I spoke to my father yesterday and curiously asked him about his thoughts on assisted living facilities.  “Absolutely depressing!“, he said.  I couldn’t agree more that assisted living programs are depressing given it reminds us everyday about our mortality.

Who wouldn’t want to stay put in a home they’ve lived in for years instead?  I know I would.  Home is a special place that makes us feel comfortable and warm.  Ideally, you own your home outright in retirement and no longer have payments.  However, this is a topic for another post.

We can only hope that we remain healthy for the rest of our lives, but we’ll eventually need some help thanks to injuries or illnesses.  Some of us will have the financial strength to comfortably pay for our healthcare in retirement.  Others might have wealthy children to rely on.  But what if you do not want to burden anybody, and don’t have that much money to last?

Buying long-term care could be an ideal solution for your retirement years.

THE IMPORTANCE OF LONG-TERM CARE

Long-term care insurance generally covers home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer’s facilities. If home care coverage is purchased, long-term care insurance can pay for home care coverage, such as the cost of a live-in caregiver, housekeeper, or therapist for up to 7 days a week, 24 hours a day.

Clearly, one can imagine this type of care is not cheap, often ranging from $50,000 to $75,000 a year.  You might think long-term care (LTC) is only reserved for people ages 65 and up.  However, that’s wrong as LTC insurance can be purchased and used for everyone of all ages.  In fact, according to Wikipedia, 40% of those receiving LTC are between the ages of 18-65.

According to a survey done by New York Life Insurance Company, the 2009 national average per night at a nursing home costs $220 a day, or some $90,000 a year on average.  Given the average stay at a nursing home, or need for long-term care is about 3 years, one would need over $200,000 to pay for long-term care if one doesn’t have LTC insurance.

Why Would You Want Long-term Care?

* You don’t have the financial capacity to take care of yourself.

* You don’t have any children.

* You have children who don’t want to help, or don’t have the financial ability to help.

* You don’t want to feel like a burden on your children, friends, or relatives.

What Determines Long-Term Care Insurance Premium Rates?

Long-term care insurance rates are determined by six main factors: the person’s age, the daily (or monthly) benefit, how long the benefits pay, the elimination period, inflation protection, and the health rating (preferred, standard, sub-standard).

According to “America’s Health Insurance Plans” The average age of purchasers has dropped from 68 years in 1990 to 61 years in 2005, and the number of purchasers who are under age 65 has increased significantly.

Most companies offer multiple premium payment modes: annual, semi-annual, quarterly, and monthly. Companies may add a percentage for more frequent payment than annual. Options such as spousal survivorship, non-forfeiture, restoration of benefits and return of premium are available with most plans.

According to the website Allaboutlongtermcare.com, the following chart below shows a rough estimate of a $219,000 ($150 a day), 4-year benefit LTC plan.  As we’ve already discussed above, it costs $200,000+ already for only a 3 year plan, therefore the annual premiums here are likely 30% too light.  Please note you can take various different amounts of LTC insurance coverage e.g. 2 year coverage, 5 year coverage, lifetime coverage and benefit amounts of course.

As you can see, the older you are, the more expensive LTC insurance will be.  That’s not a surprise.  Nobody really knows how much long-term care they need, because nobody knows exactly when they will start needing help, and when they will die.  However, statistics show that the median life expectancy is 80, and the majority of us will require 2-5 years of long-term care before we die.

The policy premiums of long-term care insurance are created to account for the majority of people.  Of course, if you are more conservative and believe you will live a long time, then you should consider getting more coverage.  However, life expectancy and quality of life are two separate issues.  You could live until 100 and just need care from ages 98-100.  Or, you might be unfortunate to contract something at 75, but live on in an unideal state for 25 years, requiring $2,125,000 (25 X $80,000) to pay for LTC.

CONCLUSION

If you do not have $200,000-$300,000 in liquid cash saved up, are not very healthy, and have no children to rely on to pay for long-term care, you should consider taking out LTC insurance.  Remember, LTC insurance is not necessarily an age issue, as 40% of those receiving long-term care are between the age of 18-65.  Every single major insurance company provides long-term care so shop around for the most competitive rates.

Long-term care is insurance that pays off after a pre-determined period, which is usually after both short-term and long-term disability runs out after 12-36 months if you are working.  You can tell from the charts that the cost of LTC is getting incredibly expensive, way outstripping the rate of inflation.  As a result, you’ve seen the average LTC policy holder’s age decline to age 61 from 69 according to America’s Health Insurance Plans.

Feeling like a burden is a terrible, terrible thing.  I can’t stand relying on people given my pride and guilt.  However, getting long-term care is a personal decision only you can decide to make.  Hope this information helps!

Readers, have you or your parents ever taken out a long-term care insurance plan?  Have you ever received long-term care before?  If so, how much did the care cost?

Photo: Old Man Resting In Santorini, Sam.

Regards,

Sam

There’s a big difference between getting fired and getting laid off.  Most of what you read in the papers is about people getting laid off due to a “reduction in force”, or RIF as many companies call it nowadays.  Getting fired is almost always due to cause.

You may have sent out a blast e-mail with company secrets by mistake.  Or perhaps you said some sexist joke about women when the female HR manager so happened to walk by.  Whatever the case, you don’t want to get fired, nor should you quit if you don’t have to.

If you are fired or quit, a number of things can happen:

1) You will not be eligible for our government’s gregarious 99 weeks of potential unemployment benefits.  The logic is, you did something wrong that forced your company to fire you, hence it is your own fault you are unemployed, hence no soup for you.

2) You might have a black mark on your record if you’re fired, making you damaged goods for future employers.

3) You may lose supporters who would have written letters of recommendation.  But, since you were fired or quit, they might not want to risk their reputation on you anymore.

4) You might die alone.  Few things in life are worse than dying alone.  You’ll understand how difficult it is to do your own thing, or quit with no back-up in the post.

GET “RIFFED” AND BREATHE EASIER

Now that you realize the downside of getting fired or quitting, you should logically seek an alternative.  If you just can’t stand the company you are working for anymore, figure out a way to get laid off of course!

