Scraping By On $500,000 A Year: Why It’s So Hard For High Income Earners To Escape The Rat Race

Living Paycheck To Paycheck On $500,000 A Year

Help! I’m drowning from all my money!

I’ve highlighted in a previous article how living off $200,000 a year in an expensive city is really just an average lifestyle. In this article, I’ll discuss how one couple is living paycheck to paycheck while making a combined $500,000 a year.

$500,000 a year is a level which I think is considered rich. Anybody who thinks otherwise has no concept of financial reality. Even the government almost agrees after compromising by raising the income level for when the highest marginal tax bracket kicks in to ~$400,000 from $200,000.

Although making $500,000 a year may sound like a Herculean task, you’ll be surprised to know there are plenty of regular folks who hit the half million mark every year. This article will discuss how many folks who earn a large income won’t be retiring any time soon. 

New Retirement Planning Calculator By Personal Capital

Retirement Life Infinity Pool, Bali Indonesia

Hanging Gardens Resort Ubud, Bali

Do you really know how much you need to retire? A lot of people like to throw out random numbers without really doing the math. One million dollars is a nice round number that often gets brought up for retirement. Unfortunately, $3 million is the new $1 million thanks to inflation in rent, property prices, tuition, automobiles, and food.

Even if you come up with a retirement number, chances are high that your number will change due to unanticipated life events. Maybe you’ll become unemployed for a year and draw down most of your savings. Or maybe you’ll find an amazing new job with a 50% pay raise. Maybe you’ll end up having triplets due to the latest $20,000 IVF procedure when you were hoping for just one baby. Who knows? Life has a great way of keeping us on our toes.

What we need is an interactive retirement calculator that is dynamic, has multiple adjustable variables, and also incorporates real data. Let’s first have a look at some current retirement concerns by the public at large. 

The Health Benefits Of Early Retirement Are Priceless

Game OF Thrones Mance Rayder

One stressed out King Beyond The Wall

Mance Rayder, The King Beyond The Wall once said, “The freedom to make my own mistakes is all I ever wanted.” After three years of being away from Corporate America, his words have never rung more true.

If I wanted more money, I would have stayed in my investment banking job for the rest of my career. But I longed for the freedom to choose after my 13th year. Being absolutely free is priceless. Unless you love what you do, it doesn’t matter how much money you have if you’ve still got to take direction from someone else.

But besides glorious freedom, there are also incredible health benefits I’ve noticed after leaving the permanent workforce. Let me share some with you.

Living In An Expensive City Can Make You Richer, Happier, And More Diplomatic

Chrysler Building, NYCWhen asked about career advice, I always recommend people just follow the money. New York City has all the financial firms. San Francisco has all the tech, internet, and venture capital money. While Washington DC and the surrounding suburbs have all of our tax money to spend on massive government contracts!

I’ve lived in all three areas for extended periods of time, and I’ve seen massive fortunes made in multiple ways. If you want to “get lucky,” then you might as well go where there’s opportunity. Because twiddling your thumbs in a dying town, complaining why you can’t get ahead doesn’t make sense when you live in a free country with no state border controls.

The biggest push back I get for my “follow the money” advice is that such places are just so damn expensive. It is absurd that the median rent in San Francisco is now around $4,000 a month. But the only reason why rent is $4,000 a month is because incomes are high enough to afford such levels! If there weren’t, rent would fall.

The market is efficient. Capital is fluid. Everything is rational. Only an idiot with an online business would NOT try and geo-arbitrage his way to a lower cost area of the world. Oh wait, that’s me. 

The Financial Benefits Of Joining The Military: Free Education, Great Retirement, And More!

Raising The Flag in Iwo Jima 1945

Raising The Flag in Iwo Jima 1945

The following is a terrific guest post from Spencer, a captain in the US Air Force, who gives a complete overview of the financial benefits of joining the military. Spencer has been publishing on Military Money Manual for the past three years, helping military folks achieve financial independence.

There are many different paths you can take in life. Blue collar, white collar, no collar – the jobs you do often reflect your upbringing. If you come from an affluent community or family, one path you might not have considered is joining the military. Military service has many rewards, some of which can be a free college education, an exciting non-standard job, travel opportunities, and the chance to do some amazing things around the world.

A college degree is a necessity to achieve substantial financial goals, unless you’re the next Mark Zuckerberg or Bill Gates. But college is getting more and more expensive every year, way outpacing inflation. Student loan debt only gets you a negative start on your journey to financial freedom. Alternatively, military service can enable you to get a free college degree, have a job lined up when you graduate, and make money while you go to school.

The Top 1% Net Worth Amounts By Age

Mega Mansion - What Is Considered Rich?

Tom and Gisele’s mansion

People like to throw around random net worth figures all the time when asked how much is considered rich or how much they would need to never work again. Often, the figures just sound nice, like saying “one meeeeleon dollars” without any mathematical justification.

This post puts some numbers behind ascertaining how much wealth one needs to be in the top 1%. Remember, having a large net worth is better than having a high income. The government goes after income more than it goes after wealth. For example, you can live in a $8 million mansion and get Universal Healthcare subsidies if you make less than ~$94,000 a year with a family of four.

So what do we know?

Based on my Top 1% Income Earners post, we know that in order to be in the top 1%, you’ve got to earn at least $380,000 in gross income a year. The data comes from the all-knowing IRS.

Based on my Net Worth For The Upper Middle Class post, we learn that the net worth range for the top 15% of all Americans between the ages of 45 – 74 is around $700,000 – $830,000.

Finally, I’ve shown numerous examples as to why earning roughly $200,000 – $250,000 gross a year per person and $300,000 a year per couple is the ideal income for maximum happiness. Being rich is sometimes a state of mind, and I’ll use these income figures in my analysis as well.

Given these data points, I’d like to construct two simple models to demonstrate what I think should be considered top 1% rich. All wealth and no income is not ideal. Similarly, all income and no wealth is not ideal either. There needs to be a balance.

Social Security Will Make Us All Millionaires In Retirement

Social Security Makes Us All MillionairesWhen I was driving home from San Mateo one day I took a wrong turn and ended up at Hillsdale Mall. There I saw an amazing relic, a Barnes & Noble bookstore! Before 2011, I used to spend an hour every week reading personal finance books at my local San Francisco B&N. It was a lot of fun, but like the trees in Dr Seuss’s story, The Lorax, the stores began disappearing.

There’s nobody I know under the age of 40 who believes Social Security will be paid in full when it’s time to collect. Maybe half of what’s owed, but certainly not 100%. As a result, many have smartly decided to write-off Social Security from their retirement plans in order to focus on accumulating enough assets on their own. Depending on an inefficient government during our golden years is dangerous. Instead, we must max out our 401ks and IRAs, while investing even more into after-tax investments.

Out of all the books on the Personal Finance bookshelf, I decided to pick one up on Social Security because it’s been off my financial radar screen for years. Here are some important bullet points we should all know about a program that will make us all millionaires if we work long enough!