This Time Around

On hearing about the closing of Indymac Bank, my thoughts went like this:

  • What the hell kind of name is that for a bank?
  • Who has more than $100k in savings?
  • I will probably never have to worry about having more money than the FDIC insures.

Which is, in these proto-depression days, something like reassuring. In case you don’t know, the FDIC guarantees accounts up to $100K. So if you have more than that, you need to spread it around if you want it guaranteed. The FDIC was invented after the last runs on banks, after the Great Depression. It’s nice to know, so far, that it’s working, but apparently there’s another 90 banks that are at risk of closing due to this whole mortgage disaster.

Of course, if you just have too much money in the bank, you should feel free to donate any extra you’ve got to the hundreds of organizations that need it.

This financial post brought to you courtesy of my sister Kathy’s birthday, who bugged me & bugged me to take economics courses in colleges & who I thoroughly ignored. (Sorry, Kath. Modernism seemed so much more pressing at the time. Happy Birthday!)

36 Replies to “This Time Around”

  1. Helen Dear,
    With your intellect and ability, as well as Betty’s ability, you should (or definitely will) have far more than a mere $100,000 in the bank (or better, in negotiable securities). Well applied intellect always reaps money. You too can gain some measure of wealth security with a little evaluation and effort. I will be happy to privately discuss how to gain financial stability with you or suggest someone in your area for consultation if you so choose. Please also note you and Betty are “DINKS”. (Double Income No Kids) so it will be alot easier than you think. 🙂

    As to Indymac, this is a very, very serious issue emerging. It will not be the last bank to fail though. It will not be surprising if the markets tanks 200 plus points when it opens tomorrow unless the Feds do something to bolster Freddie Mac – Fannie Mae “before” markets open. Those institutions are far more important and mainstream than Indymac.

    Freddie Mac and Fannie Mae, two institutions that hold more than 50% of the mortgages in the US are also strained. They need an anticipated $ 15 Billion to cover their exposure to at risk mortgages. They are government sponsored. However, Freddie has to obtain $3 Billion in additional funding “tomorrow”. If the markets supply it, all good. But if not, then the Fed will have to step in. That means the taxpayers will have to pay for their poor loan policies.

    With that said, it is not surprising that Indymac failed. First, they had most of their loans in California, a real bubble real estate market that was destined to burst because it was way too overvalued. Second, they “specialized” in high risk mortgages to “at risk” clientèle that already had bad credit or insufficient assets to be eligible for standard loans. They were the quintessential mortgage security firm that pushed “no principle” mortgages, short term low rate loans, or no down payment loans to people that should never have had a mortgage in the first place.

    Risk is risk, the market will sweep these institutions out.

    Who will lose? Directly, only the stockholders (which as it should be). Anyone with a mortgage from them that is not in default has no problem. Any depositor (as you well describe) will also be protected ($100,000 or less.

    Some in the market are blaming Senator Schumer (D-NY) for a part of this debacle. He wrote a letter to “depositors” a few months ago advising that the institution was at risk. He should not have done that. Many of the people that had accounts there were ignorant of the regulations. So they panicked and “ran the bank out” to the tune of $1.3 Billion in one week. That started the implosion of their leverage. “Thanks Chuck.” (The author thinks this was politically motivated to exacerbate the crisis. But that is not provable.)

    Meanwhile the markets already had bid down Indymac’s stock from $45.00 to $0.28 (thats 28 cents!) in the last few months. So everyone knew this was around the corner.

    However, the bank will open tomorrow business as usual but temporarily run by the Feds.

    We are watching massive erosion of liquidity in this country. The auto giants are bleeding billions. The financial sector is desperate for capital inflow. The dollar is much too weak as a global currency hence the high gas prices. The airlines and aerospace industries are really hurting. The protections that are in place to handle these problems are not designed to handle them all at one time.

    Maybe some people that hate America’s middle class lifestyle are going to get their way. But they have no idea what the implication of that will be. It will not be pretty.

  2. Even though we disagree on a myriad of issues, you too can have far more than “a mere $100,000” in investments, Savoy Truffle. That really is not much money in 2008 moving forward. Even humble people like this author, that you consider an “ignoramus” can secure that kind of wealth and more.