If you are laid off, you get a number of benefits:

1) You are eligible for government unemployment benefits.  Here in San Francisco at least, you can get $800 every two weeks.  Someone just told me they are getting $1,000 every two weeks, but that isn’t confirmed.

2) You may get severance.  Many companies offer 2 weeks per every year worked.

3) If you have deferred compensation in the form of stock or cash, you are eligible to receive these assets during the scheduled time table.  My friend Paul, for example, has some $400,000+ in deferred compensation he loses if he quits!

4) You will get all your unused vacation days paid.  You should get this anyway, but if you quit, not necessarily at all.

5) You will have no black marks on your employment record.  A key if you want to get back into the game at a future time.

HOW TO GET LAID OFF

Let’s say you’ve been working at your company for 5 years, and you’ve decided selling vacuum cleaners no longer interests you.  You are a bit burnt out, and you wish to take a 3 month break between jobs to recharge.  You can’t just quit because you’ll lose 10 weeks of severance pay and not receive unemployment benefits.  Here are some ways and thoughts to get laid off:

* Talk to your manager about the company’s staffing levels.  “Bloated, lean, just about right?”  Basically tell her that you empathize with how difficult her decision must be to lay people off, and ask how she copes?  As the dialogue ensues, bring up a suggestion that you are willing to sacrifice your position for the good of the firm if she is asked by senior managers to choose people to layoff.  This way, you seem like a good team player.  You should also make clear that with your sacrifice, you wish to receive severance and any deferred compensation you might have.

Being a manager is very difficult during rough times.  If you can help managers make some difficult decisions for them, more often than not, they will accept your proposal.  If you ever wonder why C-level execs hire consultants, now you know.  The consultants are often the scapegoats for letting go of staff, so the blame doesn’t go on the big bosses.  Of course, if you are one of the top performers, they will make it difficult for you to leave, and might ask how they can help make your life better and might even give you a raise.

* Bring up the topic of a sabbatical with your manager.  There’s never really a good time to ask for one.  When things are busy and booming, the last thing the company wants is for an employee to take a nice 3 month long break.  When things are bad, your manager will think you’re being thoughtless, and foolish with your career.  That’s fine, since you want to get laid off anyway!  You can recharge and enjoy your time off, and if you get back and find yourself laid off, then what a fine choice.  We’ll talk about whether one should take a sabbatical or not in a future post.

* Fade to mediocrity.  This is a riskier strategy that must be tactfully managed.  Companies let go of their bottom 5-10% performers every year.  Some call it the “Jack Welch Rule” from GE.  So long as you are one of the average 70-80% of employees, you’ll likely never be let go.  Falling to the bottom 10% in performance requires: not being a team player, but still being nice e.g. “Sorry, can’t stay late, gotta go!”, being out of sight, not feeling you’ve put in your best work, and maybe even arriving 15 minutes late at times.  Be very careful not to do anything wrong.

* Become annoying, but stay nice.  Are you the type of person who likes to whistle at your cubicle to the agitation of your colleagues?  Do you like to bring back from breakfast or lunch the stinkiest meal possible and disgust your neighbors?  Well then, you are on the right path for getting put on the “RIF List.”  I’ve had a couple managers tell me they can’t stand someone because of their loud noises and whistles.  Because they can’t stand that person, the manager finds nitpicking things to justify a RIF.  As the annoying person, you should continue to be nice and smile.  Just be a little oblivious.

Important: It’s really all about planting a seed of doubt in your manager’s mind.  Once your manager thinks you’re a pain in the ass, annoying, or not pulling your weight, you will have a very difficult time convincing him or her otherwise.  People are naturally biased and will find reasons to let you go if you sufficiently bother them.  For example, if your manager is a Republican, you can mention you are going to an Obama fund raiser.  Totally legal, but you will crawl under your manager’s skin to the point where you will get laid off.

Things to do or not to do when you are trying to get laid off:

* Do not write anything in e-mail that could condemn you to getting fired.  Assume all your e-mail are read.  If you are embarrassed to read your e-mail on the front page of the newspaper, the e-mail is not legitimate and should not be written.

* Do not abuse your corporate card or any channel where you can spend the firm’s money.  You should never abuse your corporate card anyway.  All expenditure must be above board.

* Do not harass your colleagues sexually or otherwise.  This is a given.  Now is not the time to go hit on the 21 year old intern at the other end of the floor.  Many companies have a non-interoffice dating policy.

* Do not come in late or leave early more than once a week.  Companies can terminate you for being incessantly late, so don’t slack too much.

* Read your employee handbook.  There are many dangers you must avoid that are contained in the hand book.

CONCLUSION

Getting laid off can be a wonderful thing if you have other things planned.  The better an employee you are, the harder it is for you to engineer your layoff because you are clearly more valuable to the firm than what they are paying you.  Also, if a manager lays you off, by many state laws, they can not replace you with another candidate for a certain time period, because that would violate the reason for a layoff.  If you were a bad employee, you should have been fired instead, but that opens up reputational risk to the firm as well as litigation risk.

If you are thinking about quitting your job, please at least attempt to engineer a layoff instead.  You will get severance, all your deferred compensation, as well as unemployment benefits from the government.  This is real money that shouldn’t be taken lightly, since there’s no guarantee that after the layoff you’ll succeed in whatever new thing you want to do.  Besides, after all these years of paying taxes, don’t you want at least some of that money back?

Sooner or later, our careers end.  If you want your career to end sooner, consider getting laid off instead of quitting or getting fired.  And if you have an incredible opportunity lined up already that will pay you handsomely, go ahead and quit.  Just make sure you know what you’re missing if you do!

Readers, have any of you engineered your own layoff before?  Have you ever tried and failed?  For those of you who had another opportunity in the background, how did you enjoy your layoff period and what did you do?

If you have quit your job, why did you do so instead of trying to get let go instead?

Photo: What you can do with your severance and unemployed benefits!

Regards,

Sam

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Are you a man if you cannot take care of your family?  Are you noble, if you do not have a job and let your wife slave away at the office, so you can latch onto her healthcare insurance, and eat the bacon she brings home?  Hell yeah brothers!  Stay at home men of the world, unite!

