Down and Out on $250,000 a Year | Hacker News Reader

Down and Out on $250,000 a Year

thefiscaltimes.com

31 pointsalexwestholm54 comments

This family which is "barely scraping by" is saving $33k/year towards retirement; $8k/year towards their kids going to college; paying $6k/year on their student loans; and making $36k/year of mortgage payments.

If you're making $36k/year of mortgage payments towards a $600k mortgage (the article refers to a $750k home and an 80% mortgage) then you're not just paying interest; you're also making a significant dent in the principal amount. You don't need to put $33k/year into a retirement savings account if you're already buying $20k/year worth of house. (Whether the house is a better or worse investment than the stock market is an open question -- but the fact remains that there's no need for this couple to save over $50k/year towards their retirement, especially while they have young children.)

Similarly, it's misleading to count both student loan payments and the kids' college fund -- if they got student loans, their kids can too.

EDIT: Ok, I'm not familiar with the US housing market and mis-estimated where mortage rates were. They're paying off $10k/year of mortgage principal, not $20k/year.

Yeah, this article is really frustrating. The amount of money this family is saving AND spending easily puts them in the "rich" category, as does the kinds of things they are buying. Further, hiding the actual data in a scary-colored table (lotsa evil red!) and drumming up just enough expenses to put them in the negative stinks of a "researcher" with an agenda.

I suppose it is a relatively reasonable demonstration of the fact that people in our society tend to grow their expenses to match their incomes. Although, saving upwards of $50k/year (33+8+principal) is actually quite responsible and their ability to do it is essentially proof that they are NOT "barely scraping by".

To look at it another way, this family is SAVING as much money - after all taxes, after all expenses - each year as the gross income of the median family in the United States.

The linked article is a troll.

Quite.

I'm actually sympathetic to the argument being made -- that a given income may seem "rich" in one place, but actually not buy so much elsewhere. Living in NJ, I can see this every day.

But when you look into the details of the article, it's hard to buy it. The article says, for example, that it's "impossible" for the parents to clean and dress themselves. Bunk. If the rest of society can do it, why can't this family? Why do they spend so much money eating out, and spending $10/lunch every day at work?

So: ignore the article, but please still consider the fact that what might seem rich in one circumstance may not go as far elsewhere.

And an incredibly successful one. I bet this article is the most viewed article on thefiscaltimes.com ever.

No emotion sells newspapers like mild outrage. The newspaper's job is to make you just a little bit outraged every day. Usually the real news of the world should be more than sufficient to outrage you, but on occasion they like to supplement it with stories like this.

It's almost as good a trick as my personal favourite: the top ten list with one inappropriate item deliberately included.

Not just that, but it actually ran in the Washington Post a little bit ago (bylines Fiscal Times). That's good trolling.

Further, at the rate they are paying/saving for their and their children's education, they don't need to do that very long before they no longer need to make the payments.

To present it as steady state is misleading.

EDIT : as other people are pointing out, there seems to be lots of double counting (high insurance premium + full contribution to HSA) and assumptions about steady state costs (cars,clothing) that are either misleading or a lifestyle choice that the family is making.

$36k a year is easily their minimum payment on a $600k mortgage. If they are only a few years into their mortgage, there is no way $20k of that is going to principal.

Your mortgage estimates are crap.

If their mortgage $600k @ 4.25% they will make principle+interest payments of $2,950/mo.

The first year they will pay down $10k in principle.

Year 10: $15.5k Year 16: $20k

So, unless they had the huge house many years before they had kids they are only "buying" 10-15k of house.

You're right -- I'm not in the US and I don't have a mortgage, so I guessed the rates wrong.

You don't need to put $33k/year into a retirement savings account if you're already buying $20k/year worth of house.

This is false. Your house is not consumable in retirement, so you can't really count it as retirement savings. At best, you would be able to downsize. That would extract some portion of the value of the home in order to maintain you through retirement. But you certainly can't count the whole house value as retirement savings.