    I won’t bother to offer my services to you as you certainly won’t accept them. You won’t even accept a gift of a book from me much less intellectual property. 🙂 But that’s OK. I have a thick skin and hold no animosity towards any person, particularly you Savoy Truffle. I do enjoy our debates. I am still trying to find the names of those two peer reviewed physics experiments for you.

    In this context though, might it be suggested, as a tenure track university professor (and with a great math brain) you definitely have all the right financial career foundations to achieve that initial goal and far more.

    I admit I am a little older than most in these boards, but certainly by forty to forty five it is possible to accumulate $100,000.

    As to the markets…. The DOW is down at present about 65 points (0.5%) so I am happy that I was wrong about the immediate loss of 200 points. (No Savoy Truffle, I wasn’t playing psychic yesterday when that was predicted. That was derived from inserting worse case data into a multiple regression linear predictor model.) 🙂

    However, the FED did intervene on the Freddie MAC issue before the Asian markets opened. So that did ameliorate the market. In fact earlier this morning it was up 100.

    It is the financials that are pulling the markets down. What we are watching is a meltdown of leverage. Unfortunately, it will affect the other parts of the economy. That what allowing bubbles does to an economy. What is different about this bubble is the problem or reacquiring capital. We need global capital now.

  3. It’s been my experience that being affluent is no proof of intelligence. So I guess we do agree about something there. Still, I don’t take candy, crackpottery or financial advice from strangers.

    You keep up the good fight, though, sparky.

  4. Here are the microeconomics of the Indymac failure. A neighbor of mine has a house worth about $150k in its present condition, perhaps $200 if it were fixed up a LOT. Indymac gave him a mortgage for the house (which had previously not been mortgaged; it was inherited) for $280k. My neighbor took that $280k and put it down on a property in Florida, which he rented. The renter skipped, he couldn’t make the remaining payments, the FL bank foreclosed, that property is now worth maybe half what it had been.

    Did I mention that he can’t make payments because he hasn’t actually had a FT job for years, and Indymac never asked him his income. He didn’t even lie about it. They never asked.

    Now multiply this by 20 million people.

  5. I wish the psychics had seen this coming. They could have made a ton of money and saved the rest of us a lot of aggravation.

  6. It’s really not that difficult to save $100,000 if you are really motivated. First off, put 10% of anything that you earn into savings. If you can swing it, put 20%. You pay your savings first, and then you pay your bills. If your bills don’t allow this 10%, you need to cut back your cost of living. Get rid of cigarettes, restaurant meals, bar tabs and other luxuries. It’s amazing what you can cut if you set your mind to it. Any tax rebates, gifts, or unexpected monies go into savings, not into junk.

    Even if you don’t start your own company, inherit a pile of money or hit the lottery, this will take you to $100,000 and beyond. You just have to want it bad enough. Believing that you will never save $100,000 is defeatist thinking, and will set you up for never achieving any sort of financial success. You’re both bright, motivated and talented. $100,000 should be within your grasp.

    Why bother? Simply, the $100,000 is “f-you” money. If your fridge dies, you can easily buy a new one. If you need a new car, you have the ability to get one without incurring any debt from an outside source. If someone evicts you for being trans, you can thumb your nose at them knowing that you can swing a hotel until you can find a place to live. Not having any savings makes you a slave, and to be honest, slavery sucks.

    Start today.


  7. Regarding the last post, I know what people are thinking.

    “This guy has no clue. There’s no way any of us can save $100,000. He gives us this pie-in-the-sky plan, and provides no concrete examples”.

    Well, here’s the plan described in actual dollars and cents.

    Let’s assume that a couple make $20,000 a year each. This assumption should be low enough to provide an example for most members of the group. Over the next year, they save 10% of this income, which puts $4,000 in their bank account.

    In 20 years, they will have $137,000 in the account, assuming that they found an investment vehicle that will pay them 5% on their money. Where can they find 5% in this era of low interest rates? Well, a brainless CD can be found to pay around 3%, so the 5% figure isn’t unreasonable. Perhaps they buy shares in a safe, financially stable company that pays a solid dividend – companies like 3M, Chevron Texaco, Abbott Labs, Bank of America or Citibank. They can then sell covered calls against their stock ownership to add to the income stream. These are all simple things to do and understand, and are within the grasp of anyone who can do basic math.

