Basic Investment Rules

by Grace aka costofcollege

Do you think your investment portfolio is diversified?  Morgan Housel at the Motley Fool believes there’s only one way to tell if you’re truly diversified.

You are only diversified if some of your investments are performing worse than others.

Losing money on even a portion of your portfolio is hard for some people to swallow, so they gravitate toward what is performing well at the moment, often at their own expense.

In other words, some people gravitate toward selling low and buying high.

That was one of 16 Rules for Investors to Live By recently published by the WSJ.

Do you agree with these rules?  Which ones seem particularly important to you?  What rules would you add?  Have you been happy with your investment portfolio?

ADDED:  If you’re having trouble seeing the WSJ article, try clicking this link to Google and then select the first result.

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254 thoughts on “Basic Investment Rules

  1. HIJACK — A CALL FOR QUESTIONS
    Milo has offered to write a post about military academies and college ROTC. If you have any questions on these topics that you’d like him to address, please submit them to me at gntotebag @ gmail.com. I will keep identities anonymous.

    Now carry on with today’s topic!

  2. RMS — Yes, and I thought these rules were loaded with common sense. The diversity one that I posted struck me as particularly insightful because investors are so fearful of losing, yet in the big scheme of things it is an inevitable part of investing. That is, unless you’re going to stick with cash, in which case you lose in terms of inflation.

  3. Would a nearly all-stock portfolio in “diversified” index funds be considered “diversified”?

    If not, does a long time horizon eliminate the need for asset class diversification?

    (I would say 1. Maybe and 2. Yes)

  4. I agree with “maybe”, depending on what you mean by diversified. 100% stocks is not diversification by most definitions.

    One of the goals of diversification is to smooth returns, so if that’s not a problem then maybe there’s no need. But going back to the first point, an 100% stock portfolio is considered riskier than one that is diversified by asset classes.

  5. My top ones:
    4. Short-term thinking is at the root of most investing problems.
    5. Investing is overwhelmingly a game of psychology.
    7. Three of the most important variables to consider are the valuations of stocks when you buy them, the length of time you can stay invested, and the fees you pay to brokers and money managers.
    9. A couple of times per decade, investors forget that recessions happen a couple of times per decade.
    14. There is no such thing as a normal economy, or a normal stock market.
    16. You are only diversified if some of your investments are performing worse than others.

    Money you need in <3years should just be parked.
    Patience is rewarded:
    http://avemariafunds.com/pdf-files/SmartInvestingSeries/Patience%20Rewarded.pdf
    http://allfinancialmatters.com/wp-content/uploads/2013/01/SP-500-Rolling-Period-Returns-2013-Edition.pdf

  6. Milo,

    I agree. It seems like some of these rules were designed for people who are investing in individual stocks.

  7. The message in the two links I posted is that historically if you held your equity index investment for 15yrs or longer, you came out ahead. If you held 20 years, you definitely came out ahead after inflation.

    It’s the short-term needs for the money that (kind of) make this difficult for people. The “Bucket Approach” to (retirement) investing addresses this:
    http://news.morningstar.com/articlenet/article.aspx?id=640557

  8. How do we access the WSJ article without subscription?

    Milo – do the index funds include international? Then if you add a bond fund that’s pretty good. With high dollar values you can start accessing things like PE/VC, currency, and REITs. :)

  9. “if you held your equity index investment for 15yrs or longer, you came out ahead”

    And like my brother often does, those focus too much on worst-case scenario. That’s saying “held your equity investment” of Nasdaq ETF that you purchased entirely in March of 2000–you didn’t buy any of it during the great run-up, and you didn’t buy any when it was a bargain.

  10. The link to the article requires login, which I don’t have.

    I agree that to be diversified, some of your investments would have to perform less well. However, your net should still be positive returns, ie perform less well should not be negating your gains in other areas.

    I think those just starting out can be overwhelmed about starting an investment portfolio – either inside or outside a 401K – and this leads to delaying it to their overall detriment.

    Milo – more insight to why you said yes to the long term horizon eliminating the need for asset classs diversification please. Maybe it is how long we are thinking about “long time” being.

  11. “do the index funds include international?”

    The retirement funds include about 30% international, and retirement funds are maybe 2/3 of our portfolio.

    Like LfB, I’m transferring an old IRA into Vanguard. There aren’t any problems, but it’s taking longer than expected. I had to print and sign forms from Vanguard. But when it finally does arrive, I think I’m going to buy an REIT with it. It’s not a significant amount of money, anyway.

  12. “more insight to why you said yes to the long term horizon eliminating the need for asset classs diversification please. Maybe it is how long we are thinking about “long time” being.”

    Because I’m at the point of thinking that my “long term horizon” might actually be “never.”

  13. “Why?”

    By the time I retire, our living expenses should be covered by dividend yield. These rules about diversifying and timelines are based on the idea that the investor needs to sell the assets (or begin selling the assets) at some specified point in time.

  14. I just went to a really good presentation that explained diversification with a chart: if you had 10 buckets of asset classes, over X number of years, the diversified portfolio came out ahead of the “best/worst” portfolio, where the hypothetical investor held both the best-performing class for the year, and the worst. Better returns, less hassle! :)

    Milo – sounds good. :)

  15. Milo – I was also confused. In my mind diversification is to get the best return with the least possible volatility, not based on when you need to sell.

  16. “In my mind diversification is to get the best return with the least possible volatility, not based on when you need to sell.”

    If you don’t need to sell, then you don’t really care about volatility, in which case you just want the best return. The best return comes from stocks.

  17. Milo,

    What’s the volatility of dividend payments? From this chart if you had $10 million in 2007 with a 2% dividend yield your income would be $200k. By 2009, your portfolio would have fallen to $4.6 million but the yield increased to 3%. However, 3% of $4.6 million is $138k.

    http://www.multpl.com/s-p-500-dividend-yield/

  18. Eh – IME with my clients, people care about volatility even if they don’t *need* to sell anything. If things bounce around too much, the investment advisors get the clients calling them to complain, which is a PITA.

  19. Yeah, what L said. Most people care about volatility, even if they don’t need to sell soon.

  20. L – You’re talking about people who are paying high fees to investment advisors.

  21. “Most people care about volatility.”

    Most people don’t have our income-to-expense ratio.

  22. L – trouble is, “best return with the least possible volatility” is over a period of time. The shorter your timeframe, the more volatile (variable) the returns. Even over short terms, one year say, diversification should mitigate volatility, but annual volatility will be greater than that of longer periods.

    As people near retirement age, take 65, the current investment house model would say beginning about age 60-62, some portion of their assets are now short-term needed in 0-5years, so should be in low-variability vehicles (e.g. short-term bonds, cash, CDs), some in intermediate term, needed in 5-10 years (e.g intermediate term bond/ bond funds, maybe some preferred stocks), the rest long term (stocks/stock funds).

    What Milo seems to be saying if I understand it right is that at retirement his portfolio will be (a) big enough and (b) well diversified enough across asset classes that it will throw off enough income to meet his needs, in perpetuity, so he will never have to sell anything. (the old “never touch the principle”)

  23. “you think Vanguard investors don’t care about volatility?”

    No, I’m sure most do. But I’m saying that if your ratio of assets to expenses is high enough, you shouldn’t care about volatility.

  24. Milo,

    Is your plan to keep it all until you and Mrs. Milo kick? L can verify, but I would assume that most folks with $10 million are going to try and use the gift tax exclusion to move money to the kids and grand-kids in order to run the number down to $5.4 million to avoid estate taxes.

  25. We have a 70%-30% stock-bond portfolio. Financial advisor tells us we’re too conservative, but we’re happy with it.

    What are everyone’s savings goals for retirement? I don’t have a pension, so I heard that I need to save a minimum of $2M, and ideally $3M. Do people agree?

  26. “you shouldn’t care about volatility”

    I’m not sure about that, but in any case I think most people regardless of asset:expense ratios do care about volatility. Human nature.

  27. Milo’s point is that volatility is not an issue if you never need to sell. When the articles say – people who retired in x year got screwed, the assumption is that on day one of the market bottom retirement year low value assets have to be sold to fund living expenses, so the size of the portfolio that appreciates when the market recovers is smaller than it would have been if you had some cash on hand or bonds or something with less volatility. Diversification is usually used in two ways – asset class with its associated risk of loss (equities, bonds, cash, natural resources, real estate, active business) or diversification within an asset class (timber, oil, gold). A third form of diversification is liquid versus illiquid. A fourth is income producing versus growth. A fifth is tax efficient versus tax inefficient. So real estate investments are usually illiquid and income producing, and may or may not be tax efficient and by definition have growth potential because they are purchased highly leveraged. Muni bonds are liquid, income producing and tax efficient for individuals, but have no growth potential.

  28. Rhett – I can see moving it down or getting creative to avoid taxes, but the idea would be to transfer the assets, not cash them out.

  29. But I’m saying that if your ratio of assets to expenses is high enough, you shouldn’t care about volatility.

    The biggest risk would be you’re 72 and your $10 million is down to $4.6 million and falling, you’re watching the CNBC working yourself into a panic. “Honey, it’s over we’re going to lose it all! Everything we’ve worked so hard for!” “Oh, Milo sell it, sell it all before we’re ruined!”

  30. I need to look at DH’s retirement account and move it to index funds. His plan only had mutual fund options when he started and he is still in them, even though his firm added Vanguard options two years ago.

    We invest some in individual stocks in our taxable account and I am letting DH handle the selling decisions because it is a game of psychology which I have proven terrible at.

    Houston – our goal is $3 million and paid off house.