Reverse mortgage: http://en.wikipedia.org/wiki/Reverse_mortgage

Anyway, over the long term (30+ years) inflation is going to increase the value of a home. Suggesting that a 750K house in a good location gains ~2% of it's value on average per year seems like a safe bet in most areas. Granted, it is a risky investment, but so is buying stocks. Anyway, 20% down + a sane 30 year mortgage on a 750K home really is a fairly large investment. If nothing else at some point they don't have a morgage anymore.

Edit: The point being they could probably be safe only saving say 10% for retirement (25K) and put 8k/year into some other use. They are getting close to the point where they could probably swing a live in housekeeper. (Lunches at work 5k, Day care and Babysitting 15K, Cleaning 5K. Dry Cleaning 1.2K + 8k less savings) = 34.2K / year. They could even cut into that 13,659 /year in Food and household supplies...

You don't need to put $33k/year into a retirement savings account if you're already buying $20k/year worth of house.

After all, house prices never go down, right?

Yep, and you should never buy stock because companies often go broke giving you nothing. Suggesting that perhapse they could only sat 25K (aka 10%) a year into retirement becuase of that huge morgage payment seems reasonble argument IMO.

This hypothetical struggling middle class family makes almost 3x what mine does. I'm soon to have a family of four as well (one toddler now, new baby in March), and yet somehow we survive with a house, car, daycare, no credit card debt, etc. and still manage to afford luxuries like new laptops, iPads and iPhones on a reasonably regular basis.

I'm of course aware that different areas are a lot cheaper (and being in Iowa, I certainly live in a much cheaper area than most of the examples calculated for the article), but for comparison: My house payments are less than half what they quote for this family, and my full time daycare costs with one toddler are less than half the number they're using for the year. They also apparently have a house cleaner that's $5k per year. Again, if we had the money, it'd cost us about half that on a yearly basis (I've priced it.. house cleaning is the bane of my existence). (Using a cleaner is pure luxury, though, IMO.) Dry cleaning? Thousands in new clothes each year? Geez. I guess I have no idea what it's like to be "average" as we certainly don't spend much at all on that sort of stuff. Their budget for holiday gifts is also something like 3x what we tend to be able to do, their yearly college funding is in the realm of fantasy compared to us, etc.

It seems to me like this "average" family is living a life of relatively decent luxury compared to what I can afford, but the article would have me believe I should feel sorry for them barely being able to me make ends meet? Of course I'd love to make more and if I did make more, I'd find ways to spend it - no doubt - but isn't that always the case? If they're uncomfortable with their financial situation, they can cut back and live like those of us who don't have a big house on a cul-de-sac, a cleaner, huge college savings, and fully funded retirement accounts.

A decent house in San Francisco, for instance, would be around a million (and it would be smaller than your house in Iowa). You'd have to spend 40k/year just on mortgage payments. It's great that your house payments are less than half, but for certain areas of the country, your house payments aren't viable.

I don't believe 250k would give a family of four a wealthy life in the Bay Area. A comfortable one, but not a wealthy one. Does anyone know what percentile 250k would be for SF? It was in the top couple nationally but I bet it might not even be top 10% here.

http://www.city-data.com/income/income-San-Francisco-Califor...

Over $200k would put you in the top 14%. Over 100k would put you in the top 23%.

77% of people make <$100k.

Stories like this are disingenuous at best. Yet, they do show just how out of touch most upper-class people are with normal people. I know quite a few households who earn more than $250k and I see the same attitude expressed in the article. That is, they truly believe they are "middle class". If pressed, they may say "upper middle class".

The thing is, within their peer group, paying for a nanny, spending thousands for day camps for the kids, buying multiple $50k+ cars, etc is normal. When I occasionally ask them how people raise families on less than $100k, they are truly mystified. They really cannot understand how people do it.

I find it interesting how the rich (and if you're in the top few %, you're "rich" in my book) do not self-perceive themselves as "rich".

Articles like this are good to get you thinking (mostly about how you can best use your own resources), but pointless in presenting conclusions.

