house. You'd need a house worth over $600k to hit $1k in homeowner's insurance, roughly.

I'm really sick of people moving to expensive communities and then complaining that they just can't get by when, even if you want to live near NYC, there are far cheaper communities to live in.

Besides, these people saying they can't get by here are claiming $250k in income. I'd like to see some details. It makes no sense to me. They both claim low expenses and small houses. Something's not right.

Anonymous said...

"You'd need a house worth over $600k to hit $1k in homeowner's insurance, roughly."
That is absolutely not true. With the new FEMA maps, almost all of Long Island is "at risk". A $400K house can still have $3000/yr homeowners insurance... easily.
Many insurers no longer writing insurance in Long Island, or within 5 miles of the water. Long Island is 20 miles wide at its widest point, so that places the majority of the island at hte mercy of insurers with little compettition.

JS said...

Either way, I doubt the homeowner's insurance is breaking the bank. You're talking about a yearly expense. The mortgage and taxes alone are more than that on a monthly basis.

Regardless, just goes to my point, there are cheaper communities and there are more expensive communities in the NYC vicinity. Don't complain if you chose to live in the more expensive ones.

tesyaa said...

Anon 1:38, homeowner's insurance hits the frum and the non-frum alike. And there are other convenient places to live. Are property values in LI are dropping because insurance costs are so high?

tesyaa said...

Bottom line is, a frum person's idea of a "modest house" is different from a non-frum person's idea of a "modest house". Even by size alone, a frum person might see a large house as "modest" because with a large family, he has more space needs. A lot of frum people talk about their modest homes, but I think that means their kitchen hasn't been redone and their addition is not as large as their neighbor's.

I do know frum people living in modest homes, but most frum people would think of those homes as hovels. (I once heard a woman refer to her own modest house as a "hovel", which kind of blew my mind).

Anonymous said...

I do not know any community near NYC where a modest home goes for 300K.

Modest home =
3 bdrm,
small non eat in kitchen
dining area (no formal dining room)
1 living area (no formal living room)
basement or garage
1-1.5 bathrooms
small backyard
no recent updates (Last 20 years)

tesyaa said...

Anon, all I can say is you're totally wrong. I can think of many such $300K (ok, maybe $350K, no more) houses in my own neighborhood. The garage is probably unattached. The houses are not as close to the shuls as other houses, but well under a mile. They are in the eruv. There are no frum neighbors on the block, but there are frum people on nearby streets. Easy commuting distance to NYC.

People don't want these "modest" houses because they are thinking ahead to when their family size is larger, or because their kids will have to walk a few blocks for a Shabbos playdate. That's the truth. But what you've described exists.

Dave said...

That took all of 30 seconds to find.

Mike S said...

"People making $250K don't drive Corollas" Baloney. We make more than that and drive a 2006 Chevy Aveo--Corollas cost more than I wanted to pay. Got a manual from an urban dealer for under $10K. Have bought 3 new cars in 30+ years of marriage.

Anonymous said...

It all depends on were you live. In a smaller city in the midwest, $250,000 can indeed make you wealthy relative to others in the community. In the New York area, however, this will provide a nice middle class lifestyle. A problem is that our "progressive" tax system does not take this difference in the cost of living into account.

Dave said...

You choose to live in an expensive, high tax part of the country, that's your choice.

Dovy said...

>You'd need a house worth over $600k to hit $1k in homeowner's insurance, roughly.<

We live in a 300k house, but have to pay 95 dollars a month for home insurance.

Anonymous said...

We pay $250/mth on our insurance for a $450K house- becasue we need to have flood insurance on top of homeowners.

Orthonomics said...

In my experience, home insurance rates vary significantly. I paid nearly $300 more on a smaller, less expensive home 10 years ago than now.

Anonymous said...

Homeowner's insurance ~ 400 a year on 420K townhouse in Maryland.

tesyaa said...

Flood insurance is a whole other category. If that's what drives up rates on Long Island, I guess it's not surprising because most dwellings are within X miles of the coastline.

Again, is the high cost of flood insurance reducing property values in Long Island and causing people not to want to live there? Or is it just an extra cost of living in an otherwise desirable (for some) region?

Anonymous said...

Insurance rates have definitely hurt people on long Island, especially since FEMA changed the maps last year. It is hard to say whether this has caused a drop in prices, considering the collapse in the housing market as a whole.
I do know that there has been a lot of discussion about how "young people" are not buying homes in Long Island anymore (except for Jewish communities). The fact is taxes, insurance and housing is very high, and alot of manufacturing has moved off the island due to the prices.

Mark said...

Mike S - "People making $250K don't drive Corollas" Baloney. We make more than that and drive a 2006 Chevy Aveo--Corollas cost more than I wanted to pay. Got a manual from an urban dealer for under $10K. Have bought 3 new cars in 30+ years of marriage.

Um, it was a facetious comment.

You're a smart fellow, I bet your saving tons of money for the future!

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