  31. Rhett – True, but at 72, if current projections are about right, we’ll have $70k or so in annual Social Security income alone.

  32. Time horizon is important and taxes, including inheritance taxes, are also important.

    Mr WCE and I avoided stock other than in our 401(k) around 2000 and put our money into our house instead-mortgage rates were around 8%. I think P/E ratios are important as well as the long-term horizon of the business. I think tech companies, on average, tend to be over-valued because people want to hit a home run with Google or Microsoft. I doubt that Google or Facebook will compare to Berkshire-Hathaway in the next 50 years. (Can you tell I just read Warren Buffett’s annual letter?)

    I think financial planners are advising more investments in international stocks but 10+ years ago, I was unusual for putting ~30% of the stock portion of my 401(k) into international funds. In some ways it’s riskier, because you have stock risk, culture/regulatory risk in emerging markets and currency fluctuation altogether. But if the US market tanks, international stocks may be very important.

    Because we’re subject to layoffs, we’ve kept money in a tax-exempt bond fund that we may need but don’t expect to need soon. In 2009, we had the twins and tons of layoffs at the same time the market tanked, and I was glad to NOT have everything invested in stock.

    For most people, the time horizon of 529’s makes stocks riskier there than in 401(k)’s. I’m not yet sure what I think of standard 529’s.

  33. I doubt that Google or Facebook will compare to Berkshire-Hathaway in the next 50 years

    That’s why you buy both via an index fund. Berkshire-Hathaway could easily go the way of AIG* in the financial crisis of 2054.

    * Rouge division of a giant insurer ends up essentially bankrupting the parent company.

  34. “I don’t have a pension, so I heard that I need to save a minimum of $2M, and ideally $3M. Do people agree?”

    I think it all depends on how much you plan to spend, and whether you want to preserve principal or spend it down. Also, when is retirement, both ideally and worst-case scenario where DH is laid off because industry is dead and his skills are obsolete; at what age would you and he cross over from saying “I’ve got to re-train to do something for 1/3 of the pay” vs. “Eh, I think I’m done and I’ll call this a blessing in disguise”?

  35. Most index funds don’t include Berkshire. Probably because of the financial hoop-jumping I’ve observed at a Fortune 100 company, I think conglomerates not subject to quarterly earnings pressures tend to make better long term financial decisions. I own index funds but I also like to consider conglomerates with lots of inflation-resistant hard assets, like transportation and utilities.

  36. and ideally $3M.

    Running it through an annuity calculator that’s $208,000/year. With no mortgage and $50k a year in Social Security – would your retirement lifestyle be more or less grand than you current lifestyle?

  37. Milo, Good questions but hard to answer. DH wants to retire at 55, I’d like to retire at 65. He feels the need to leave more money to the kids, I am ok with spending the money down, as long as we are not a financial burden to them. He likes to travel, I’m happy at home. I feel that we will be compromising a lot.

    So much is out of our control. Our health, the health of our kids, whether DH’s business “makes it”, and his job prospects. DH is very, very good in a narrow field. That makes it hard to quickly replace a lost job.

    Our most valuable financial assets are our disability policies. The short answer is : I have no idea, so I try and save as much as possible.

  38. I was recently reading the late Thomas Stanley’s second bestseller, “Millionaire Mind,” and he was relating a conversation he had with one of his profiled subjects. (Numbers I give here are going to be inflation-adjusted, since the book was published 15 years ago)

    This guy had $40 M. His adult son was earning about $47k; I forget doing what. Son was married to a hairdresser. The couple was looking to buy a new house, but they weren’t excited about what they could afford. They had asked Stanley’s interviewee to buy them a $600k house in a golf course community, and the DIL wanted to quit her job and play golf and tennis. The guy was planning on buying them the house until he talked to Stanley, who pointed out that the average “millionaire” in America lived in a house worth only about $500k, so 1) Why should DS have a house more expensive than that?; and 2) How are DS and DIL going to feel about living in this neighborhood when they can’t really afford all the extras that their neighbors will take for granted (I guess it didn’t occur to either man that he would give some more of that $40M, but who knows)?

    Personally, I have mixed feelings about it, but I thought it was at least an interesting topic.

  39. Thanks Rhett. Surprisingly, I have never thought to run an annuity calculator. Our lifestyle and expenses would be about the same or even increase a little bit, due to travel.

  40. Houston,

    I don’t know how much of your nest egg is in a ROTH 401k or IRA but keep in mind that a single premium fixed annuity bought within a ROTH would generate tax free income.

  41. Milo,

    That story has a ring of the apocryphal about it. Presumably, anyone savvy enough to accumulate $40m is going to be making use of the gift tax exclusion.

  42. Milo — If the bulk of your assets are retirement funds, then as a practical matter, won’t you have to “cash them out” at some point? Once you hit age 70 1/2, you’ll have to start taking minimum required distributions from your IRAs (other than Roth IRAs, unless the Roth laws change). Are you planning to have everything converted to Roths by the time you retire, so that you’ll never have to take MRDs?

    Come to think of it, I’m not sure whether you can take IRA distributions in kind rather than in cash. (Does anyone know this?) Even if you could take in-kind payments of your MRDs, though, the distributions would be taxable income, so you would have to come up with the cash from some source or other to pay the tax.

    Rhett — Married couples essentially have the option to use twice the exemption from federal estate tax. So, if the personal exemption is $5.43M (the 2015 figure), the exemption potentially available to married couples is twice that. But if a couple has more than $10.86M, then yes, they’re looking at a 40% estate tax on the excess (unless the excess assets go to charity). So there is definitely incentive for the ultra-wealthy to hire L and reduce their taxable estates through lifetime gifts.

  43. Our lifestyle and expenses would be about the same or even increase a little bit,

    Are you sure about that? Keep in mind, when you’re retired you don’t need to save for retirement. So, currently you’re paying a mortgage, saving for retirement saving for college, etc. Would you really be spending 12k a month of travel when you’re in your 60s?

  44. And yes, I consider a couple who has a net worth of $10.86M to be ultra wealthy, not middle class!

    :)

  45. NoB – So at some point we’ll try to strategically convert to ROTH a little at a time. And there will be required minimum distributions that are taxable, so we would technically sell the stock funds from the retirement account, take $100k in cash, pay $30k in estimated taxes, and buy $70k worth of similar stock funds in a taxable brokerage account. In terms of market performance and volatility, it’s essentially a like-for-like.

    Rhett – LOL. probably.

  46. “I consider a couple who has a net worth of $10.86M to be ultra wealthy”

    Certainly not! It may not be “poor,” but it’s not like you’re flying around in a private jet. You can’t even buy a mansion in the close-in DC suburbs without spending your entire portfolio.

  47. it’s not like you’re flying around in a private jet.

    Sure you are, if you want. DC to Palm Beach on a Citation Mustang or Eclipse 500 would be like $4k,

  48. Rhett – How many people can you pack into that flight (I’m assuming it’s a flat rate)?

  49. There have been several mentions of Social Security income in this thread. We are early/mid-30s, and I just assume Social Security will blow up by the time that we will be eligible for distributions. We essentially plan as though that money won’t exist. I know many on here are a bit further along than we are, but I sort of had the impression that this was the prevailing wisdom for those in my age bracket and younger. Am I just crazily paranoid?

  50. Milo,

    Or maybe 4 if someone sits in the co-pilots seat. I don’t know if regulations require a co-pilot.

  51. June, I’m late 30’s and I assume I will receive 1/2-2/3 of what social security projects now, in comparable buying power terms. My opinion is that social security will not fall apart but that the buying power you receive from it will be reduced (it’s about 2/3 funded, long-term) and that the reductions will be regressive (high income earners will be more affected than low income earners, i.e. the ~$780/month minimum will be the last thing to be cut, in real dollar terms)

  52. ” I just assume Social Security will blow up by the time that we will be eligible for distributions.”

    We’re the same age. Everyone says “it will blow up” because they think that some time in the distant future it has to collapse. But at no point could we realistically let it fail. If I were a betting man, I would guess that, since the max benefit now starts at 70, maybe it will start at 75 by the time we’re there.

    Means testing is another possiblity, but I don’t even think that is too likely, at least not in any drastic sense. Right now contributions cut off around $115k or so in annual income, and we can see from recent political events that neither party is willing to offend the dual-income upper-middle class.

    I think that for broad support, it’s important to keep it as a program from which everyone can ultimately expect a pension. Once you start exempting from benefits those who have contributed the most, suddenly it becomes just another welfare program.

  53. I will receive 1/2-2/3 of what social security

    I pretty much agree but I’d put in more like 85%. The way old folks vote it will always make sense to increase the SS portion of FICA by X% vs. cutting SS.

  54. Rhett – That doesn’t look very luxurious. I guess convenience is the selling point?

  55. A topic dear to my heart — how can I save enough to feel ‘safe’?

    June, I am in the same age range and also am planning as if that money doesn’t exist. However, since my current planning is merely to max out my 401k and a Roth IRA in a far-off target date fund and save as much other cash as I can, you can tell I need to put some more effort into it. On the plus side, I’ve been saving in a 401k for 12+ years already, so there’s a head start!

    I want to start some out of retirement fund investing and thought an index fund would be the way to go. However, it’s so easy to get bogged down in comparing vendors and costs that I just haven’t done it yet. I think the next strategy will be to just start somewhere!

  56. “However, it’s so easy to get bogged down in comparing vendors and costs that I just haven’t done it yet. I think the next strategy will be to just start somewhere!”

    VTCLX. Five letters. That’s all you need.