There is no universal definition of rich. This article seems to suggest that the hypothetical family is not rich because they don't have a great deal of unallocated money. However, they do have an education, which I feel improves quality of life. They presumably have rewarding, secure jobs. They have a 3 or 4 bedroom house, which is more than sufficient for a 4-person family. A 4-person family could live quite comfortably in a 2-bedroom apartment. They are saving for retirement and college, neither of which is available to all. They can afford a yearly vacation and have the freedom to take it. Again, not something which is available to all. Sure, they don't have unallocated money, because they've used their money to provide well for themselves. They could move to an apartment close to work for one of them, sell one of the cars, give away the dog and stop taking vacations; then they'd have loads of unallocated money, but I doubt they would feel richer.

The only real conclusion from this article is that people who make roughly $250k a year spend roughly $250k a year, and I think most people could have guessed that on their own. Whether or not they are "rich" is subjective.

This goes to show how skewed our values are as a society. Apparently, the definition of "rich" that the article portrays, is having large amounts of discretionary income, after buying everything you could need. That hypothetical family certainly sounds very well off, and I feel no pity if they have to cut back 10% on their retirement savings in order to send their kids to daycamp.

This article made me feel very sad and uncomfortable. In most parts of the world, simply having any one of the amenities listed there would signify being "rich".

They have a 3 or 4 bedroom house, which is more than sufficient for a 4-person family.

It's true, there is no universal definition of rich. But many of the items you list as luxuries are available even to a good chunk of the poor (using the US govt definition of "poverty").

60% of households below the poverty level [1] have 3-4 bedrooms and 66% of households below the poverty level have at least 2 rooms per person. 25% of households below the poverty level have at least 2 cars, trucks or vans.

http://www.census.gov/prod/2008pubs/h150-07.pdf

I'm not saying we should feel sorry for this family. I'm just pointing out that many of the items you mention as luxuries which make you rich are available to a huge chunk of the US.

[1] This is 60% of all households below the poverty level, not just households of 4 people.

All the fuss over OMG HIGHER TAXES for people making over $250K/year neglects one important detail: these tax brackets are marginal tax rates, not absolute ones. Even if the rates for people making $250K and up had reverted to Clinton-era levels, someone making $251K of taxable income would be charged almost exactly the same absolute tax rate, all other factors being equal, as someone making $249K.

(ETA: If you look at the table, the hypothetical family’s combined Federal income, AMT, state income, and property taxes range from 18 to 23 percent of their income, depending on where they live.)

That's not quite true. There are discontinuities in that neighborhood, most notably AMT. When you hit that, it affects the calculation of the entire tax bill.

Your point is generally correct, but at this specific point (and a few others, depending on specific circumstances) there are odd effects that come into play.

Of course, if you're trying to make a political point, one can focus on those discontinuities to make all kinds of not-generally-true claims.

I would like to see the tax code become a lot more progressive, but I cheerfully admit that the AMT is an awful kludge.

You can always spend more than you make, now only saving 41k/year is going broke? A family of 4 making 250k / year is not going to get to send their kids to a top collage, go on ski trips, have an early retirement over 13%/year in savings, hefty charitable deductions, monthly sessions at the hair colorist without saving or spending most of what they make.

  Let's look at their numbers:
  9k /year in medical expences for a family of 4 with heath inshurence?
  15k/year in Day care and Babysitting
  4k/year in After School Activities/Camp 4,000 
  5k/year in housecleaing
  7,596$/year in car payments on 1 car.  
  5,3284/year in parking fees (really?)

PS: 8k/year in colloage savings for 2 kids WTF are they thinking.

> 5,328$/year in parking fees (really?)

Apparently you haven't lived in a city where parking is a premium, and often a second deed with a house or condo. In Boston, separate parking spots last year went for $94,420 on average, with a $67,000 median price. Granted, it's not a necessity, but neither are many other things on their hypothetical budget.

Rates for commuters are also very high. I don't work downtown, where the prices are really insane, and a single spot at work still costs me almost $1200 a year.

I am just used to companies paying for parking. I am not at the top of the food chain and my company is more than willing to cover a parking space or the equivalent in subway fees.