The beauty of equality is that we men don’t have to work the majority of our lives away anymore.  We can be the homemakers, and be proud of it too!  With our big muscles, we can re-arrange the living room furniture with ease.  Being relatively taller, we can change fire alarm batteries every year without fear of breaking our necks.

When the general contractor comes over to remodel the bathroom, ladies can rest assured we men are less likely to get scammed by superfluous charges, such as a $1,000 wonder wall replacement.  And when the cable guy comes, you can also breathe easy knowing that we aren’t going to have a romantic encounter either!  I mean, how many times have you ever had a cable gal come over?  Never!

IS EARLY RETIREMENT CHEATING IF YOU HAVE A WORKING SPOUSE?

I’ve noticed an extraordinary trend over the past couple of years.  The trend is that more and more men are desiring to retire early.  In some cases, as early as 25!  Let’s be honest, writing about retiring in your 20′s and 30′s is a gimmick.  These guys aren’t going to sit back on the beach and get rubbed all day.  Nope.  They are going to try and develop some side income and take care of the kids.  The kick in the shins is they think their wives will be happy with their plan!

Just like sleeping with the hostess at your favorite steak house is bad, so is telling everyone you are retired while your wife still works to support the family!

Why Wives Won’t Accept Working Forever If The Husband Doesn’t

* When you see someone relaxing, you too want to relax!  It’s human nature to want what other people have.  Do you really think your wife will be happy with working 40-50 hours a week while you lounge in your underwear all day at home?  Only if her job makes her 100% happy, which we know will never happen.  I would venture to guess the best jobs are liked by people 70%-80% of the time at most, which leaves 20-30% of dissatisfaction.

* Men will start to get lazy.  It’s not in our nature to cook, clean, wash the dishes, and change diapers.  We are hunters and love to play games!  Eventually, we’ll stop being as consistent with our cooking and cleaning, and our wives will notice!  We’ll get the wrong garnish at the grocery store, and our wives will blow their tops!  Men are doomed towards laziness and women will realize this sooner or later.

* Women get jealous.  You think men get jealous?  Oh my, women get crazy jealous!  There’s something about women where they must fend all other women away.  Every woman is looked at suspiciously, especially the attractive ones who enter their man’s lives.  Women probably get jealous because men make them jealous.  Men like to hunt remember!  And that includes other women.

* We must suffer together.  Again, it’s human nature that one can’t enjoy more than another.  Unless you are getting paid millions for getting a massage, there is suffering at work.  It can be the commute, the boss, the annoying colleague who eats boiled eggs for breakfast, whatever.  If your wife is suffering, she wants you to suffer too!

Once you combine laziness, relaxation, and jealousy, it’s GAME OVER!  Your woman will start to resent you, and at the very least desire to stay at home and experience what you have.  Don’t kid yourselves guys!  We must have a plan, and saying you are retiring early while you have a working spouse is not one!

How To Convince Your Woman Into Letting You Retire Early

* Talk about your dreams and ambitions.  Women love a man with ambition.  In fact, some say that men with ambition are sexier than red velvet cake!  Fill your woman’s ear with sweet plans of world domination.  You can talk about building your online empire or your desire to become a real estate magnate.  Whatever it is, your woman wants details, and wants to hear your enthusiasm.

* Always carry a smartphone.  Even if you’re sleeping in until 10am, make sure you have a smartphone to insta-respond to text messages when she checks in on you during her work breaks.  If you don’t respond within 15 minutes max, she’s going to start wondering whether you’re smoking her cigarettes, playing Xbox with 15 year olds, cavorting with other women, and get pissed!  She might also figure out that you’re sleeping in, like the lazy man that you are!

* Show encouragement.  Tell her you are proud of her accomplishments at work at least once a week.  Most people don’t really care as much about the money as they do about recognition for good work done.  Just tell her once a week how proud you are for her doing so well at the company.  Tell her you admire her work ethic.  Tell her you believe she will go places, and really mean it.

* Promise foot massages and gorilla loving.  What does every tired, working woman want after she comes home?  Not you!  And that’s because you don’t promise her foot massages and gorilla loving!  I don’t know how women can stand walking in even 1 inch heels, let alone 2 or 3 inches heels all day.  If you promise a foot massage and 3 minutes of McLovin afterwards, I’m sure she’ll let you play War Craft all night long!

* Tell her you’re doing it for us.  “Us” is the key word here.  You might be someone who is lazy without any backbone to stick it out in the corporate world and make friends.  And you know what? That’s OK, because work sucks a lot of the time!  You’re disrespected, underpaid, and unrecognized.  Nobody wants that.  It’s important to reassure your woman that you’re working on your dreams to create a better lifestyle for both of you.  Re-emphasize not only the potential of your business, but your ability to handle all the house work.

EQUALITY FOR MEN AND MONKEYS

I love our society’s push for equality.  Even though we are heading in the right direction, we aren’t there yet!  Women still get paid less then men on average, and you don’t see much diversity in senior management positions.  If we men want to retire early and have our lovely wives do all the work for us while we eat pizza and watch football, we must support our women 1000%!

Readers, is it cheating if you declare retirement and have a spouse working full-time supporting you?  Women, are you down with your man being a SAHD?  Have we reached a point of equality for men and monkeys?

Photo: Breakfast in bed my lady?  SD.

A new post is up on Yakezie.com entitled, “How To Profit From Facebook And Live Happily Ever After” just in case this stay at home man gig doesn’t work out for you.  I offer derivative careers, and ways to snag a Facebook man/woman of your own!

Regards,

Sam, Man Club For Men

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Back in July of 2010, I wrote a post entitled, “Am I Living In A Parallel Universe?” discussing the disconnect between the robustness on the ground in San Francisco and the incredibly negative mood by the mass media.  Even my online friends were making fun of my bullishness.  You guys know who you are!

Hopefully you guys not only increased your asset allocation towards equities, you also took advantage of the amazingly bubbliscious bond market and refinanced your debt.

At the end of 2010, Twitter was valued at some $3 billion bucks.  Prince Alwaleed’s 3% stake for $300 million in December of 2011 now values the company at some $9-10 billion!  The same thing has happened for Facebook, now valued at some $100 billion.  There is so much liquidity out there it’s absolutely ridiculous how much new wealth is being created.  Look at more representative companies of the economy, such as McDonald’s and IBM.  Both stocks are near record highs.

