If you are planning for retirement, check out a book called Worry Free Investing by Zvi Bodie.
Then ask a Financial advisor if you can substitute INFLATION PROTECTED MUNI’s (a specific type of Municipal Bonds) for the TIPS (Treasury Inflation Protected Securities) that he recommends in his book …
… THEN you just may have ‘guaranteed protection’ against BOTH inflation and taxes, possibly for life.
Now, THAT’s a winner!
In a recent post, I shared one view (not mine) on what it takes to be considered rich …
…it’s $5 million !
Now, here is an article by Bankrate that brings that number right down to the other end of the scale …
Check out this table showing the spread of annual income:
|
Income level (percentile) |
Median income (rounded) |
| Level VI (90 to 100) | $170,000 |
| Level V (80 to 89.9) | $99,000 |
| Level IV (60 to 79.9) | $65,000 |
| Level III (40 to 59.9) | $40,000 |
| Level II (20 to 39.9) | $24,000 |
| Level I (less than 20) | $10,000 |
Source: Before-Tax Family Income, 2001 Federal Reserve Board Survey
First, let’s see where you stand in relation to this table?
If you aren’t in the top brackets (although, many of our readers are), it might be comforting to note (according to the Bankrate article): “if you are bringing in $40,000 a year, you’re doing better than half the households in America. Or, as a Washington think tank recently pointed out: If you’re a teacher married to a policeman, your combined household income puts you in the top 25 percent of all households in the nation.”
What intersted me most, was the relatively low income that it takes to be at the absolute middle of the top 10% of all income earners in the USA … ‘only’ $170,000.
This amount seems to correlate with a New York Times survey that said the ‘rich’ were bringing in between $100,000 and $200,000 per year …
… and, if you are like most Americans – earning less than $40,000 – this sounds like a king’s ransom … but, it’s not.
You see, there’s a big difference between what you might bring in as income and what some people call sustainable retirement income .
Take a look at what the Bankrate article tells us how much these same people currently have as their Net Worth:
|
Net worth (percentile) |
Median net worth (rounded) |
| Level VI (90 to 100) | $833,600 |
| Level V (80 to 89.9) | $263,100 |
| Level IV (60 to 79.9) | $141,500 |
| Level III (40 to 59.9) | $62,500 |
| Level II (20 to 39.9) | $37,200 |
| Level I (less than 20) | $7,900 |
Source: Family Net Worth, 2001 Federal Reserve Board Survey
Look at the top level, the same ‘rich’ people who earned $170,000 a year in the first table, only have a median net worth of $833,000 according to the second table.
Now, if you take this $833,000 and apply the ‘safe’ annual withdrawal rate of 4% as advocated by most misinformed financial advisors (for me, the safe withdrawal rate is more like 2.5% p.a.), it seems like these so-called ‘rich guys’ can only afford to spin off $33,000 a year.
Now, that’s less than the teacher and the fireman! So, what’s wrong?
Well, for a start there are actually very few really Rich people in this country – so few that there should be another category in BOTH of the above tables: the top 1% of the USA population by Net Worth and Annual Income.
Secondly, the so-called ‘rich guys’ earning $170,000 are just like the rest of the working population working at a JOB … Just Over Broke.
When their job stops, they stop being ‘rich’ … period.
So, where do you stand?
You’ve read the blogs … you’ve bought the books … you’ve talked to your financial advisor (your wife).
They’ve all told you that you need to pay yourself first! So you are … 10% of your gross salary !
You’re putting some aside in your 401k (with some employer match) and you have a little change going into the cookie jar next to your bed.
Great!
You’re already doing two-and-a-half times better than what CBS News calls ‘most people who only save 4% of their salary”.
But …
… it won’t make you rich!
It will stop you from being poor and may even fund a retirement if you start early enough and are willing to take a 30% pay cut.
The problem is, you can’t just save yourself to the retirement of your dreams on the average salary … you have to at least earn more and save most of the extra.
Look at it this way … the amount you can save is limited …
… limited to less than 100% of your salary, and for most people, limited to something between 0% and 20% of their salary.
But, the amount you can earn is only limited by your imagination and your capacity for hard work.
Here are some examples of ways that you can increase your income:
– Change jobs (maybe)
– Work longer shifts (yuk)
– Ask for a payrise (why not?)
– Take on a second (third?) job (horrible)
– Join an MLM ‘opportunity’ (do your homework carefully!)
– Renovate some houses (now may be the time to get back in)
– Start trading some stocks (better know what you’re doing?!)
– Start a business ‘on the side’ (my favorite!!!)
Whatever you choose: Start Small … Finish Big!
The point is not how YOU should do it, the point is you CAN do it … if you are prepared for some hard work and sacrifice now for a better future. Are you?
If you keep paying yourself first at only 10% of your current salary in your day job, and 50% of the additional money that you earn (after paying off debts), THEN …
… you just may retire RICH!
Let me know if you think this can/can’t work for you …