Right, that's for the NYC location, and median monthly parking rates in midtown or downtown are $500-600. Given that, most people commuting into NYC don't drive because you would have to sit in traffic for hours everyday just for the pleasure of getting to that parking spot. Huntington is on the LIRR and its an hour train ride to Penn Station.

What about $780/year for parking in Plano, Texas? I moved away from Plano in the 1990s, but at that time, there wasn't any place in the whole city where you could pay to park.

Are you saying $8k is too little or too much? 18 years of saving $8k a year without any interest is $144,000 which is more than enough to send a kid to a good college.

It's too much if they're going to a public school. And it's more like 22 years, since all of the money isn't needed at the second they turn 18.

If you want to give your kids a full ride experience at a private school, of course it's going to be damn expensive, and I think perhaps Retric was implying that it's not worth it?

Yeah it's too much for public school, but you could always use the extra after you graduate as a down payment on a house, money to start a company, or a future retirement fund. If the money isn't being used for anything, saving $8k a year per child is a pretty nice gift to leave college debt free.

The day care number is pretty spot on. I pay that for day care ($300/wk) in the metro DC area to a licensed family day care provider. Most were even higher (into the $400/wk range).

That note about "average insurance premiums costing $14k" (assuming for a family of 4) is likely using an extremely low deductible ($500 maybe? $1000?) A family earning $250k should be on a $5k or $10k high deductible plan with an HSA, giving them another savings vehicle along and for someone earning $250k, being able to come up with $10k in an emergency should not be a problem.

Ahh.. the linked article indicates the average is predominately $1000 deductibles. Raise that deductible!

In the last couple jobs I worked that offered health insurance, it was maddening that we didn't have a choice for high-deductible plans. Everyone was on the 'same great plan' (with a few options) but I could have helped contribute to the company's savings even more with a higher deductible.

Just another attempt to make everybody "middle class" and avoid tough conversations about income inequality in the US.

Get real!

Show a percentage of their total tax burden based on their income and compare it to a family of four making $42k - then we can talk about barely scraping by....

While the article doesn't exactly present a credible conclusion, given the family's rather high expenses and savings rate, it does ask a valid question: What is rich? If $250k a year is not rich, what is? Where did $250k come from anyway? Why is it not $150k?

Let's face it, a family earning $250k in the SF bay area is by no means considered rich, while one earning the same amount in Tulsa, Oklahoma will definitely fall into the wealthy category. I suppose I take issue with politicians drawing arbitrary lines and saying that everyone above the line is somehow more responsible for the nation's tax revenue than those below it.

I'm sorry, they are putting more towards their retirement than a large % earn in a year?

Their college savings for the children are more than lower income families manage to save annually (also, if they have college loans why can't the children?)

More-so, if you are barely scraping by, perhaps not drive expensive cars and live in 750k homes for a while??

I'd only remark that if they are still paying off college loans they can probably calculate on being early in their careers (with little kids, I hope so), and so that their income will continue to increase while the mortgage at least holds steady.

Whatever amount of money you make, you will spend almost all of it and don't consider yourself wealthy.

We all look toward making a little bit more.

Wealth is relative.

Sorry, I will not sympathize with people who, with $250,000 rolling in per year, don't know how to live within their means.

Do editors publish things like this specifically to tick off people? There's not one reasonable item on the chart. Their _yearly_ car expenses could purchase 2 decent used cars in any part of the country. Their out-of-pocket yearly medical expenses suggest numberless boob jobs. Their clothing bills (well above what I have spent in my life) are reasonable only if they are participating in several bridal parties per month. Their utility bills exceed what I have paid on rent+utilities+food at different times in the past. If they're living in the Taj Mahal, well who's fault is that?

Etc.

I'm reminded of the "millionaire next door" and "stop acting rich" (thomas stanley and the other guy!). $600/month lease payments on one car is not unheard of but truly rich people don't do that sort of thing. It seems the this article is using "aspirationals" as their ideal family, then bemoaning the fact they don't have enough spare cash.

A $10k used car could cart them around just fine for a couple years - the equivalent of $400/month - 3 years would be $277/month.

