Enough to Live On (2011)

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor.

Re: Enough to Live On (2011)

Postby ghariton » 23 Oct 2011 18:25

High-beta wealth in the WSJ:

The American rich, who used to be the most stable slice of the personal economy, are now the most volatile, with escalating booms and busts.

During the past three recessions, the top 1% of earners (those making $380,000 or more in 2008) experienced the largest income shocks in percentage terms of any income group in the U.S., according to research from economists Jonathan A. Parker and Annette Vissing-Jorgensen at Northwestern University. When the economy grows, their incomes grow up to three times faster than the rest of the country's. When the economy falls, their incomes fall two or three times as much.

The super-high earners have the biggest crashes. The number of Americans making $1 million or more fell 40% between 2007 and 2009, to 236,883, while their combined incomes fell by nearly 50%—far greater than the less than 2% drop in total incomes of those making $50,000 or less, according to Internal Revenue Service figures.

Of course, the trauma of giving up a Gulfstream or a yacht can't compare with the millions of Americans who have lost their only job or home. The Siegels will make do in their current 26,000-square-foot mansion.

<snip>

Yet the rise of the manic millionaire marks something new in the U.S. economy and will increasingly be felt by the rest of the country. With the wealthy now at the center of the political debate, from the Occupy Wall Street protesters in New York to the tax battles in Washington, portrayals of millionaires and billionaires are being shaped more by partisan ideologies than economic realities. The story of more volatile wealth may not fit neatly with either party's agenda, but it offers a clearer view of the rich—who they are, how they got there, and how they will drive our own economic futures.

Though often described as a permanent plutocracy, this elite actually moves through a revolving door of riches, with some of today's nouveau riche becoming tomorrow's fallen kings. Only 27% of America's 400 top earners have made the list more than one year since 1994, one study shows.

It wasn't always this way. For decades after World War II, the top-one-percenters were the most steady line on the income and wealth charts. They gained less during good times and lost less during contractions than the rest of America.

<snip>

Rising debt plays a role. While the rich are often portrayed as thrifty "millionaires next door," the era of low interest rates and easy money has turned them into a leveraged elite. The household debt of the top 1% surged more than three-fold between 1989 and 2007, to $600 billion, and grew faster than their net worth.

Add to that the growing arms race in conspicuous consumption and you get big spenders who are only one crisis away from financial ruin. Edra Blixseth, the former co-owner of the Yellowstone Club in Big Sky, Mont., went from being a paper billionaire to filing for Chapter 7 bankruptcy—liquidation—in three years. She says that she and her husband, Tim, were "living on the financial edge" even as they had two yachts, three jets and a California estate with its own 19-hole golf course and staff of 110 people.

"I felt like we were always trying to project the image of success," she says.

The fallout from the "high betas" is likely to grow. As the wealthy gain a greater share of wealth and income, they account for a growing share of spending, taxes and investments. The top 5% of earners now account for 37% of consumer outlays, according to Moody's Analytics. The top 1% of earners pay 38% of federal income taxes. The richest 1% of Americans own more than half of the country's individually held stocks, according to the Federal Reserve.

As go the high-beta rich, so goes America.

George
The plural of anecdote is NOT data.

In God we trust, all others bring data (William Edwards Deming)
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Re: Enough to Live On (2011)

Postby adrian2 » 23 Dec 2011 13:57

Cry me a river...

The couple’s goal is to maintain their way of life. For now, it is sustainable, for they spend only half of their monthly $10,420 take-home income. However, for the future, they need to provide a cushion for expenses that may not be covered by their defined-benefit pensions. To do that, they need to sustain $14,000-a-year contributions to RRSPs until they retire and to put $10,000 in TFSAs as long as their incomes support it.

The Pension Base

When Henry retires, he will have a company pension of $5,900 a month. Margaret will receive $1,120 a month as a pension from teaching work she did long ago. Both pensions are indexed and set to begin in 2013. They will begin retirement with combined pensions of $7,020 a month, or $84,240 a year, and potential pre-tax investment income of 5% (without inflation adjustment) of estimated assets in 2013, or $25,500, for total income of $109,740. After tax at a 30% rate, they would have $76,818 a year, or $6,400 a month, to spend.

At age 65, they will be able to add $11,520 each in Canada Pension Plan benefits and $6,456 each in annual Old Age Security benefits.