Let’s discuss some reasons why people continuously are slow to recognize change.  We’ll also discuss how you can improve your sense of reality by being more honest with yourself.

WHAT’S WRONG WITH PEOPLE

* We are delusional. Delusion is the root of many problems.  You are a C-student but you think you deserve an “A” lifestyle so you spend more than you have and get yourself in trouble.  The perfect metaphor is that you believe you can fly, so you jump off a building and die.  Back in the summer of 2010, you didn’t believe the economy was recovering because your mind selectively chose to highlight all the suffering in the world, even though you yourself were fine!  People love to point out that everyone else is suffering but themselves.  You know that’s just stupid because if you’re fine, and you represent everybody else, then of course everyone is fine.

* We are dumb. Let’s face it, we all think we are smarter than we really are, but the fact of the matter is, many of us are just dumb.  There are actually people out there that think that grades don’t matter.  Seriously, that’s just stupid if you think grades aren’t one of many indicators people look at to select the best people possible to partner up with.  When traffic is horrendous, you can’t get a reservation at your favorite restaurant until 10pm, your friends are all getting jobs, and the stock markets are marching higher due to better earnings and a re-rating, and you still think the economy isn’t doing well, then you are dumb.

* It’s hard to let go. Change is stressful and we hold on for longer than we should.  Money losing stocks are a great example.  The stock is down 10%, and we believe it’ll recover.  The stock is now down 30%, and we continue to hold on until the stock is down 50%.  We finally sell, and the stock goes up.  We are so stubborn and so slow when it comes to change, that we end up missing out on opportunities.  When we feel hurt, we want other people to hurt too, so we can feel better about ourselves.

* We are as blind as dingbats. There are certain people or organizations out there that are just no-brainers to latch onto.  In “Riding Rocketships For Greater Success“, I talk about how everyone should identify who is the rocket ship in their midst and hop aboard.  If you are not constantly surveying your community to identify who is the one with great potential, you are just missing out.  You need to build those relationships with those rocket ships, leverage off what they are doing, and create your own success as well.

HOW TO IMPROVE

* Be honest with yourself. The first thing to do is to conduct a thorough self-assessment of ones attributes to reduce the amount of disillusionment.  I can’t surf, which means I will never be a cool surfer dude with nice deltoids and back muscles that can pick up beach babes.  I can’t control myself around cheeseburgers and butter cookies, which means I will never have washboard abs or be a male model.  I have trouble hitting a top spin backhand, which means I will never be a truly elite tennis player.  Damn, I’m depressed now!  But, that’s OK, it’s better to be realistic than delusional.

* Recognize that many people are smarter, more attractive, and harder working than you. She will also get the better assignments and get more attention because she’s not only speaks three languages fluently, she’s just that much hotter than you.  He will always have more money than you because he started his business years earlier.  Once you recognize that you aren’t hot sh*t, you are better able to recognize reality.

* Once you recognize reality, systematically work on improving those things you care about.  You can’t be everything to everyone, but you can be great at a focused list of things.  The goal is to figure out what’s important to you and focus like a mad person to get there.

CONCLUSION

2012 is going to be a better year than 2011.  You just have to open your eyes to see that things are improving.  Credit card use is on fire again.  Car sales are at a record high.  Unemployment rate has dipped to 8.6%.  Interest rates are at record lows.  Consumers are cashed up and spending.  Meanwhile, every single bad thing is known, barring another terrorist attack.

With political false promises as a final buttressing point, how can the economy not be back?

Readers, do you feel the economy is alive and kicking again?  Why do you think people in the summer of 2010 refuse to acknowledge the economy was improving?  Share with us some of your positive and negative anecdotes.

Photo: Future 28 year old Facebook engineer’s Pacific Heights Mansion, 2011, SD.

Regards,

Sam

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“I generated $100,000 from home in my underwear!” reads the headline. Immediately, you go ahead and click to see how, hopefully for free. But if not, maybe there’s some type of infoproduct you can buy for $99.

Revenue is sexy no doubt. Large headline numbers are used to suck you in. They trigger a “Me too wow!” emotion, and most of us fall for it. For growth companies, top line revenue is important to show the investor the company is heading in the right direction. However, for the consumer, revenue is a gimmick if you don’t highlight the net profit.

One of the greatest tricks in selling is to make something look so easy that any knucklehead can do it. Offer a 30 day money back guarantee, with processing fee of course, and a product that takes 100 days to complete to see results! By the time the consumer figures out what you’re selling is difficult to achieve or a piece of crap, you’ll have already taken their money and bought a nice trip to Maui thank you very much!

If your job is to sell the dream of making money online and following your glorious digital nomad lifestyle blogger, do us all a favor and be more transparent.

REVENUE DOESN’T COME CLOSE TO EQUALING PROFITS

There’s an old saying that it’s not how much you make, it’s what you keep. It’s easy to be lured into the fact that being an online entrepreneur is easy. The fact of the matter is, after you deduct costs and pay taxes, you’re often left with less than a third of what you started with!

In any business, a 33% net profit margin is a fantastic return. In fact, a 33% net profit margin blows doors off of great companies such as Google and Apple. It takes a lot of time, money, and effort to generate profits.

As a business owner, don’t lull yourself into stupid mode when you have a nice jump in revenue because you’ve got to watch your expenses. Cash flow is tantamount.

As a consumer don’t be mesmerized by proclamations of huge revenue figures, especially when costs are not reported. Your dignity is paramount.

To lifestyle bloggers, if you are writing about how everyone should quit their jobs and follow your path, great! Just highlight what your revenue, costs, operating profits, and net profits after tax are so readers can decide for themselves whether your journey is right for them.  We must compare your operating profits before taxes to our day job incomes before taxes.

Generating $60,000 online a year is solid, but if you’re only taking home $25,000 before taxes and saving no money, you might just misleading your readers and ruining their lives. Practically every full-time job in America pays $25,000 or more a year, and they come with healthcare benefits!