If the 'high status' jobs require a 'high status' car, let the employer pay for it.

If the 'high status' jobs require a 'high status' car, let the employer pay for it.

Much as I'd like to agree with you here, this just isn't correct. In many high paying jobs you do need to engage in some status seeking. Women with bad hair (read: $150 hair cut/assorted chemicals every 2 months) and men with cheap shoes (read: $100) are simply less likely to be promoted.

It's not an official policy and your employer won't pay for it. It's just what happens.

(Incidentally, I'm not talking about media or fashion.)

[edit: I have no idea how much the necessary status seeking actually costs, and I'm not claiming this article focuses only on that. I'm just pointing out that it exists and is probably bigger than you think.]

And don't forget that the $10k car can be sold for $4-5k in three years so your net outlay would be closer to $150/mo.

Also, it is quite possible that the 600/mo is a three year lease on a new Mercedes/BMW so at the end of the term you don't even own the car.

On top of that they are spending $430 a week on food and $161 a week on gasoline.

On on hand, these people are blowing a lot of money. On the other they're mostly doing what is reasonable (saving for college, paying a mortgage, paying off student loans, no credit card debt, paying for childcare because they both work, etc.). If you expect people to do everything for themselves, then $250k a year doesn't seem like a whole lot, particularly when you start taking into account the (growing?) possibility that one or both of them could lose their job at any point. Where is the saving for that? If you're spending $20k a month, losing one of the jobs means you need $10k in savings per month that person isn't working.

I wish to assert that these people are not rich at all. Here's how you know: they have salary paying jobs the income from which is materially involved in their day to day life expenses (as opposed to Fortune 500 CEOs whose salaries pale in comparison to the stock related earnings they receive). In short, if you and your wife both have to work somewhere that has the power to arbitrarily lay you off, then you're not rich. The real rich own the places these people work at.

I think it's a question of relative expectations. If we expected people to pay for their own retirement, college, health care, then these people would not be considered "rich." They'd be considered responsible.

The sorry truth is that when people who aren't saving for retirement or college see those who are, they scream "rich"! Then these "not rich" people ride through life saying "I can get by with less," and when it comes time to retire or send the kids to school or pay the hospital, they lean on the government to bail them out.

I guess I'd rather recalibrate expectations. There are truly rich people out there, but those who are breaking even when paying for retirement, health care, and college are not rich. They're responsible, and they should not be asked to carry the masses who are irresponsible.

Bottom line, it takes a ton of money to pay for healthcare, save for retirement, and save for college. A TON. Most people are not doing this. Instead, they're betting the "government," that endless source of wealth, will float them.

As Thatcher said, the problem is, eventually you run out of other people's money.

It seems to me that these numbers are a bit strange--almost $9K/yr in medical/dental expenses--after insurance? Is this a reasonable expectation for a young couple (I say young because they're still paying off their student loans). Other people have already remarked on the cost of the their car payments. House cleaning? Also, they're paying $440/month on gas/electric--what are they running?

Looking at the numbers, I see people who have a rather lavish lifestyle. If that's how this fictitious couple wants to spend their money, then fine, but then they will end up in debt. Sorry, but I say that they're rich.

$9k is not realistic. As a relatively young couple with 2 kids, our out of pocket medical expenses (on an HSA plan with $5k deductible) have been running about $1500 per year for the last several years - that's medical, dental, ortho, and vision.

Seems they spend an awful lot for housing (should property tax be added to that sum, too? Don't know that tax).

Their yearly car loan payments bought my mum an entirely new car (in one payment). Maybe they shouldn't have bought two SUVs?

This is absurd. What this article says is that for 250K per year, you will meet every single possible financial need, even while paying for a fairly extravagant mortgage, and still be able to save for yourself and for your kids, own multiple cars, etc.

This is scraping by? Really?

The more you earn, the more you spend. You could re-write this article "struggling on $250m a year" - the yachts, mansions, family trusts etc take a MASSIVE bite. I dunno how they get by.

Poor rich people are poor....after saving/investing more money than the majority of the people in the world make in multiple years.

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