  57. To Milo’s point. It would also make sense, in addition to raising the SS % of FICA, to increase the SS cutoff but not increase high end benefits to compensate. So, the current cutoff is 118k. If you gradually cranked that up to 130k but only marginally increase the top SS benefit that would help close any funding gap. There are tons of little tweaks that would keep in basically intact.

  58. Rhett, I think the bend points in the social security primary insurance amount formula will be adjusted down, in inflation adjusted terms. Low earners are essentially getting EITC refunds of their social security contributions. That can’t go on forever, I don’t think.

    PIA formula
    For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2015, or who dies in 2015 before becoming eligible for benefits, his/her PIA will be the sum of:
    (a) 90 percent of the first $826 of his/her average indexed monthly earnings, plus
    (b) 32 percent of his/her average indexed monthly earnings over $826 and through $4,980, plus
    (c) 15 percent of his/her average indexed monthly earnings over $4,980.

  59. @Rhett–Thanks. :) It wouldn’t be the first time.

    WCE, my more nuanced view is that I tend to agree with your thinking that it likely won’t actually be zeroed, but since it’s hard to predict what type of reductions will be needed, it’s easier to leave it out of the planning. In part that’s because I agree that it’s fairly likely that they will have to implement stricter income-based restrictions. Not really an issue if you have enough–more a problem for those who have some but need SS to make up the difference.

  60. Our plan has been to assume social security won’t be there. Like, WCE we believe that it won’t go away, but our checks will be lower than it is projected now. Not to mention that changes in tax law will probably cost us more in our retirement income. So this way, we plan our savings as if we don’t get anything, and then when we do it will be a wash or gravy (depending on how you look at it).

  61. Low earners are essentially getting EITC refunds of their social security contributions. That can’t go on forever, I don’t think.

    Why not?

  62. Milo, I also agree that they will probably push up the age for max benefit. Another reason that I think it’s hard to realistically use SS numbers in planning other than on the margins because an extra 5 or 10 years can make a big difference unless you basically have saved enough that it’s just gravy.

    But I know my tendencies on this are a bit doomsday-ish.

  63. Milo, thanks! The expense ratio on that is .12%, which seems great. I notice the overview says that the fund is “complementary to a well balanced portfolio.” I am assuming that means it comprises part of a well balanced portfolio, but everything needs a beginning. Thanks!

    I also agree that SS probably won’t totally be gone, but would rather have more than be caught short in retirement. It’s easier to just discount it completely than run scenarios at different levels.

  64. Also not counting on getting Social Security. It already functions as a progressive tax (returns stink for everyone but are even worse for high earners), plus I expect them to start means testing eventually. Realistically, we’ll probably get something, but I expect it to be pretty negligible, so I’d rather just call it “0” and be pleasantly surprised by what I do get. Then I won’t be as cranky as my conservative parents in old age, I hope!

    http://crfb.org/blogs/fact-or-fiction-social-security-regressive

  65. ““complementary to a well balanced portfolio.” ”

    It’s like Corn Flakes is part of a well-balanced breakfast. We keep a minimal balance in our checking account, $10k in a money market to cover things like a new heat pump, and everything else gets dumped into that fund.

  66. When I was younger I assumed SS wouldn’t be around for my retirement, but I’m getting to the age where they couldn’t cut off my cohort without serious blowback, and it’s still here. In fact, my in-laws apparently assumed SS wouldn’t be around for *their* retirement, and they’ve been retired for a decade or so. (Yes, they oversaved some based on that assumption, but have been enjoying the additional $$ in retirement doing all the travel that there wasn’t time or money for earlier.)

  67. June, we’re being the little red hen! I figure as long as it doesn’t hurt my current standard of living too much, there’s no downside to saving more.

  68. June – we don’t put SS income into our calculations either. We are mid-late 30s now.

    Re: IRAs. I would always spend down from those first in retirement, because I think at some point they will end the option for inheritors of IRAs (other than spouses) to calculate the RMDs of the IRA over their own life expectancy, and will force you to take it in a lump sum or over 5 years.

    Rhett – you are correct re: annual exclusion gifts. For well-situated retirees here, where there is STATE estate tax over $1M/pp ($2M total for a married couple), they start thinking about exclusion gifts under $10M.

    Our biggest estate assets right now are our life insurance policies. We both have around $2M (mine is less because of my health issues when we got them). I would recommend high dollar value life insurance for all Totebaggers – if you get a 10-year term policy it can be as little as $700/year for $2M of insurance. :)

  69. Rio, +1 to your 12:52. I know I mentioned this the other day, but I’m pretty sure our parents are clones.

  70. Yeah it is fascinating, June. I don’t think I’ve ever met anyone who comes from such a similar background. Are your parents religious by chance?

  71. Meme,

    Per your Amex post on the other thread. I had exactly the same problem with Amex allowing charges to go through on a canceled card!

  72. June and Rio,

    Is it just general “the world is going to hell in a hand-basket” old people crankiness?

  73. Rhett- No, because my parents are really not that old. They aren’t this pessimistic about everything, just national politics. And they were this way even when they were under 40. My dad in particular just doesn’t understand why everyone can’t be as prudent and disciplined as he is. Delayed gratification is a cardinal virtue to him.

  74. Forget travel – it seems like the only traveling my parents are doing is visiting their lawyer and accountant ;-).
    My inlaws have been on the phone/emails etc. with their overseas bank for months now…reminds of LFB’s medallion business.

  75. Houston–we are currently in the process of buying life insurance; would also be curious to hear advice on this. (FWIW, we are early 30s, looking at 20 yr term; we found our guy through term4sale.com per advice on Bogleheads, but are still in the midst of testing, approvals, etc.)

  76. I will never spend down my IRAs, other than the RMDs, or the principal of my inheritance augmented by a small inflation adjustment each year. I agree with L that heirs will soon have to pull out the balances over 5 years – it is one of the no brainer tax law changes that will pass. Perhaps because I have 4 heirs who will split the balance I am not concerned that 1/20 per year per taxpayer will create a big tax burden.

    I agree that ignoring SS in planning by younger folks is prudent. Most people underestimate routine medical and support costs in retirement, so the two pretty much are a wash.

    One of the great advantages of a pension, or SS, or the purchase upon retirement of an immediate annuity with part of your funds, is that you get a regular paycheck. That is all I really mean by cash flow planning. You can arrange for dividend distributions to be paid out monthly or quarterly as well. Psychologically, it gives financial structure, freedom and reassurance that does not exist when you have to make repeated affirmative choices to sell specific assets just to fund anything above the basics, and thus reduce the balance forward on your spreadsheet. That is also the reason to do all major home repairs, pay off the mortgage, pay down all debt, buy new cars, take the trip of a lifetime in the last years before retirement or in the first couple of years of retirement (with these expenses paid out of a substantial cash fund accumulated in the later working years for those specific purposes – not out of the main retirement pot), with the lower cash outflows of extended retirement kicking in year 3 or so.

  77. Houston – so we just happen to have a friend who is a high-end life insurance salesperson. :) If not, find an independent insurance agent. Steer clear of whole life policies (eg not Northwestern Mutual). Look for 10- or 20-year term policies or variable universal life policies. You will need a medical exam for them. Your insurance agent should have an idea of whether you can qualify for super-preferred or preferred. Super preferred gets you the best rates.

  78. Rio–They are. But I think yours are catholic?

    Rhett–My answer is basically the same as Rio’s–not a new development, more a “everyone should be able to act as we do” thing.

  79. I didn’t realize that so many of you are so young, so you might not be thinking about long term care insurance. I don’t think my DH wants to purchase this insurance, but I’m the one that spends a lot of time in nursing homes and assisted living facilities with my side of the family. He doesn’t seem to have as much exposure to this because (sadly) many of his relatives lived at home until old age with his parents, or they died early from cancer. We can’t come to a conclusion as to whether these long term care policies are worth the money.

    As for other unplanned high monthly expenses in retirement, my FIL is 86. He is partially supporting my BIL and nephew. The reason is that my BIL has a chronic illness and he can no longer work. Yes, he qualifies for disability, but this happened to him at a relatively young age (50) so he has wiped out his retirement savings.

    My grandmother is 97, and she is out of money except for SS. My mother and aunt have to pay for everything that is not funded by the US govt.

    I am a doom and gloom person, so I like to save extra for a rainy day. I think that a couple of the comments (Rhett!!!! ) assume that everything is going to be rosy and that expenses will be lower in retirement. I hope this is the case, but you really have no idea if you will be supporting your own parents while you are retired (my mother is mid 70s supporting a 90 something), OR even supporting or helping your children.

  80. “My dad in particular just doesn’t understand why everyone can’t be as prudent and disciplined as he is. Delayed gratification is a cardinal virtue to him.”

    What was your wedding like?

  81. I agree that an independent life insurance agent/online broker is a good way to go. I would not recommend universal life, which typically pays high commission and is basically whole life where the owner picks the investments. Go with the highest rated companies. From Consumer Reports:

    “Shop for the best price by using online insurance brokers, such as Accuquote.com, FindMyInsurance.com, and LifeInsure.com.”

  82. If anyone just wants a data point, I bought 20-year term life insurance in my late 20s. I don’t plan on replacing it after the coverage expires.

  83. Lauren – there are new long term care products that are blended with life insurance. I think one is called Moneyguard but there are several competitors out there now. If you have an insurance person or someone you work with who specializes in insurance, I would ask them.