OPEN YOUR EYES

It’s important not to fall for gimmicks. When people try selling you the dream, know that you are already awake.  Question everything before you do anything drastic such as spending $299 on an info-product, or quitting your job just because someone says so.  The worst is when someone makes you feel bad about having a job, and rubbing it in your face how good their lives are.

On Untemplater, I pen a fiery post entitled, “Quit Your Job And Die Alone”. You’ll learn about four examples of online entrepreneurs who are relatively popular in their respective niches who still can’t save enough for their family, get a mortgage to buy a house, or quit their jobs even though that’s what they’re advocating.

If they can’t do it, what chance do you have?  Bust open some popcorn and grab a drink, because the post is a long one.  If you’ve ever had aspirations of quitting your job to be an entrepreneur online, you won’t want to miss this one!

Photo: Mexican Fisherman for the ladies.  Don’t get too excited.  Isla Mujeres, 2010.  SD.

Regards,

Sam

President Obama considers single people making over $200,000 to be rich.  He has specifically called for raising taxes on singles making over $200,000 and couples making $250,000 every year he’s been office.  Yet, he’s been unable to pass any tax increases because I don’t believe most people agree with him that $200,000 for singles and $250,000 for couples is rich.  If most people agreed, higher taxes would pass!

There are two aspects of monetary wealth we can focus on: Income and Capital.  Some make a lot of income, but have only a little amount of capital since they are either starting off in their careers, or haven’t saved and invested an appropriate amount.  That’s not going to happen to you because you read Financial Samurai and will follow my savings guide to ensure capital accumulation.

Meanwhile, there are those with a tremendous amount of Capital, with little income given they may have inherited their wealth but have no income generating skills.  Capital heavy people may have invested skillfully over the years, built great companies, or were incredibly disciplined in their savings.  There are many different types of folks in the Capital heavy category.  It’s not a bad place to be at all.

Ideally, it’s best to have both high income and a large capital base.  This is my goal, and therefore my goal for all of you as well.  In this post, we’ll focus on the income side of the equation and what to strive for just in case we don’t have a trust fund from mom and dad.

HOW MUCH INCOME DO YOU NEED TO BE CONSIDERED RICH?

Instead of just saying what I think, I’m going to share my thoughts on various income levels per person for populations living in coastal cities such as San Francisco, New York City, Los Angeles, Boston, and Washington DC and work out the answer.  The idea is to focus on the more expensive parts of America, which can therefore translate into living in other expensive countries in the world such as Paris, Hong Kong, London, Tokyo.  Of course, if you move to much cheaper places, you’ll be considered that much wealthier.

Various Income Levels

$50,000: Not rich, but lower middle class.  After contributing $22,000 to your tax-exempt 401K and IRA, you are left with $28,000 in gross income to live.  With an effective tax rate of about 15%, you have about $24,000 left after taxes.  $24,000 or $2,000 a month is enough to live a frugal lifestyle, however, you’ll probably want to find a partner who makes at least $20,000 a year to be comfortable with a family.

$100,000: Not rich, but middle class.  After contributing $17,000 to your tax-exempt 401k, you are left with $83,000 a year in gross income, and ~$62,000 net income based on a 25% total effective tax rate.  Notice there is no more $5,000 tax-exempt IRA contribution because you make over $68,000.  That’s right, the government doesn’t want you to save money if you make over $68,000.  Hopefully, you are following my savings guide and saving another 20% of your after tax income, equaling roughly $12,400 a year.  You’ve got around $40,000 to spend on whatever you want and you’re breathing pretty good now.

$200,000: Upper middle class.  After retirement contributions, you are left with $178,000 in gross income, leaving you with roughly $125,000 in after tax income.  You boost your after tax savings rate to roughly 30%, leaving you with about $87,500 left.  By the time you are making $200,000 in your career, you’re probably in your 30s or older and have a mortgage and kids to consider.  Kindergarten/daycare may run $15,000-$20,000 a year, followed by $30,000-$40,000 in shelter costs for a reasonable home.  You’re left with $20,000-$40,000 to spend on food, travel, groceries, gifts, lessons, and so forth.  Not bad.

$350,000: Still upper middle class.  After retirement contributions, you’re left with $333,000 in gross income, or roughly $250,000 in after tax income.  With a 30% after-tax savings rate, you have $175,000 left to spend.  Your family has grown to 4, and you seek a bigger home.  An average 3 bedroom, 2.5 bath home in a good area in San Francisco will run you about $1,300,000 to $2,000,000.  We’re not talking anything super fancy at 1,800-2,800 square feet.  Your mortgage at 3.5% on $1.1 million will therefore cost around $60,000 a year + $15,000 a year in property taxes.  I choose $1.1 million because that is the maximum level for mortgage interest deductibility.  As a result, you’re left with about $100,000, or $8,333 a month in after tax income for school for two, travel, food and so forth.  You’re doing well, and if you are frugal, you can certainly save more than $75,000 a year in after tax money along with the $17,000 401K contribution.

$500,000+: You are rich.  With $483,000 in gross income after maxing out your retirement contributions, you have about $300,000 in after tax income (effective at 35%, which includes 10% state).  That’s right, you are paying around $183,000 in taxes alone, yet the government still wants to take more from you!  Undeterred, you crank up your savings to 35%, and put away another $105,000, leaving you with $195,000.  Subtract $70,000 for annual mortgage/property tax leaves you with $125,00.  Then subtract another $40,000 in tuition for two.  With around $7,000 a month in money available for travel, food, entertainment, goods, gifts, you are sitting pretty, especially since you are putting away away $122,000 a year in savings.

* As you can tell from the examples above, the tax bill gets quite onerous the more you make.  Can you imagine paying roughly $180,000 in taxes every year and be asked to pay more?  I’ve allowed for a larger house for family and some lifestyle inflation.  However, I’ve stuck to my savings guidelines for every single income level to ensure a strong capital base come retirement. 

SO HOW DO WE GET THERE?

* Depend on yourself.  Earning a high level of income is a choice, no matter what the naysayers tell you.  It is up to each of us to further our education to develop a skill-set that enables us to earn more.  It is up to us to work longer than our peers, so that after 2 more hours of work a day, we’ll have made over 600 more hours of progress a year.  Don’t you think you could develop something amazing with 600 hours of time?  You know you can.