    Is saving 10% of a $40,000 income going to be painful? Yes. Very. There isn’t a lot of room when only $40,000 is coming into a household. It’s going to take sacrifice to accomplish such a goal. Perhaps they’ll have to limit restaurant meals to once a year on their anniversary. Maybe they’ll buy hamburger instead of solid meat, canned tuna instead of fresh swordfish, lettuce instead of arugula. Instead of going to clubs on a weekly or monthly basis, they might have to borrow CDs from friends, and take a walk in the park for the evening’s entertainment. They might even have to share an apartment with friends, move into an inlaw apartment with a relative, or even move out of NYC to a place with a lower cost of living. Each person’s life is different, so the places to cut will differ as well. The reality is that it IS possible to save $4,000 a year if the will is there.

    One thing will happen though when anyone starts saving and investing their money. They’ll understand right quick why so many people have such a problem with politicians. Think about this. You’re scrimping, saving, cutting back and economizing to save your $4,000 / year. When your friends head out on a Friday night to do clubbing, you stay home with a bottle of seltzer. When your friends are eating ribs at the local BBQ joint, you’re staying home with a homemade burger and salad. You’re making supreme sacrifices to achieve your goal, and you’re doing nicely. You’ve hit your $100,000 and are working hard on the next $100k.

    Suddenly, Joe Politician shows up on the scene, and tells you that you’re rich. You’re greedy and need to pay your fair share. You need to pay 35% of your unearned income (an oxymoron at best) to the government. 35% of your blood money. You need to pay a higher income tax rate because you’re rich. You get less deductions, and when you die, the government wants 50% right off the top.

    You didn’t make a killing in the market. You earned that $100,000 by saving pennies at a time. You gave up clubs. You gave up restaurants. You gave up Starbucks. And now Joe Politician wants to take those pennies away. More of it each year.

    And what does he want to do with it? Give it to people so they can too become productive? Give it to education so that things will improve in our schools? Give it to basic research so that companies can prosper? Nope. It’s straight out income redistribution. No goals, no results, no measurements, no plans. Just take it from you (after you’ve worked like a dog to earn it), and give it to someone else who refuses to make the same sacrifices that you did. Instead of apologizing for taking your money, you’re told that you’re one of those evil rich people who won’t share with the less fortunate – the same less fortunate who are buying toys, going to clubs every week, eating in restaurants, taking vacations and having piles of kids, while you postpone children, live on hamburger and walks in the park.

    Politicians love it when people are dependent. When people have no savings, they need to look to government to provide them with housing, food, education, retirement and healthcare. Since the government essentially keeps them from starving, they can’t make any waves lest the government shuts off the cash, And since they have nothing in the way of assets or savings, they’re perfectly willing to stand by while government takes it away from those people who do make something of themselves.

    You guys all have a choice. You can take responsibility for yourselves, and take charge of your own destiny at $4000 a year (or maybe $2000 or $10,000), or you can embrace dependency, and acquiesce to the shackles of slavery. It’s your choice.

  8. Hey Savoy! Right on! It’s within your reach. There are over 420 billionaires in this country. Hundreds of thousands of millionaires. In America, it’s still possible to start with nothing, and become absurdly rich. You’re bright and talented. You too can make it happen if you want it bad enough.

    Remember the line from the play, Mame?

    “Life is but a banquet, my dear Patrick, and all the suckers are starving.”

    You can be satisfied eating crumbs off of the floor with the majority of humanity, or you can formulate a plan that by eating those crumbs off of the floor, you can work your way up to the table.

  9. Thanks Christinesus for the kind consideration. You are absolutely correct in your extended comments. To slightly add to your commentary and to address some who think being economically responsible for oneself is “crackpottery” (LOL while writing this) or considers it doesn’t take some measure of intellect, might I suggest a slightly other scenario.

    First, a tangent for our dear Savoy Truffle. Yes, I do somewhat agree with you that some “well heeled” people sometimes are not that intelligent. Usually they come from “inherited” wealth. However, they usually have enough brains to hire someone to manage their wealth for them.. and that in itself takes intellect. Those that do manage such wealth are brilliant in a broad scope of intellect.