  84. The problem with delayed gratification types is that they never allow themselves to be gratified, or perhaps more exactly that the sacrifice and prudent behavior provides more psychic rewards than the possible enjoyment of a long delayed experience. There is always another reason not to spend, and frankly, they have never developed the ability to enjoy an experience if it costs “too much”, whatever that is.

    I related on TOS the story about the empty space in the living for the upright piano. My mom, who at her death left a figurative mattress stuffed with cash but had safety pins holding up her pants, always saved a wall in our home for a piano, so that I could take lessons. Somehow she could never bring herself to make that purchase, but the designated space traveled with us through three apartments. Finally, when I was about 15, a childless aunt of my mom’s passed away – someone who had never spent a dime on herself. She left an estate of about 50K – they spent 25 on her mausoleum, and split the rest among her 9 nieces and nephews. My mom was horrified that Aunt Rose had never had the enjoyment of her funds, so finally she spent the money – but I was too old for piano lessons. She bought a giant Fisher stereo in a cabinet – about the same size. And she did spend some money on herself after that, but not much – old habits die hard.

    When Mom died I bought myself a Patek Philippe watch – I had gone into the local dealer years before to buy a regular $200 watch. admired the PP and promised myself I would honor my mother’s memory and self denial by doing so if at all possible.

  85. “What was your wedding like?”

    Not sure how this is related…do you mean financially? It was a little cheaper than average for the part of the country where we married, as we shopped around and got some great deals. Nice, but not extravagant. DH and I paid for probably 2/3, my parents about 1/3 as their gift to us.

  86. I don’t particularly believe in LTC products, but I second L’s comment that the blended life insurance products are the best of the lot. I have a lot more faith in SS being around in 35 years than in a 40 year old getting a good ROI on an LTC product.

  87. Speaking or annuities, one aspect of a recent horrible murder-suicide case in our area caught my eye. The father was a newly retired cop who killed two young daughters and then himself. His wife and another daughter survived him. From news reports, he selected the life-only option on his pension, which left zero for his survivors. Additionally, he removed his wife as the life insurance beneficiary about a week before his death..

    I was surprised he was able to do all this without his wife’s approval. IIRC, 401ks and other retirement programs require spouses to sign off on these types of changes.

  88. You’re right, Meme. When my dad almost died a few years ago from an unexpected health crisis, he did loosen up a little bit and finally bought himself a nice Audi. (He is a car fanatic but had always bought something like a Camry and then kept it for like 12 years.)

    He actually took me aside and told me NOT to be like him too much in this regard, which I appreciate.

  89. I was just curious, not so much in expense but style. Like full bar, lots of music and dancing?

    DW had a good friend from her old church and her parents were very Totebaggy, but almost like sticks in the mud. I went over their house for dinner once and DW’s friend’s BIL (her sister’s new husband) was telling us all about how he’s making his own wine. I thought “oh, this will be cool to try at dinner,” and then they made a big show out of serving everyone some homemade wine in glasses the size of Dixie cups. And I did not feel comfortable pouring myself any more.

    When the friend got married, the groom’s parents hosted the rehearsal dinner, and it was a loud and fun party with lots of booze flowing. The bride’s mother was giving dirty looks to the wedding party the whole time.

    The wedding the next night was much more sedate. The groom’s mother, a boisterous blonde real estate agent from Georgia, was asking the groomsmen to please go find her a damn drink somewhere, anywhere, and sneak it back in for her.

  90. CoC – his wife had to sign the papers forgoing joint and survivor. Either she did not understand the implications, or she was coerced, or he forged her signature. DH and his then estranged wife agreed on a life only pension, not because there was any funny business, but because the two of them (musicians, although he had a good day job from which he retired before they were legally divorced) had absolutely no idea what they were doing and she is so much younger that the difference in monthly payout was stark.

  91. Milo, I remember not being able to let my grandparents see the menu at Long John Silver’s or Pizza Hut, because they both served beer, and my grandparents would not knowingly visit any restaurant that served alcohol.

  92. “my grandparents would not knowingly visit any restaurant that served alcohol”

    yikes. I know that DW’s aunt (FIL’s sister) had to argue with her parents for months to convince them to allow just a champagne toast at her wedding.

    OTOH, DW’s maternal grandmother (still alive) has endless stories about the drunken parties they held, and visits to vineyards and “Oh God, to this day I have no idea how your grandfather got us home alive THAT night.”

  93. I have some experience in insurance. Life policies that are provided by an employer do not require beneficiary sign off. I’ve heard many sad and crazy stories about beneficiaries. Long Term Care policies are all over the place, and insurers are finding out fast that it is a tough product to keep above water. Most agents will advise you took look into them after you hit 45, however if you have a family history of cancer, memory loss, you may want to look at it earlier. The key is to get the inflation adjusted benefit.

  94. “If anyone just wants a data point, I bought 20-year term life insurance in my late 20s. I don’t plan on replacing it after the coverage expires.”

    I bought mine when I was 41, maybe 42…I am mulling over whether replacing it between now and when it expires. I am leaning toward no…after all by then our mortgage will be paid off and our portfolio should be big enough, along with SS which I do expect to be around when I reach my full retirement age in only 9.5 years, to provide a decent lifestyle for my survivors should I suffer an early demise. Insurance is there to provide financial security; I believe by then end of my term policy we will have provided for that separately. And, yes, like Rhett, I expect to work for a pretty darn long time. Looking at things from here, I don’t know exactly what I’d do if I were work-free…a topic for another day. I will figure it out, or life will figure it out for me, but I don’t know the answer today.

  95. Speaking of disability insurance, does anyone know of a good place to buy it? If you’re buying it on your own it’s ridiculously expensive.

  96. We had a traditional church wedding, followed by a dinner reception with an open bar and dancing. My mom is a teetotaler but non-judgmental about it unless people are getting wasted, and my dad will have a drink or two socially. I have to say my parents were great and celebratory with everything related to the wedding. My dad surprised me by NOT going all “Steve Martin/Father of the Bride”- he didn’t complain about money even once.

    Now they didn’t have dancing or drinking at their own wedding, but there wasn’t the expectation of that in their part of the country in the 80s for middle-class weddings. That’s more of a coastal thing I think that’s gradually trickled into other parts of the country.

  97. but you really have no idea if you will be supporting your own parents while you are retired

    You may not but I certainly do.

  98. Absolutely brilliant, Rhett. That may be the most despicable thing you’ve ever said!
    I can’t wait for you to top it.

  99. That may be the most despicable thing you’ve ever said!

    You must not know the back story.

  100. For this group, I would think that failure to launch of a child is a greater threat to the finances than destitute parents.

  101. Thanks for the info about blended policy. We have our life insurance policies with Northwestern, but they have a lot of turnover in our midtown office.

    CoC, I thought I heard that he just changed the paperwork a week before his death so it wasn’t pricessed yet in Albany. I think it was news 12 that reported that she may still be eligible for the benefit. That whole story is so tragic.

  102. Eh, I think we’re definitely going to end up helping DH’s parents. MIL I’m ok with if she really needs the help, irresponsible and adulterous FIL not so much. Crossing my fingers that he’ll move to a state with no filial responsibility laws. I could see him trying to get us stuck with a huge bill just to spite us.

    Rhett, I really am sorry for your situation, if it’s what I imagine reading between the lines of some of what I remember from your posting history.

  103. We have our disability insurance through Northwestern Mutual. DH is an entrepreneur and his companies don’t offer this benefit. Also, you don’t want to be in a position of not having a job and needing the insurance, so IMO, independent is better.

    Rhett: Glad you can give your parents the proverbial mental middle finger. You go, dude!

  104. Rhett, if the back story is something tragic or that was difficult, forgive me. I apologize.

  105. Disability insurance — I can’t recommend a place to purchase it, but I would say the usual suspects should be checked. Yes, buying it on your own can be very expensive, and a recommendation is to go with an elimination period of at least a year, if the policy allows. IIRC, the maximum elimination period is sometimes set less than that by the state.

    “I would think that failure to launch of a child is a greater threat to the finances than destitute parents.”

    How about both, like the couple that was shopping for life insurance in their 60s. When I “tactfully” asked why, I was told they supported both grandpa and their 30-something kid.

  106. CoC – They should buy a big house and have the kid take care of Grandpa in exchange for his room and board. If he doesn’t like it, send him to Burger King.

  107. They should buy a big house and have the kid take care of Grandpa in exchange for his room and board.

    That’s not at all uncommon having the most marginally employed grandchild take over care of elderly relatives in exchange for room, board and a larger share of the estate.

  108. “Looking at things from here, I don’t know exactly what I’d do if I were work-free…a topic for another day.”

    We’ve already discussed this here, and the most common response was, “sleep more.”

  109. Milo, ha! I think my parents are a little different than Rio’s in this regard. For example, growing up we took relatively modest one week vacations to such attractions as the Natural Bridge in VA. But now my parents splash out slightly more (international travel or renting a house in some fun location where all the siblings can stay for a week). They really like to spend on good food and wine, concerts, etc. On the other hand, my husband typically does the dishes/kitchen clean-up and whenever my parents visit you can tell my mom is horrified by his “excessive” paper towel use–think 2 sheets give or take as opposed to half. She really believes that their financial situation is attributable largely to things like the lack of profligate paper towel use.

  110. BTW, Rio, my dad also recently bought an Audi when he was replacing his nearly 15-year-old car. It is much nicer than anything he ever drove previously.

  111. “I expect them to start means testing eventually.”

    Perhaps the benefit payouts aren’t means tested, but the take-home is. I’m guessing that many of us here will have RMDs high enough that our SS benefits will be taxed.