* Get a mentor.  If you want to learn how to become wealthy, learn from someone who is already wealthy, not someone who tells you how to get wealthy without being wealthy.  Those folks are charlatans, and some do it very well, which is why they are wealthy.  Instead, seek out a mentor and do everything possible to ingratiate yourself into their circle.  Successful people want to give back.  It’s the way they are hardwired.

* Remove disabling beliefs from your mind.  Wherever you go, there you are.  You mind is either like a power plant of positivity, or a cesspool of negativity.  You must believe in yourself, otherwise nobody else will.  I am so internet/computer illiterate that I thought there was no way I could start a website, until one day in 2009 I said ,”fuck it” and got it done.  I’m only slightly more literate than a doorknob now, but at least things are running and I can just do this full-time if so desired.

* Go the traditional route.  Earning six figures and saving millions of dollars is straightforward.  It just takes time.  When you are incredibly rash, you do stupid things and screw up your financial goals.  Save and invest even 10% of your income over 30 years and you will likely have more money than you will ever need.

* Go the berserk route.  Crazy people do crazy things, and sometimes those crazy things turn out to be miracles.  Time and time again, you stumble across stupid shit that turn out to be big hits.  Twitter, for example, was one cockamamie idea that has revolutionized the way we communicate.  AirBnB.com is another idea that has helped lower costs in the hospitality industry.  Deep in your heart, you know whether you’re putting in good work or not.

EQUALIZATION FACTOR

Some of you who live in other parts of the country can live on much less than the amounts above.  Meanwhile, public school systems are good enough where you are, so you’re willing to send the kids without fear of long-term failure.  Hence, if it pleases you, take a 30%-50% discount to the above numbers.  The great thing about these income levels is that we’re only considering one individual.  If you have a partner who earns even just $30,000 more a year, it goes a long way to helping out the family.

The other conclusion from this post is that if Democrats want to raise income taxes on “the wealthy”, then perhaps they should raise the income target from $200,000 per person to $500,000+.  And if they really want a shot at passing legislation, they should raise the income target to $1,000,000 since nobody can ever complain, at least not publicly, that living off $1 million a year is hard.

I’m of the mindset that we should maximize our income, so we can maximize our capital base, so that we can sooner do what we really want and never have to worry about money again!

Readers, what income level do you consider to be rich?  Do you think you’ll be able to get there?

If you believe being “rich” is at income levels way below $500,000, do you think you are just justifying your own income to make yourself feel beter?

Regards,

Sam

Photo: Red Samurai, Lake Tahoe, 2011.  SD

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The wooden bar shimmers with beer stains as I stubbornly try to wipe them away.  Each jab of the napkin gets stuck, like a fly to Venus.  Eventually I give up as my friend returns from the Thomas Crapper smiling.

“Sam, when I get my bonus this February, I will have hit my goal of saving $1,000,000 in the bank!” said my 38 year-old friend Paul over his Guinness.  He went on to explain, “I’ve been saving my bonus every year for the past 16 years so that I can one day quit my job and do something more relaxing and fun.”

“Well done Paul!” I respond as I pat him on the back.  “But what else are you going to do?  Not many jobs in the world pay your type of income.  Are you sure you’re willing to give it all up for a life of leisure?”

“Hmm, I don’t know Sam.  I guess all I have to do is work another year, and I’ll get another $100,000 or so in bonus after tax.  Maybe I should just continue to work?” questioned Paul.

“I think a lot of people would give up their left nut to receive a $100,000+ after tax bonus every year.  Maybe you should think about taking a sabbatical instead to rejuvenate?” I replied.

“A sabbatical would be great!  But, I think my company just demotes, underpays, or ultimately lays off people who take them,” explained Paul.

“Well isn’t getting let go exactly what you want?  That way, you can get all your deferred compensation without a hitch!” I said.

“Good point!  Time to kick back and get faded baby!” Paul cheered as we chugged our beers in unison.

MORE MONEY, MORE QUESTIONS

Paul is an account manager at a major software company.  He joined the firm out of undergrad in 1996 and slowly rose through the ranks to become a “Vice President” of the firm.  Paul likes his job, but doesn’t love it as the industry’s go-go days are over.  Ever since the 2008 downturn, Paul no longer feels proud to work at his firm or in his industry.  He feels constantly assailed by politicians and people who think making over than $200,000 is evil.

Paul’s job is to simply sell his company’s software and make sure his clients are satisfied with the product.  Whenever new software company updates come up, it’s up to Paul to notify and up-sell those upgrades as well.  Software sales is not a sexy job, but it pays very well.  Paul has built friendships with his clients, often going out to dinner with their husbands or wives and attending the same charity functions.

INCOME GROWTH STALLS OUT

When Paul first joined his firm, he was making about $40,000-$60,000 a year for the first couple of years.  In his third year, he got promoted to Associate and saw his base go up to $80,000 and his bonuses rise up to $100,000.  In his 6th year at the age of 28, Paul was promoted to Account Manager and saw a base increase to $150,000 a year with bonuses up to $250,000.  By age 31, Paul got another promotion to Vice President with a new base salary of $200,000 and bonuses that could go as high as $500,000.

Paul has been a Vice President for seven years now and saw a 50% slash in his 2011 bonus to $250,000 because of a 70% decline in his company’s earnings.  Paul isn’t delusional, and recognizes that making $500,000 a year is still an incredible amount of money.  However, a part of him wonders,”why bother” working hard anymore given his pay is no longer based on merit, but on the overall health of his company, which he has no control over.

One of his buddies a couple years ago gave him a dose of reality, “Paul, software sales is a bullshit job and you know it.   Don’t you want to do something else more meaningful with your life?“  Paul has been thinking about this statement ever since.

PROGRESS IS HAPPINESS

If ever there was a case that proved “progress” is more important for happiness than “money”, this would be it.  For the years that I’ve known Paul, he’s been on the up and up.  I love him for his frugality.  He drives an 8 year old Honda Accord, buys clothes from Macy’s only on sale, and looks like just another regular guy.  I also like Paul for his generosity, always fighting tooth and nail to pay whenever we go out to eat or drink.  It’s just in his nature, and I’ve had to resort to paying while he goes to the restroom or is distracted with a pretty waitress.

