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Why $200K won’t cut it

I have absolutely no bona fides when it comes to economics, but I know this: $200K as an individual and $250K as a married couple isn’t rich. In fact, that amount of money will only get you most of the way there with regard to covering your own personal responsibilities without incurring additional debt. It definitely doesn’t make you rich.  I am massively annoyed by the populist nonsense being bandied about by my Democratic party.  Where have all the sensible moderate Democrats gone?

First, let me say that I haven’t made $200K a year yet – as a W2 employee or otherwise. But I am striving to get there and go beyond that amount. I own a company and want to have larger revenues and hire employees. I want to be able to pay myself at least $200K a year and pay a few other people $50-150K a year.

But let’s be clear: $200K as a salaried employee won’t buy you the capacity to do anything that really mega-wealthy people do.  You can’t forgo looking at airfare prices. You can’t go out and buy the new BMW 7 series with cash. You can’t say to your kids “go to whatever college you want” and back it up.  And no one is lighting cuban cigars with $100 bills when you are taking home $200K as an individual or $250K as a household.

Let’s break it down.   Here’s a calculator that I used to ballpark the amount of take-home pay on $200K a year as an individual.  This is with the “Bush tax cuts.”   On $200K, as a W2, an individual gets a paycheck of $9.5K a month in California.

If you want to have a chance to make that kind of money in a W2 job, you’re probably going to need to live in a metropolitan area, such as a California city, Chicago, NYC, or Boston where it costs a lot to own and service a house. Realistically, mortgage + upkeep + real estate taxes will likely run your household about at least $4K a month in a metropolitan area. (As a side note, this is why renting is such a good idea right now.)

But let’s not forget the school debt that you probably have.  You likely racked up $100K in school debt in order to earn that diploma that enabled you to get the $100-200K job.  Because, if you haven’t noticed, a college education and/or graduate degree seems to be pre-requisites for applying to any really high paying position now-a-days. (Hey, I didn’t say it was right or good… I’m just noticing reality.)  If you have this problem, you are servicing debt to the tune of about $2K a month for 15+ years.

A child adds childcare and child-related expenses.  A person gets some sort of federal offset for adding a person to the bottom of the pyramid in the Ponzi scheme that is the Social Security system — but that offset doesn’t even come close to offsetting the monetary cost of children.  Let’s estimate $500 a month for a kid. I think that’s low, but you need to decide how much you’re going to put away for Jenny’s college fund yourself.

$9.5K minus 4K, minus 2K, minus $500 = 3K.  A modest car payment + insurance + gas for the car will run about  $600 a month.  Let’s put Costco, Vons, Trader Joes and Jimbos down for $250 a month – assuming that you eat at home a lot. A dog runs at least $100 a month (after accounting for annualized costs.)  Cable, phone…. maybe another $150. You need to spend some money on your appearance, and maybe want to go out to a movie night every once in a while.  Life insurance? Wait… did you say that you want an iPad for Christmas? OK… let’s just round up to $1.5K easy. Leaving you with $1.5K a month.

But don’t forget about retirement! The remaining $1.5K gives you $18K a year to invest. You can fool around with pre-tax or post-tax calculations and you might eek out a bit more. Regardless, using reasonable (one might even say conservative) estimations, you’d need to somehow manage to have upwards of 3.5 million by retirement age if you want to maintain the nice-but-not-luxury lifestyle to which you have become accustomed.  I plugged in the numbers, included a fictional already-existing nest egg and pretended that fictional person would be making $200K in an uninterrupted stream throughout the 30 years left of their career. (Ha! who does that anymore?)  Regardless, the truth of the matter is that investing $18K a year isn’t going to cut it.  In fact, this CNN retirement planner/calculator estimates only a 3% chance of making it… that’s if you are in the happy, healthy position of making $200K a year and putting $18K a year away for retirement with a passive investing strategy.

So here we are.  As I mentioned at the beginning, I’m not making $200K… but that doesn’t matter because making $200 as an individual only gets you most of the way to being able to take care of your own sh*t.

The hard, cold, lonely reality is that if you are in your wage-earning years now you are not only responsible for your own present and retirement, you are also propping up Social Security for an enormous population of baby boomers, funding bailouts for all sorts of companies, funding the cost of 2 (seemingly unending) wars, and trying to stay afloat within the midst of a rampant national/global debt crisis and economic firestorm.

And, let’s not forget, I started out with the “Bush tax cut” numbers.  Now the political discussion of the tax system wants to “repeal the Bush tax cut and make the rich pay their fair share,”  which is to say that those numbers will get even more onerous. The thought of it all is rather crushing. I don’t mean to get all Atlas Shrugged on ya’ll but come on!

So please, before anyone gets on the bandwagon of increasingly progressive taxation intended to soak the so-called “rich”… you might want to figure out how much money you would actually need to make in order to cover your own lifestyle completely throughout your life.  Leave a little room for striving, and stay the hell away from small businesses.  Because if you don’t, you might find that no one is incentivized to create situations where anyone makes more than whatever the ceiling is before there is a negative incentive.  Wouldn’t it be ridiculous to be offered a $225K a year job and find yourself saying: “Thank you for the generous offer. I’d rather make $199.99K and have another week of vacation time.“?


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