  112. An entire week at Natural Bridge??? lol. I’m typing this looking at a picture on my desk of my two older kids posed in front of the natural bridge.

    I hope you also went to the safari zoo park and butterfly museum and caverns etc.

  113. WCE, I would guess that some of us will have some similar activities when we become “work-free.”

    My mom initiated her retirement paperwork shortly after learning her first grandchild was coming.

  114. “sleep more.” But that still leaves a lot of time in the day.

    Besides which, I am expecting the sleep maximization phase, to the extent I opt into that, to begin ~5 yrs before retirement. No kids around, just the two of us in the house, we can hit the hay as early as we’d like.

  115. I’m a fan of modest living. It pays not to have your kids get used to luxuries, so that they will be happier when they start their own lives. That said, I’m grateful to this community for pushing me to spend a little more.

  116. Ha, no, that would be beyond tedious–I think that trip was some combo of driving there and to various other things like Monticello/Mount Vernon/some other museums/Luray Caverns. And maybe some general driving on the scenic part of the Shenandoah Parkway? My mom was very into mildly educational vacations.

  117. Too funny, June! My parents are generic, moderately conservative non-Catholic Christians. All of our childhood trips were by car, but we did do a good number of trips to the ocean, though most vacations were free trips at the grandparents’ lake house. They are thinking of splurging with an international trip this summer- we’ll see if my dad has the nerve to actually buy flights and go with it! The paper towel thing sounds familiar- one of the things my dad is really proud of is turning off lights as soon as we leave a room. The worst feeling was driving up to the house at night with dad and him seeing that you left the light in your room on. The horror!

  118. June, I’ll wager that your family listened to books on tape and/or classical music on those road trips.

  119. Our family is really into books on tape. You have to pick the right one, mind you, but it makes the trip from Houston to Dallas (4.5 hours) to visit relatives go by much faster. We also love the NPR quiz show podcasts.

  120. It pays not to have your kids get used to luxuries, so that they will be happier when they start their own lives.

    How will they make an informed decision about potential careers is they don’t know what lifestyle options exist?

  121. My parents finally got comfortable with their financial situation after I left for college. They put in a pool at their home, started taking nicer vacations, etc. I’m not bitter. Noooo…. ; )

  122. Rhett- http://en.wikipedia.org/wiki/Hedonic_treadmill

    If they *don’t* have those luxuries as a kid they can be happy without them, or even happier with them. If they *do* have the very best of everything as kids, then they have to work their tails off just to tread water, unless you plan on supplementing their income. Lots of studies have shown humans are more impacted by losses than by gains.

  123. I’d been mulling the idea of a post on SS, but I guess it’s not necessary now.

    Like many others here, I drank the Kool-Aid back in my 20s about the inevitable insolvency of SS, and planned for a retirement without it, maxing out my IRA contributions and, when 401ks came into existence, those as well (BTW, Allie, I think you’ll do fine doing what you’re doing; just make sure to direct your contributions to a good index fund (or funds)).

    Fast forward, and empty nesthood is approaching, and SS is still solvent. Like Milo, DW and I project to a pretty substantial SS income if we each wait until 70 to start collecting, enough to comfortably live on if we are moderately healthy. Add in our RMDs that will kick in at 70 1/2, and we’re already in pretty good shape if the SS benefits aren’t reduced.

    So that’s a big question for us now– how reasonable is that expectation? I’ve read that by about 2033 the current surplus will have been spent down, and I plan to live well beyond that.

  124. But of course! What is a road trip without classical music? We only ever did one beach vacation though–my dad doesn’t like the beach. I think it’s too much unproductive relaxing as opposed to achieving some objective. (P.S. My favorite type of vacation is the totally unproductive type, so I wasn’t totally brainwashed.)

    And yes, the atrocity of leaving your light on! I know it well. You might as well just light dollar bills on fire.

  125. Houston, if you or your DH belong to professional organizations, you could check if they offer group rates on life insurance.

  126. “I agree that ignoring SS in planning by younger folks is prudent. Most people underestimate routine medical and support costs in retirement, so the two pretty much are a wash.”

    Fidelity suggests about $250k or so to cover medical costs in retirement.

  127. Rio,

    And, as to your hedonic treadmill, we’ve already discussed homes with lovey views the loveliness of which remains constant over time.

  128. What happens if you inherit an IRA and never took RMDs. Asking for a friend ;)

  129. “Is your plan to keep it all until you and Mrs. Milo kick? L can verify, but I would assume that most folks with $10 million are going to try and use the gift tax exclusion to move money to the kids and grand-kids in order to run the number down to $5.4 million to avoid estate taxes.”

    Those two aren’t mutually exclusive. L can make more informed comments, but the Milos could put the amount of the estate tax exclusions into a trust from which they will collect the income while they’re alive, but which is owned by their kids (or grandkids).

    He’s already planning to reduce their taxable estate by converting his IRAs to Roths (and, I assume, converting his 401ks to IRAs, then converting them to Roths).

    And by buying and holding equities, their heirs will also benefit from the cost basis step-up.

  130. Most jobs that pay securely above upper middle class these days do involve working your tail off. Medical specialty, law or Big 4 partner, finance, most consulting. Many of these require years of rigorous and competitive training and/or 12+ hour days even when you’re more senior, and constant connection to the Blackberry.

    If little Sophia and Liam get used to Hawaii twice a year, their own huge bedrooms with TV and en-suite bathrooms, iPhones starting at age 8, frequent nice dinners out, being chauffeured around in luxurious cars, etc. they will have to sacrifice what they’ve known if they want to be, say, a teacher, a nurse, or even an engineer or family practice doctor. Not exactly the end of the world, but something to think about.

  131. Cat, no problem if the inherited IRA is a Roth. Of course, that’s also a moot question, since there are no Roth RMDs.

    The penalty for not taking RMDs is 50%.

  132. 2033 – I suspect that between now and then the law will be changed to contain at least one of these:
    – FICA tax like medicare…it’ll apply to all earned income, not only the first X, ($117k in 2015)
    – across the board benefit reduction for the high-earners, e.g. those who today would fall into the >$4980/month average lifetime earnings. This could be accomplished by simply capping the benefit at something like $2027 in today’s $$.
    – Asset-based means testing. This IMHO is particularly odious. It penalizes the responsible and benefits the spendthrifts.
    – further increasing the age at which benefits can be claimed. The ability to claim at 62 will be moved to…64? “Full benefits” to…69? Max benefits to…72?

  133. Most jobs that pay securely above upper middle class these days do involve working your tail off.

    I disagree if we use 40k to 100k as middle class, 100 to 200 as upper middle class, and +200* as rich.

    * Funny story – I was reading something while on vacation about how above 200k was rich and I though to myself that’s ridiculous. Just then the nice man brought me another margarita and I thought to myself hmmm maybe they have a point.

  134. Oops, Cat, I think I was wrong. Inherited Roths also have RMDs, and the penalty is also 50%.

  135. I am inspired by the stories of terrible road trips and am not planning one for this summer (partially so I can deposit two kids at Camp Grandma). Books on tape, juice boxes and goldfish crackers!!

  136. Finn – thanks. Ouch. Since I found out about it, I have been sticking my head in the sand. Looks like I should take care of it now. It isn’t much money, but was a lot to the person who left it.

  137. “partially so I can deposit two kids at Camp Grandma”

    I initially read that as, “Camp Granada.”

  138. First, thanks for all the suggestions yesterday — I got sick and have been on my butt ever since, so have just now caught up.

    I honestly think it’s hard to plan too clearly for retirement when you’re young, because there are way too many unknowns — college costs, will you get laid off at 50, will one of your parents get a long-term debilitating disease, will SS/pensions be around, etc. So I think in your 30s and 40s, about the best you can do is max out your 401(k)/IRA, keep a good emergency fund, save extra if you can, get good insurance, and keep your fixed expenses low so a temporary setback doesn’t become a permanent derailment. Like many others here, we did the basic math assuming no SS or pension or inheritance, even though some version of all of the above is likely, because I wanted to make sure we were reasonably covered against the worst-case scenario.

    Now we are close enough for some projections to be more accurate, but the big unknown is time. We have had a good past decade, and if we keep it up until full retirement age, we will be more than fine. But as I look at our plans and projections, I realize that I would rather trade some of that money for the ability to retire/cut way back on work earlier, i.e., 62 vs. 67 or 70. So that alone cuts my anticipated retirement stash by half (basic rule of 72) and increases the amount of cash on hand I need to cover 62-70 (as I have no intent to claim SS until 70). Heck, I would love to retire before 62, but at that point we’ll still be paying for college, so barring a big windfall (like the NMF scholarships we were discussing), our best-case scenario is maybe 60-61. But of course we’re not counting on getting any scholarship $$, either. :-)

  139. Cat – Here is an example. These rules applies to beneficiary who is not a spouse. The complexity as well as public policy considerations for getting the money back into the tax system mean that the five year distribution option is likely to become the law for all inherited IRAs, rather than a penalty avoidance mechanism. Inherited Roth IRAs are also subject to RMDs but not income tax. There is a form to fill out with the tax return when you discover the fault and take all the missed distributions and waivers if the penalty are usually granted for reasonable cause.

    In 2012, John inherited an IRA from his brother Ron who died at age 65. Since Ron died before he had to take out his own RMDs, John has two options for distributing the IRA balance:
    John can distribute the assets over his single life expectancy. For most IRA plan documents this is the default option, and is consistent with the provisions of RMD regulations.
    John can distribute the assets by December 31 of the fifth year following the year Ron died.