Now that Paul’s income is no longer rising at a steady clip, he’s starting to lose interest in his job, yes even with his large income.  Paul enjoys working with his clients, but there’s this deep nagging feeling that he could be doing something different with his life.  Paul has always wanted to be an entrepreneur, but when he graduated, his firm gave him a job offer he couldn’t refuse.  As a result, all of Paul’s entrepreneurial dreams have been put on hold.

Paul told me that when he first started working for his software company he vowed to quit his job once he saved $1,000,000 cash in the bank.  Now that he has, he doesn’t know what to do.  For the past 16 years, Paul has only done one thing, and that’s sell.  Like Lyndon in “The Curse Of Making Too Much Money And Not Pursing Your Dreams,” Paul enjoys photography, but doesn’t have the skill to become a professional.  Like me, Paul enjoys to write, but I don’t know if he will have the discipline to write constantly and live off peanuts as he makes a name for himself online or never in the publishing world.

Maybe Paul is entering a mid-life crisis and just needs a nice new Porsche 911 Turbo?  The fact of the matter is that after 16 years, Paul is bored.

HOW MUCH DOES IT TAKE TO LIVE FINANCIALLY FREE?

With $1,000,000 spread across several banks at age 38, I consider Paul to be wealthy.  His wife has a stable job and makes around $100,000 a year.  The $1,000,000 in the bank is only the liquid portion of his wealth.  He also has about $450,000 in his 401K, $500,000 in deferred compensation, and around $800,000-$1,100,000 in real estate equity from multiple properties.  In other words, his net worth is around $3 million dollars.

If Paul quits his job, his roughly $10,000 (base) to $30,000 a month (base + bonus) in after tax income goes out the window.  He also loses $500,000 in deferred compensation that vests over 3 years if Paul can’t successful be laid off, as opposed to quitting or getting fired.  Paul doesn’t have to worry about health care because he’ll just go on his wife’s plan.  However, what’s the fun in having so much free time if he can’t spend it with her, Paul wonders.

Suggestions for those who want to quit their jobs:

* Calculate your cash burn: Paul’s total monthly expenses is around $6,000, a frugal amount considering his $10,000-$30,000 monthly after tax income.  Hence, with $1 million cash in the bank, he is covered for 167 weeks or roughly 14 years.  If Paul were to sell his house and free up $400,000-$500,000 in equity and reduce his total monthly expenditure to $4,000 a month, he’ll have 350 months of living expenses equaling 30 years.

* Calculate your total non day job income:  Paul generates about $3,000 a month from his cash savings in the form of various 3.5-4% long-term CDs he’s taken out.  Furthermore, if Paul is able to be let go by his firm, he will receive his $500,000 in deferred income over 3 years at roughly $165,000 gross a year.  If Paul maintains his $6,000 monthly expenditure, he should have no problem living worry-free for at least 3 years without having to drawn down any of his $1 million in principal.

* List out all your plans.  After calculating all your passive income, you’ve got to come up with a list of things you’d like to do that will hopefully make you money.  It is a blessing to do what you love and earn a living at the same time.  Unfortunately, few people have this terrific combination.  Given Paul has saved religiously for the past 16 years, he can now seek to do something he truly wants to do, and not worry so much about the income anymore.  Paul lists: working with disabled children, working for UNICEF, teaching, starting his own financial advisory practice, working as an animal trainer at the zoo, and writing for a travel magazine as his ideal jobs.

* Investigate what the potential income is for your new endeavors.  I can tell from Paul’s list that the most he’ll make is probably $40,000-$50,000 a year, except for his own business, which could be infinite.  If we add up Paul’s $3,000 a month in guaranteed passive income + $3,000-$4,000 a month in likely salary from what Paul really wants to do, he can’t cover his $6,000 monthly expenditure without drawing from his savings, since it takes $8,000-$9,000 in gross income to spend $6,000.  As a result, Paul needs to either downgrade his living standards, save more, or make more.

* Think about family.  Paul and his wife (33) currently do not have children.  They aren’t sure whether they do want children but will seriously think about kids over the next 3 years.  A child could literally mean a 10-20 year difference between when one can retire!  With education costs soaring out of control, one could very easily spend $500,000+ on their child through college.  Granted, many families live on much less for their kids, but Paul is conservative and would rather have more money than less money for his kids.  If Paul and his wife do have a child, his wife has to keep on working while Paul takes care of the child or vice versa.

* Put it all in a spreadsheet.  It’s easy to talk through the income and expenses, however you need to build a spreadsheet with every single line item to make sure you aren’t missing anything.  The last thing you want to do is quit your job and find out you forgot about that pesky $500 a month student loan bill!  After you’ve put everything in a spreadsheet, discount your income by 10% and increase your expenses by another 10% to add an extra layer of conservativeness.

* Check out the charts.  The following chart is my recommended savings rate and amount one should have at various stages of their working lives.  The number where I would comfortably say you can quit your job and do anything you want without any fear of going into poverty is around $3,000,000 in liquid savings, as that will throw off at least $60,000 a year in interest income at 2%.  For others, it may be more or less.  It depends on your lifestyle.

* Will a long vacation or sabbatical do the trick?  If you work at a reputable firm and have been there long enough, the firm should have a sabbatical policy.  Paul’s firm allows up to a three month, full salary sabbatical for every 10 years he works at his company.  Since he’s been there for 16 years, he’s well over due.  A sabbatical will likely affect your compensation, but it’s a small price to pay for 3 months of bliss don’t you think?  Well, it depends on how much you make.  Ironically, the less you make, the better the sabbatical!  There is a dark side to early retirement which everyone needs to read.

THERE NEVER SEEMS TO BE ENOUGH

Despite Paul’s hefty savings and assets, Paul still has doubts on whether he should call it quits in his lucrative career and become an entrepreneur that might pay nothing for years.  Even if he joined a non-profit organization that pays $50,000 a year, he wonders if he will get tired of the bureaucracy and not be able to adjust to the pay .  His promise 16 years ago of quitting once he hit $1,000,000 in savings now looks suspect.