Therefore, at age 65, assuming that they have not made early application for CPP benefits, their total income will rise to $145,692 before tax. If they split pension income, they will have $72,846 each before tax. Each will have $5,178 exposed to the OAS clawback that begins at $67,668. Their clawback loss would be about $775 each, leaving net income before tax at $144,142 and, after paying tax at an average 30% rate, they would have $100,900 to spend each year, a sum in excess of their present annual spending net of savings.
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Re: Enough to Live On (2011)

Postby BRIAN5000 » 23 Dec 2011 15:39

Henry tried a strategy of buying stocks with strong dividends. Unfortunately, he sold in the 2008-2009 market crisis and did not buy back the shares. This strategy was wrecked by market volatility.


Yeah baby ! We need another good crash to get some fluff out of these dividend stocks.
“Sometimes you are going to sell early and wish you would’ve held on, other times you will hold on a
little bit longer and wish you would’ve sold early - this is just part of the game.” - Frank Zorilla via Abnormal Returns
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Re: Enough to Live On (2011)

Postby Shakespeare » 23 Dec 2011 15:41

A dividend strategy may be simple, but it isn't easy. :wink:
“Never appeal to a man's better nature. He may not have one. Invoking his self-interest gives you more leverage.” -- R.A. Heinlein, Time Enough for Love.
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Re: Enough to Live On (2011)

Postby ghariton » 23 Dec 2011 18:48

Here's a reader comment to a story in today's Globe % Mail on personal finance:

Why would you be investing? Is it fun? Seems a bit stupid to sacrifice for 50 years so you can be rich when your 70?? Is it a societal thing? Sort of like sending your innocent child to french immersion? Great conversation peace at parties but destructive to the little kid.

They're all around us... and they vote (or, in most cases, not).

George
The plural of anecdote is NOT data.

In God we trust, all others bring data (William Edwards Deming)
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Re: Enough to Live On (2011)

Postby big easy » 23 Dec 2011 19:21

adrian2 wrote:Cry me a river...

The couple’s goal is to maintain their way of life. For now, it is sustainable, for they spend only half of their monthly $10,420 take-home income. However, for the future, they need to provide a cushion for expenses that may not be covered by their defined-benefit pensions. To do that, they need to sustain $14,000-a-year contributions to RRSPs until they retire and to put $10,000 in TFSAs as long as their incomes support it.

The Pension Base

When Henry retires, he will have a company pension of $5,900 a month. Margaret will receive $1,120 a month as a pension from teaching work she did long ago. Both pensions are indexed and set to begin in 2013. They will begin retirement with combined pensions of $7,020 a month, or $84,240 a year, and potential pre-tax investment income of 5% (without inflation adjustment) of estimated assets in 2013, or $25,500, for total income of $109,740. After tax at a 30% rate, they would have $76,818 a year, or $6,400 a month, to spend.

At age 65, they will be able to add $11,520 each in Canada Pension Plan benefits and $6,456 each in annual Old Age Security benefits.

Therefore, at age 65, assuming that they have not made early application for CPP benefits, their total income will rise to $145,692 before tax. If they split pension income, they will have $72,846 each before tax. Each will have $5,178 exposed to the OAS clawback that begins at $67,668. Their clawback loss would be about $775 each, leaving net income before tax at $144,142 and, after paying tax at an average 30% rate, they would have $100,900 to spend each year, a sum in excess of their present annual spending net of savings.


Gee, I hope they'll be ok. :roll: Why do they even bother to print this?
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Re: Enough to Live On (2011)

Postby big easy » 23 Dec 2011 19:27

ghariton wrote:Here's a reader comment to a story in today's Globe % Mail on personal finance:

Why would you be investing? Is it fun? Seems a bit stupid to sacrifice for 50 years so you can be rich when your 70?? Is it a societal thing? Sort of like sending your innocent child to french immersion? Great conversation peace at parties but destructive to the little kid.

They're all around us... and they vote (or, in most cases, not).

George


Unless you're extremely wealthy (can afford $100,000/yr for Amica) or are fortunate enough to die at home, we'll all end up in the same government run care facilities except some will get higher subsidies than others. So in a way he's right. In the vast majority of cases you only need to fund about 20 years of retirement before you end up dead or in a care facility.

edit: Merry Christmas everyone
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Re: Enough to Live On (2011)

Postby Insomniac » 23 Dec 2011 19:57

Maybe it's the "live fast, die young, leave a beautiful corpse" philosophy...
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Re: Enough to Live On (2011)

Postby ghariton » 23 Dec 2011 20:45

Insomniac wrote:Maybe it's the "live fast, die young, leave a beautiful corpse" philosophy...