    John chooses the life-expectancy option. The RMD for 2013 is $10,000, but John fails to withdraw any amount by December 31, 2013. If John wants to continue using the life-expectancy method, he will have to pay the IRS an excise tax of $5,000 and must file Form 5329. He may request a waiver if he feels the failure is due to a reasonable cause. John, however, will receive an automatic waiver of the penalty if he withdraws the account balance by December 31, 2017, the fifth RMD-year following the year Ron died.

    If the deceased John were over 70 1/2, the five year option would not be available and RMDs would be required and only a reasonable cause waiver would exempt you from the 50% penalty. In addition, the heir has to make sure that the RMD for the year of death was distributed before death and if not has to take that out as well in year one – 2012 in this example.

  140. “Heck, I would love to retire before 62, but at that point we’ll still be paying for college, so barring a big windfall (like the NMF scholarships we were discussing), our best-case scenario is maybe 60-61. But of course we’re not counting on getting any scholarship $$, either. :-)”

    Anon, here’s the answer to your question.

  141. My parents also finally got comfortable with their financial situation after I left for college. They got cable tv. And now they travel the world. Most have been all those years of no tv expenses. Although on a recent visit my dad made a sandwich to take with him on the plane and asked for a bag. I gave him a Zip Lock, and he handed it back and said those were too expensive. He wanted a generic sandwich bag that didn’t have a zipper, just the fold over top. Still frugal on many things – and basically only watches Fox News.

  142. My grandparents got do comfortable with their situation after my Dad left for college that they bought an automatic dishwasher.

    In the Rhett vs. Houston-Rio debate, I side with Houston-Rio for the added reason that I would prefer if they know how to live more efficiently so that they can build up passive income. The best kind of income is that which is generated by the labor of others.

  143. The best kind of income is that which is generated by the labor of others.

    The best kind comes from getting paid to do things you’d gladly do for free.

  144. I wasn’t worried about filial responsibility, until now, L. But, I have a hard time understanding how this would play out. If your parents need nursing home care, they should pay for it. If they can’t pay for it, they apply for medicaid and medicaid pays for it. Most nursing homes (as I understand it) will require someone with assets to guarantee the admission – the patient or a family member. If you haven’t agreed to pay, then when the assets run out Mom should get Medicaid.

    It seems like the one example of a filial support law being enforced on an unsuspecting child was when Mom skipped out on a bill that she (possibly) could have paid.

    On a related note, I wonder if off-shore nursing homes will become a mainstream thing. These facilities are expensive due to regulation and labor — both of which are much, much less in other locations. Why not ship grandma to Mexico for $2000/month?

  145. On a related note, I wonder if off-shore nursing homes will become a mainstream thing. These facilities are expensive due to regulation and labor — both of which are much, much less in other locations. Why not ship grandma to Mexico for $2000/month?

    This is brilliant, actually. Though there might be some stigma at least in the beginning. You can see some handwringing and freaking out over filial support fears in this bogleheads forum if you want to search there.

  146. Why not ship grandma to Mexico for $2000/month?

    If it were me I’d hope they’d have the good sense to have me out down.

  147. “The best kind comes from getting paid to do things you’d gladly do for free.”

    True, but most of us are not so lucky to have our skills and the labor market align in such a way that we can make anything resembling Totebag incomes that way.

  148. My federal refund has been paid, but my state return has been rejected for incomplete or incorrect information on form schedule 760 adj.

    I can’t wait to see what this is about.

  149. “Why not ship grandma to Mexico for $2000/month?”

    Like putting her on an ice floe, but not as cold, and more drawn out.

  150. Rio,

    Not skills, preferences.

    I wonder if that’s true. We were talking about National Merit Semi Finalists and that implies an IQ above the 99.5 percentile. That’s a IQ north of 140. Is there really some high percentage of them who couldn’t earn a +100k income doing something they enjoy?

  151. Milo,

    Do you ever work in Maryland or DC? Mine always rejects because I earn and pay taxes in multiple states.

  152. Rhett – it looks like a problem with TT, for which they promise a fix after 3/6/15. But then another page says “we fixed the errors, ready to efile again?”

    I submitted a question to them.

  153. “Is there really some high percentage of them who couldn’t earn a +100k income doing something they enjoy?”

    Speaking for myself at least, there probably could have been, but I wasn’t mature enough at age 19 to make the very best decision on what that would be. A lot of careers, like law for instance, have extremely expensive and years-long barriers to entry- switching now wouldn’t make sense. Licensing is required in a lot of fields and you can’t just make money off of self-studied knowledge the way you can with something like web development out of your basement.

    There used to be self-taught lawyers for instance. That’s banned now in almost every state. http://www.boston.com/news/local/articles/2008/01/20/self_taught_lawyers_disappearing/

  154. If Rio could earn exactly $100k, will/would it make sense for her to do so, given her marginal tax rate and expected family size? We all know I’m a lazy conservative- when several of you discussed your concern for the children of the working poor, I mentioned that I was unwilling to drag my pregnant self out of bed at 6 AM to primarily or solely to pay for childcare for my own kids and pay taxes to support other people’s kids.

  155. WCE,

    As I know any number of folks making more than 100K getting up at 8:58 to get signed into their 9:00am con calls I’d say yes.

    You know my theory that it’s better to be in the 5th percentile of accountants vs. the 50th percentile of CFAs.

  156. RIo,

    I think both you and WCE wildly over estimate how much cognitive ability is required to make 100k working from 5 minutes before your boss gets in to 3:30 with 2 work at home says a week. WCE mentioned one of her main requirements was that she didn’t have to work with stupid people. It’s important to keep in mind that if you’re willing, they will pay you 2x as much to work half as long.

  157. Well, WCE did say she thought the limiting reagent for her kids was likely to be social skills rather than intellectual ability.

  158. “Is there really some high percentage of them who couldn’t earn a +100k income doing something they enjoy?”

    Big difference between that and “gladly do it for free.” I meet your criteria now, like my job just fine. And yet I still wouldn’t do it for free and am happily looking forward to the time when I can allow other people’s labor to support me.

    So, basically, I’m with Milo here.

  159. Maybe in Boston there are lots of $100k jobs, but in most of the country, there just aren’t that many. The people I know making over $100k don’t have the schedules you describe.

  160. The people I know making over $100k don’t have the schedules you describe.

    Were that national merit semi finalists?

  161. I know a few people with jobs like Rhett describes, but they were at the right place at the right time to get them and there was a huge element of luck involved. An old boss of mine for instance made 10x as much as I ever did by the time he was 30, even though he wasn’t that great at what he did and he I’ve venture his IQ was about 115 tops. But he got in at the beginning of a startup and was loved by the Old Boys Club.

  162. Rhett, in all seriousness I would love it if you threw out some job titles or even general fields where what you describe is possible, preferably without requiring tons of additional expensive education. Not being the slightest bit snarky. I’d give my back teeth to have an opportunity to make that kind of money doing something I liked, yet alone would do for free.

  163. Rhett, in all seriousness I would love it if you threw out some job titles or even general fields where what you describe is possible,

    Nurse, project manager, software developer, accountant – just to start.

  164. Like LfB I wouldn’t have worked for free, although I enjoyed my work if not the corporate environment. There are many opportunities at any age. At 37 I went to school for two years full time while taking care of a house and 4 children, sat for a three day licensing exam, did my two years of experience to become a CPA and had a lucrative career that of necessity supported my family. Big 4 starting salaries today for 22 year olds are 55K. Yes I worked a lot when it was required, especially in paying early dues, and my kids did not have the cushy life we all hope to provide for our children, but in the end when my career was in sunset and my status far lower than in my glory days, my employer was begging me to stay on to pay me 100K a year for about 2 1/2 months work total and on my own schedule. My 30 something daughter has been on an extended hiatus from the full time finance rat race and took a contract job (I just did her taxes) that paid her 115K for three months work, enough to support her for a year or more.

  165. A lot, maybe most, of the NMF here leave for college, many in the greater Boston area. A lot of them never move back.

  166. @Rio – I was going to say “Ask Meme” when she posted her reply. I think it would not be difficult for you to prepare and sit for the CPA exam and go from there. I think you may view it as somewhat less prestigious than the track you are/were on but it has longevity and salaries are decent.

  167. I didn’t realize that nurses earn $100k, but teachers in many downstate counties/cities in NY state will earn at least $100,000 after approx 10 -14 years of work. if you are the curriculum leader, work in the summer camp, teach an after school class – it will be higher. That is an annual salary, but it is for 180 days of work vs. the 230 -250 days that most other professionals will be required to work.

  168. @Rio – Look for something that will allow you to be flexible when kids enter the mix. I was ill prepared for the scheduling changes that took place when I had my first child. I could no longer stay at work late into the evening.

  169. Some of them are NMSF. Salaries depend heavily on supply, demand and location. The I company in Portland has many parents of NMSF for our state

  170. While there are some nurses making 100k or more, they are mostly working a lot of overtime or in very undesirable locations. Nursing is (generally) shift work — you are not making “100k working from 5 minutes before your boss gets in to 3:30, with 2 work at home days a week”

  171. “Nursing is (generally) shift work — you are not making “100k working from 5 minutes before your boss gets in to 3:30, with 2 work at home days a week”

    Exactly. And a lot of the ones I know are expected to spend lots of time unpaid time charting after the shift as well. Similar deal with accounting- I have a dozen highly intelligent friends in the big 4 they all consider it merely a way to pay the bills- they find it kind of soul crushing, not fun and rewarding. I’m not trying to be a whiner here, I just think Rhett’s “100k easy, fun, jobs are common if you’re smart enough” belief is overly optimistic. But I’m glad Rhett found that for himself; from what I can sense about his earlier life he deserves it more than any of us probably.