We can do all the analysis we want and probably still not be able to make a 100% certain decision on how much one needs to save to quit their jobs.  I have a feeling the answer is different for everybody.  The real questions we should all be asking are: What do we plan to do once we quit our jobs?  What are the alternatives?  And what are our skills and interests that will allow for a rewarding experience?

The way I see it, here are Paul’s best choices:

1) Figure out how to be included in the next round of layoffs so Paul doesn’t lose his $500,000 in deferred compensation.  Furthermore, Paul gets 2 weeks of severance for every year he’s worked plus a minimum 4 weeks bonus and all his accrued vacation days paid.  We’re talking around 40 weeks of severance plus $168,000 a year for 3 years in deferred compensation as Paul figures out his next path.

2) Continue working at his job, but take it down a notch so that he’s doing just enough to stay employed, but not enough to feel frustrated if he doesn’t land that big client or fails to get recognized for good work.  This is the safest route which will allow him to continue to bank $100,000+ bonus checks, earn his $200,000 base salary and provide for his future family if he so decides.

3) Take it easy at his job and seriously develop his side business until it generates an amount equal to 50-100% of his $200,000 base salary.  This might take years, and could be accelerated if Paul decides to dedicate his efforts full-time on his side business.  But, how many people on earth can develop a side business that generates $100,000-$200,000 if they are working full-time?  Let’s be honest here.  $10,000-$20,000 sure… but 10X that?

4) Take a sabbatical for 1-3 months to recharge.  Paul still gets to earn his $200,000 base salary while he’s away, and maybe when he returns, he’ll realize just how much he enjoys his job.  He could use the 1-3 months to develop his business idea as well.

5) The worst choice is quitting his job, losing his $500,000 in deferred compensation and severance and having no side business up and running.  This move would be done out of anxiety, but a promise kept 16 years ago.

Bartender!  One more round of Guinness for the both of us please!

Readers, what is your recommendation for Paul?  Should he quit his job since he’s reached his target savings goal and has already dedicated 16 years of his life to his job? 

Could you quit a $200,000-$500,000 a year job that you liked, just because you don’t love it?  Is loving your job overrated?

Regards,

Sam

Photo: Reading Entrepreneur Magazine On The Beach. Sam.

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December is generally a higher expenditure month given the holidays and tempting sales galore.  I would ideally like to keep my personal credit card bill in the $1,000-$1,500 range, with $2,000 as the upper limit.  After $2,000, I feel like I’m wasting money because that just seems like an awful lot to spend on things beyond housing costs.

I decided to start tracking my monthly credit card expenses to mainly make sure there aren’t any egregious fees that I know nothing about.  For the past 10 years, all I’ve been doing is eyeballing the total amount, and if it was below a certain threshold, I would pay the bill and move on.

As my desire to save more money grows, it’s good to be a hawk-eye when it comes to my second biggest monthly expenditure.  Furthermore, as a personal finance blogger, why not make some content out of the figures and learn something in the process!  Those who seek early retirement might want to give this exercise a go as well.

DECEMBER 2011 CREDIT CARD STATEMENT

EXPENDITURE HIGHLIGHTS 

Hobbies: Tennis is expensive.  The cost of $549.39 is around 25% of my total bill.  The two tennis racquet purchases are considered one-off since I play with the same tennis racquets for 3-5 years on average.  I need two because I play competitively and strings break during matches all the time.  In fact, I just broke two strings the other day while, which will cost about $80 to re-string since I can’t be bothered to string them myself.

Transportation: Given I take the bus to and from work every weekday, my gas bill is relatively small at $67.88, despite Moose’s V8 engine.  If I didn’t go up to Tahoe for a mini-snowboard vacation, I probably would have only spent about $10 bucks on gas.  The snow has finally arrived, so I plan to go up this week and twice a month on average for the next three months.

Shopping: I went a little nuts (for my standard), shopping for myself given places such as Barney’s and Banana Republic had 30-45% off sales.  I really didn’t spend money on anything I really wanted, just work shoes and clothes since they wear out e.g. socks, pants, shirts.

Food: From the 11 entries, it does seem like I eat out a lot.  However, given you can eat out around 90 times a month, eating out 12% of the time isn’t that bad is it?  $130 a month for groceries for two is pretty good.  You are only seeing a portion of my food bill since I’m constantly taking clients out for dinner and lunch as well on my corporate card.  Combining business with pleasure is actually a great way to save costs.  You’ve got to eat anyway, might as well build relationships with clients over a great meal.  If you love to golf, you might as well take a client out golfing as well.

PUTTING THINGS IN PERSPECTIVE

I’d love to spend less money, but I’m not sure exactly where to cut.  It does look like I eat out a lot, but in the scheme of 30 days and 90 expendable meals, I don’t think my food expenditure is that much.  Professional cooks are infinitely better and quicker at preparing food than I can.

For January and upcoming months, I won’t be buying any personal gifts or clothes for myself.  Hence, the upcoming credit card bills should go down by an average of $500.  That said, I do plan a trip overseas and have budgeted about $1,000 for some tailored clothes.  I also bought a last minute airplane ticket for vacation, so actually, February looks like it’s getting up there as well!

In addition to my corporate card,  I also have an online business credit card which pays for other expenses such as internet and mobile charges.  If you haven’t thought about starting a business, there are definitely some benefits that help subsidize your normal living expenses e.g. food, travel, electronics.

I spent about $300 in cash this past December, or about $70 a week on random things such as parking, tennis balls, snacks, and taxis.  I try to carry as little cash as possible, since cash cannot be replaced and I get rewards points on my credit card.

Finally, I will continue to pay off the credit card bill in full and save 100% of every other paycheck, which equals a minimum of 50% savings of my after tax income for the year.  If there is a year-end bonus, I will save or invest at least 90% of the bonus as well.

Readers, how did you do with your credit card spending in December 2011?  How are you doing so far in the new year? 

I’m still somewhat ambivalent on continuing this series of posts, so do let me know if you enjoy reading these type of updates or not.

Regards,

Sam

Photo: Shot spot shadow, SD.