Yes. Except that, when they turn 65, they will want government (i.e. other taxpayers) to bail them out. And it will be very difficult for the government to say no.

(We tax the ants to pay the grasshoppers. And we consider the grasshoppers to be morally superior -- they're artistic, not materialistic.)

George
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In God we trust, all others bring data (William Edwards Deming)
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Re: Enough to Live On (2011)

Postby Shakespeare » 23 Dec 2011 21:38

Unless you're extremely wealthy (can afford $100,000/yr for Amica) or are fortunate enough to die at home, we'll all end up in the same government run care facilities except some will get higher subsidies than others. So in a way he's right. In the vast majority of cases you only need to fund about 20 years of retirement before you end up dead or in a care facility.
Yes, but the difference between diapers being changed and not being changed may be important at that time. :wink:
“Never appeal to a man's better nature. He may not have one. Invoking his self-interest gives you more leverage.” -- R.A. Heinlein, Time Enough for Love.
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Re: Enough to Live On (2011)

Postby ghariton » 23 Dec 2011 21:45

Shakespeare wrote:
Unless you're extremely wealthy (can afford $100,000/yr for Amica) or are fortunate enough to die at home, we'll all end up in the same government run care facilities except some will get higher subsidies than others. So in a way he's right. In the vast majority of cases you only need to fund about 20 years of retirement before you end up dead or in a care facility.
Yes, but the difference between diapers being changed and not being changed may be important at that time. :wink:

Indeed.

More importantly, most of us have someone -- children, nephews and nieces, friends -- who will help us in our old age. But it's unfair, and often unrealistic, to expect them to bear the full financial burden. The least we can do is to minimize the load they would bear, and enable them to hire help.

George
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In God we trust, all others bring data (William Edwards Deming)
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Re: Enough to Live On (2011)

Postby canopus » 28 Dec 2011 07:40

ghariton wrote:
Shakespeare wrote:
Unless you're extremely wealthy (can afford $100,000/yr for Amica) or are fortunate enough to die at home, we'll all end up in the same government run care facilities except some will get higher subsidies than others. So in a way he's right. In the vast majority of cases you only need to fund about 20 years of retirement before you end up dead or in a care facility.
Yes, but the difference between diapers being changed and not being changed may be important at that time. :wink:

Indeed.

More importantly, most of us have someone -- children, nephews and nieces, friends -- who will help us in our old age. But it's unfair, and often unrealistic, to expect them to bear the full financial burden. The least we can do is to minimize the load they would bear, and enable them to hire help.



I don't think it's unreasonable to expect children to bear some of the responsibility of caring for their parents, even financially, in most cases. (Abusive or irresponsible parents not included.) The cost of raising a child isn't cheap, and expecting a little payback for it isn't unreasonable.

Nephews, nieces, or friends... no way they should be expected to carry any responsibility, and I doubt many do. It would be nice of them to check up once in awhile, but they should not feel obligated to do so. The cost of raising a nephew or niece is the sum total of Christmas and birthday gifts over the years. That doesn't require much payback.

If you don't have kids, you'd better hope that when your time is up you go quickly. (Maybe that's the best way to go anyway.)
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Re: Enough to Live On (2011)

Postby big easy » 28 Dec 2011 16:59

ghariton wrote:
Shakespeare wrote:
Unless you're extremely wealthy (can afford $100,000/yr for Amica) or are fortunate enough to die at home, we'll all end up in the same government run care facilities except some will get higher subsidies than others. So in a way he's right. In the vast majority of cases you only need to fund about 20 years of retirement before you end up dead or in a care facility.
Yes, but the difference between diapers being changed and not being changed may be important at that time. :wink:

Indeed.

More importantly, most of us have someone -- children, nephews and nieces, friends -- who will help us in our old age. But it's unfair, and often unrealistic, to expect them to bear the full financial burden. The least we can do is to minimize the load they would bear, and enable them to hire help.

George


:rofl: :rofl: :rofl:

Diaper jokes aside, my original thought was to enjoy life while you can because after a certain age, the money doesn't help so much. IOW, You can't take it with you.
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