  172. The I company in Portland has many parents of NMSF for our state

    Doesn’t Portland have one of the worst job markets in America?

  173. “Nursing is (generally) shift work — you are not making “100k working from 5 minutes before your boss gets in to 3:30, with 2 work at home days a week”

    You are if you’re a NMSF who goes into nursing vs. being a primary care MD.

  174. Portland has the best job market in the state, which says something about the rest of the state I guess.

  175. Rio – I agree it is optimistic starting out but once you have the expertise and reputation in many fields it is less so. I also would not come to work for free – but I like it 90% of the time and have a great deal of flexibility because I could go to a hard charging firm and make quite a bit more $ and the owner of my boutique, family friendly firm firm knows it.

  176. Rio,

    Take a midwestern NMSF and she has a choice: full ride at the University of Cincinnati, major in accounting and get a job a Fifth Third Bank or decent package at Wharton, major in economics, job at Barclays in NYC.

    She wants to have a kid 7 years later when she’s 29. MD at Barclays tells her to F off as he’s got a dozen people who would kill for her job. The comptroller at Fifth Third is begging her to please just work from home at her own pace asking that she just does those two things that only she knows how to do.

    In my experience that’s how it often works out. It’s often best to be a big fish in a little pond.

  177. “The comptroller at Fifth Third is begging her to please just work from home at her own pace asking that she just does those two things that only she knows how to do.”

    DW would agree with this. And she was not a NMSF.

  178. “There used to be self-taught lawyers for instance. That’s banned now in almost every state.”

    The lawyer that we used to write our wills and medical directives and to set up our LLCs never attended law school. I would guess that he is in early to mid 60s, so probably one of the last that fall into that category. I think that he apprenticed with another lawyer for several years before passing the bar exam.

  179. Snow day. This one was too difficult to determine last night because there was a chance that the snow line wouldn’t move this far north. The only good thing about the 5:30 call is that it can now be a silent text message instead of every phone ringing in my house.

    I wonder how much OT pay the DPW guys in my town will earn this year. There has not been a lot of snow (compared to Boston), but its been months of weekend ice storms, and small snow storms.

  180. So isn’t time an issue here too? I don’t know any jobs that will pay you $100K for 9:30-3:30 right out of college. OTOH, if you come out of school, bust your butt for several years, become an expert in specific issues, and get a reputation for being really smart, you can get a lot more flexibility later on.

    But you also have to be in the right industry/area. After about 10 years in a geeky sub-specialty, I basically lived Rhett’s example with my part-time telecommuting. But if you’re at a place like Skadden, their business model assumes that almost everyone they hire will go somewhere else by year 9-10, so they’d be more likely to laugh at that kind of request.

    So Louise is right that it’s good to think long-term about where and for whom you want to work early on to position yourself in the right environment for flexibility. But I also agree with Sheryl Sandburg (?) about not leaving mentally before you actually ratchet back. Flexible schedules are an extra hassle for the boss. So if you want one, you need to spend the first part of your career proving that what you bring is more than worth that added aggravation.

    And Milo is still right about the “best” money. :-)

  181. Rio – I tell my story (and allude to my elder son’s story) over and over again not to advocate for accounting per se, nor to defend work choices that pay decently and provide flexibility after the break in period even if they are less than soul satisfying on a daily basis, but to hammer home the point to totebaggers with respect to their children and to themselves that it is simply not true that the course of one’s long life in the United States of America is locked in by early environment, opportunities, choices and luck, good and bad. I have every confidence that if you personally don’t care for the work you have ended up with in your twenties, after you launch your family and set up your new home, in your forties you will find a lifelong outlet for your considerable talents, even if it takes the next 15 years to determine the optimal direction. With luck, the financial aspect of all that will be irrelevant to your choice.

  182. I might have more experience in non-profit-land than some of you. If you work at a large non-profit and make yourself useful to the executive director, you can make $100K after a few years. It will not be right out of college, however, and you usually need some kind of painless Masters, like education or MIS or non-profit management. My former boss makes $250K as the exec director of a professional association of humanities types. (Can’t be more specific without outing her/me). I’m sure several of her direct reports make over $100K working an easy 40 hour a week. I made over $100K as the director of IT at my old non-profit, and I didn’t find the work hard. The politics were a nightmare, and talk about having to work with dumb people! I also wasn’t right out of college. But I took a weird, winding path to adulthood.

    If you can stand sales, I know lots of sales douches from library-related industries (EBSCO, Proquest, Gale; or the folks who make integrated library systems like Innovative Interfaces, SIRSI, Polaris) who make very good money. Even if you get in one of those places entry-level, you can move up to a decent management position, attending meetings and pushing paper and managing employees and make six figures.

    I think Rhett and I have in common that we don’t work in a specific “profession”. We were/are in “trade”. If you work in a law firm, all you see are lawyers, secretaries, paralegals, and IT guys. But if you work for a publisher or some big conglomerate, you see more people wandering around making money even though no one knows what they do.

  183. Good points by all posters. I also want to add that there is trial and error involved. For instance, once my kids started school, the school calendar became a reality of my life. If I had to do a job where my busy time at work fell right at the time of school vacations – it would be tough. I had to find another position because it was the case in one such job. Over time, I’ve had to think hard or give up pursuing positions which wouldn’t work for me. It has not been easy to let go, but the reality is that it would be very hard on my kids if both parents were in the “have to available all the time” mode.

  184. Lauren – even we’ve had less snow than Boston! But I definitely am getting my money’s worth from my snow plow contract this year. FWIW – $200 for the season, whenever it snows 3″ or more. (A lot of people opt for the per-trip contract @ $15-20/trip…for these the guy comes on the same schedule as for me, so unless a homeowner opts out completely the bill just keep on coming.)

  185. Milo is right…making money by coupon clipping (i.e. collecting the interest on bonds, or dividends on stock) is the way to go.

    Rhett’s idea about getting paid for that which you’d do for free is good, but sometimes, and probably more frequently as one ages, you’re not going to feel like doing even that thing today/ this week / this month. In which case you need to have a backup for income (i.e. Milo’s plan). Why not just get there at the beginning?

  186. Lessee, looking at the 2013 Form 990 for my ex-boss’s current organization, it looks like the Director of Finance makes $116,427, the Director of Production (they publish a thing) makes $110,423, and the director of business development makes $138,898. All are listed as working 37.5 hours per week, but of course that’s just on paper — no idea of their actual hours. But no one grows up thinking “I’d like to be director of business development for a weird humanities-based nonprofit!” But it happens, and it’s probably not that onerous. Probably a certain amount of travel for that one, but I doubt it’s weekly or anything.

  187. There hasn’t been any meaningful snow here in several weeks, but the Boston/Cambridge streets and the local rail system have still not recovered. Just awfully cold, and a lot of roof/gutter/leak issues (thankfully not for us).

  188. AND, in nonprofit very similar to the one I used to work for (we were “co-opetition” in nonprofit parlance), I see from the 990 that an old friend is making $119,643 as “Director of Engagement”, which I’m pretty sure means “suck up to the members and make them feel special”. I am confident that he was not a NMSF. I also suspect he can work from home a lot.

  189. Roof leaks have been a big issue up where we live. The local insurance agencies are receiving huge numbers of water-related claims. We had a small roof leak at our house, but as soon as we noticed it, DH got out the 20-foot ladder, climbed up, and started chiseling out ice dams from our roof. Knock on wood, we’ve been OK ever since.

    I’m wondering if there are also going to be a lot of basement issues once all this snow starts to melt.

  190. I find this conversation about $100k jobs very interesting. Rhett or anyone else, what do you consider good sources for salary info, either industry-specific or general? Glassdoor?

    I know people at at a large nonprofit who seem to have flexible $100k+ jobs. Their culture seems touchy-feely, dominated by women. And they get sabbaticals every ten years!

    The NMSF correlation may be the wrong one. Smart, yes. But emotional intelligence is probably a more important factor. From what I’ve seen EQ may even negatively correlate with NMSFs.

    And good sales people will always make good money, except when they crash and burn one too many times.

  191. preferably without requiring tons of additional expensive education

    It’s important to keep in mind that “additional expensive education” doesn’t have to come in the form of a graduate degree. Getting a job at PWC or KPMG is like getting a masters in accounting and not only is it free they pay you $55k a year to start. And yes, it really is like a prestigious masters degree: you learn a great deal, you have a stamp of approval, an alumni network, etc.

  192. CoC, for nonprofit info, go to Guidestar.org. You have to register, but they don’t bombard you with email or anything. Form 990 is the tax form that nonprofits have to file, and they usually have to list the five highest-paid employees (also check the list of the trustees, because it usually contains a few staff members.) It can be quite enlightening. And they are, indeed, often female-dominated and less age-discriminatory than for profits. What they aren’t, usually, is ever-so-emotionally rewarding. There’s usually twice as much b.s. as at a for-profit and it’s often very much about making the exec director look good and not so much about fulfilling the mission of the organization.

  193. Tying to the OT: 5 stock-market rules that Warren Buffett insists you follow

    1. A stock is a business, not a piece of paper
    First, although it seems banal to say, a stock is an ownership unit of a business. The lesson for investors is that a stock represents the value of a business’s future earnings. You should own it for that reason, and not because you think you can capitalize on its short-term gyrations, which generally have nothing to do with its business value.

    2. Stocks serve as inflation protection over the long haul
    Buffett remarks that from 1964 through 2014, the S&P 500 SPX, +0.17% , including dividends, generated a return of more than 11,000%. Over that same period of time, the U.S. dollar DXY, +0.44% lost 87% of its purchasing power, meaning it now costs $1 to buy what in 1965 cost 13¢.

    According to Buffett, it has been far more profitable to invest in a collection of American businesses for the past 50 years . It seems likely that the next 50 years will present the same result. Investors should remember that U.S. stocks didn’t do well in the 1970s, when inflation was rocketing. But Buffett is clearly correct in arguing that stocks certainly improved the purchasing power of their owners over the half-century period from 1964.

    Finally, although stocks may not be priced to deliver outstanding returns at any given moment, Buffett adds the phrase “bought over time” when talking about accumulating stocks. Investors should take that to mean regular periodic investments in stocks will likely turn out fine over a multi-decade period.

    3. Volatility is not risk

    Investors must tolerate far greater volatility in stocks than in securities tied to U.S. currency. But it’s clear that securities tied to the value of U.S. currency have presented truer risk to one’s financial well-being over the past half-century.

    If you need money for a home purchase or to fund tuition payments over the next few years, then short-term bonds and cash are required. Stocks’ volatility VIX, -0.49% makes them inappropriate for short-term goals.

    But if you have a long time frame and can make regular investments, then the risk to your financial well-being is in not owning stocks. So if you’re relatively young, and you’re contributing to a 401(k), for example, you’ll do yourself a favor in old age by making contributions to stocks now and periodically through your life.

    4. Keep a multi-decade time horizon

    Buffett thinks long-term. And that’s not simply because this year’s letter marks the 50th anniversary of his having taken control of Berkshire. Being able to have a longer time horizon allows you to tolerate the volatility that stocks necessarily present, and reap the inflation-beating rewards they deliver.

    5. Keep an eye on fees, and use index funds

    Buffett is particularly ruthless this year in his discussions of investment bankers, asset managers, and advisers. He remarks that although there are some excellent money managers (presumably he’s counting himself), it’s difficult to identify them ahead of time or know whether their results are due to skill or luck.

    Advisers’ core competence is in salesmanship, and they’re generally more adept at generating high fees for themselves than returns for their clients. Therefore, Buffett implies indexing is the way to invest, and plugs Vanguard founder Jack Bogle’s classic,The Little Book of Common Sense Investing.

  194. RMS – how stable are the jobs ? Could they disappear overnight from lack of funding ?

  195. Even people who work at small nonprofits can make bank if the nonprofits are funded by a soft-touch wealthy person. I have a couple of clients with private foundations, with (ex.) 2 employees, who make 95K and 140K/year, and the employees are not the brightest bulbs, nor do they work all that hard from what I can tell.

  196. Louise, the jobs are not sinecures, but they’re not any riskier than for-profit, and sometimes less risky. The ones that support an industry like libraries will be around as long as there are libraries. The professional organizations will be around as long as the profession is. And so on.

    And L is quite right, I can think of one nonprofit in Denver that’s funded by a Generous Rich Guy. One of my best buds is the current exec director and he’s trying to develop more donors so they can weather any downturn in Generous Rich Guy’s good graces. But some of the employees before he got there didn’t work all that hard.

  197. My SIL is a nurse who started making $100K+ a year or two out of college – although she was probably in the right place at the right time. Definitely not NMSF smart but has a lot of common sense. Almost everyone of our friends from college makes over $100K and a lot make over $200K (a lot in the NY area though). Working in fundraising, marketing, advertising all usually yield over $100K by the time your 30.

  198. Oh thought of another one where people seem to make a lot – recruiters. It seems like by the time your 30 you are making a nice amount of $. A lot of university jobs make over $100K and you get your advanced degrees for free if you are so inclined, with flexibility and a ton of holiday time.

  199. Thanks all for sharing your stories and ideas. They’re tucked away in the back of my mind for a decade or two down the road. I am confident that someday I’ll be able to find my career niche, though it will be a meandering path.

    One piece of advice for you to consider with your own kids (and not just your girls)- DO have them consider their eventual goals for lifestyle and flexibility when they’re choosing their career track. I was specifically discouraged from considering things like eventually being able to take maternity leave, go part-time, etc. My professors, advisors, and parents thought they were being progressive and feminist (Lean in! Don’t limit yourself! Don’t even THINK about babies- maybe you’ll never marry!) but it has actually had the opposite effect, since unless we want 2 nannies (to cover dual business trips) and to almost never see young children outside of weekends one of us will have to stay home. Many/most people will want a family someday, and there are a few fields that make that very, very, difficult without an at-home spouse, or at least a spouse in a much less demanding field. (I am in the broad finance/consulting/banking universe. Don’t want to be more specific than that.)

  200. Working in fundraising, marketing, advertising all usually yield over $100K by the time your 30.

    That’s ridiculous, none of those jobs require calculus!

  201. L – Yup, that’s pretty standard and imagine how far that goes in the middle of nowhere. Most state universities are the same way (cue the complaints about rising tuition due to all of the administrator salaries…)

  202. “A lot of university jobs make over $100K and you get your advanced degrees for free if you are so inclined, with flexibility and a ton of holiday time.”

    +1, especially in administration (i.e. all those jobs created, think “student success” and “student services”, to hand-hold the students who in prior generations would not have gone to college because there were trades and other MC-enabling jobs people could get with only a HS diploma but who go now because it’s de rigeur now. Oh, and fundraisers)

    and, many colleges/universities have pretty generous retirement contributions…not matches, but outright contributions.

  203. Rio,

    Aren’t you the one who got in trouble for (essentially) asking your boss for more work too often?

  204. Rio, look into Director of Finance jobs at nonprofits. Can’t hurt to look. You can search Guidestar for all the nonprofits in your geographical area. Chronicle of Philanthropy and Chronicle of Higher Ed are good places to search for those jobs (C of H E has nonprofit as well as university jobs.)

  205. Rhett – I am laughing a bit because you are eerily accurate in describing a path that I know very well. *ahem* However, the “University of Cincinnati, 5th 3rd Bank” path is not one where you are going to be making $100K before 30. It will take a bit longer (and yes – spending a couple years in Public Accounting or a well-known training program will get you further than an MBA in my experience). And you are going to top out in the low-mid $100’s in most orgs. Which is perfectly fine with me, especially with two incomes at that level, but leaves you “OMG SO POOR HOW WOULD I EAT??!!” in the eyes of many Totebaggers who have higher aims (BigLaw, BigFinance, etc). (including yourself, no?)

  206. I also have friends/relatives in university admin who have the types of jobs being discussed. Again – not getting those jobs or making over $100K at 30. By 40, yes. Not by 30.

  207. Rio – I came out of business school in broad finance – first job was a 10 to 12 hour day, always available, travel ready at all times – I once flew from San Jose to Boston three different round trips in seven days (and was pregnant but my boss didn’t know yet). I worked there for a year and a half before having my first child. Partner tried to work out a good schedule – work from home half time situation for me and the managing partner told me I was on track to be the first female partner in our specialty – but it just didn’t work. I am doing the same work for a boutique firm, can take all the time I need for kid stuff and pretty much work a 40 hr week, sometimes less (32 hours when my kids were small). I actually get more “work” done in this environment because I am not in endless meetings and spending time on planes to hand hold clients in more endless meetings. I don’t work for the same type of clients – Fortune 500 – but mainly start-up tech, which is more interesting and local but maybe less prestigious. I guess my point to your post is – what you do now to build skills and reputation is important butthe choices down the road will not be continue to do that or stay home.

  208. z’Take a midwestern NMSF and she has a choice: full ride at the University of Cincinnati, major in accounting and get a job a Fifth Third Bank or decent package at Wharton, major in economics, job at Barclays in NYC.
    She wants to have a kid 7 years later when she’s 29.”

    She could take the Wharton/Barclay’s route, earn buckets of money and save a lot of those buckets, then resign and move back to the midwest, buy a nice house for the down payment of a home the NE, and either have one spouse be a SAHP, or settle into less lucrative, but much less demanding, jobs and live well in the low COL area.

    I mentioned that most of the NMSF types here leave for college. Many never return, but a lot also take a route similar to what’s described above, although not to a low COL area.

  209. “No, for me it’s dollars per unit of effort.”

    Also keep in mind, it’s *after-tax* dollars per unit effort. It’s an important coefficient, and becomes a higher threshold with increasing income.

  210. becomes a higher threshold with increasing income.

    Not really. 33% $186,351 to $405,100 – that’s basically all of totebaggery (other than SoFL Mom).

  211. It’s a strange beast, Rhett, and people usually misunderstand it. One of our triggers for it is that we have three kids, so we’d otherwise be taking five exemptions. My parents get it, becauase, among other reasons, they would otherwise be deducting the property taxes on two houses.

  212. Milo,

    My money was on you or your wife having a lot of non-reimbursed business expenses and she takes the home office deduction.

  213. No, we don’t even try to do the home office thing. And most of her income comes through a W-2, anyway.

  214. @Rhett — but don’t forget the 3.8% medicare tax and state taxes (our state/local is 9%).

    But I think maybe the bigger issue is that once you’re in that “$200K-400K” category, what’s the value of that incremental dollar vs. the time/energy/stress you have to trade off to earn it? I suspect that other than people in certain high-COL markets, people in that range can afford a pretty decent lifestyle, with all of the necessities and a fair bit of extras covered. So the “how much more do I need to make to convince me to exert more effort” standard gets a lot higher, because you can afford to value your leisure time more than that extra $$.

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