    Further, as Christinesus so well comments, building wealth from “zero” is also a highly taxing and challenging intellectual discipline requiring far more brains than understanding abstract math formulas. It also requires significant emotional and intuitional discipline. (With that commented dear, I think you would find the math of “Portfolio Theory” and the regression predictor models that assist market timing child’s play. :)) However, it also takes emotional intuition, discipline and decisiveness to grasp when to shift portfolio allocations.

    And that ain’t easy to do. It does take a psychic sometimes. (My portfolio is only down about 3% this year in a terrible bear market… :))

    By the way, there was no need for a psychic to see this financial crunch coming.

    To add some to Christinesus extremely insightful thoughts, building wealth can become even more rapid than her wonderful example. Lets take a look.

    1. Overtime equities historically return about 12%. Quality bonds “should” net, over time, about 7.00%. By balancing a portfolio, even starting with $1,000, and contributing every month one can secure that first $100,000 rather quickly.

    With these premises it takes about 15 years to accumulate $100,000.

    Initial Investment: $1,000
    Annual Investment: $3,600 per year ($300.00 per month)
    Portfolio 50/50 split bonds-equities return: estimated return over time: 8.5%
    Investing Period: 15 years
    Value at 15 years: $105,000

    When that investment milestone is reached compounding and TVM of the portfolio will secure $250,000 far faster. Here are the numbers:

    Initial Investment: $100,000 (your investment for the first 15 years)
    Annual Investment: $3,600 per year ($300.00 per month) same as before
    Portfolio 50/50 split bonds-equities return: estimated return over time: 8.5% (same)
    Investing Period: 9 years
    Value at 9 years: $254,000

    Lets take it one more step:

    Initial Investment: $254,000 (your investment for the first 24 years (15 +9))
    Annual Investment: $3,600 per year ($300.00 per month) same as before
    Portfolio 50/50 split bonds-equities return: estimated return over time: 8.5%
    Investing Period: 8 years
    Value at 32 years: $526,000

    Essentially with a little work, using historical returns, within 24 years, from “zero”, one can develop a $250,000 portfolio, or within 32 years, $526,000. If someone starts at 23 years old out of college, by their mid forties they can have financial independence. If one starts at 40, by 64, they will have a nice nest egg at $254,000 for retirement that annually spins off an additional approximate $17,500 per year… for the rest of their life. If they started at 23, at 55 years old their portfolio will spin off an approximate $36,000 per year. And that’s not touching the principle.

    Can anybody here not budget $300.00 per month?

    At first glance, this looks real simple. However it requires massive effort and intellect to allocate the funds to the “right” investments, keep diversification and know when to move funds from one good investment to another good investment…. at the right time.

    2. Meanwhile, to augment Christinesus’s lifestyle comments, yes, while your friends are enjoying Club Med vacations, maybe you go visit family or friends or stay in a little B&B and enjoy the trees at home. While others are driving new cars, one drives a car to residual value. Instead of Jimmie Choos, why not Nine West? To do this one needs emotional discipline and a little humbleness in one’s lifestyle.

    BTW: If one has a 401K or any tax deferred contributing retirement plan, it gets even better. By maximizing contributions at 15%, due to deferred and gradient taxation, one will lose little “take home pay” while accelerating the investments.

    The keynote here, as Christinesus so well describes is “life discipline”. It is imperative to consider paying into your investment account just as essential as paying the mortgage or your car payment.

    As to politics, (and confirming Christinesus’s political commentary), since when is living a life based on FDR Depression Era values not reflective of being a true Democrat?

  10. Actually, I think mystical bullshit is crackpottery, dear.

    I’ve not written specifically about my own financial planning, nor do I feel the need to. Nor do I feel the need to heap a ton of unasked-for financial advice onto Helen. But if it makes you feel important, then keep rocking the free world, sparky.

  11. Income: $40,000 (tax rates accurate for income)
    IRA contributions 2,000
    Federal tax
    (IRS tax calculator
    standard deductions
    2 exemptions) 2,213

    NYS/NYC tax (6.85%) 2,603
    Studio apt in
    bad neighborhood 12,000 21,134

    2 monthly metrocards
    (cheapest way to buy transit
    fares, $81 each per mo.) 1,944 19,190

    Groceries (let’s go wild and
    give them $10 per day
    per person) 7,300 11,890

    Basic phone service 500 11,390

    Electricity and gas (no a/c) 600 10,790

    Which leaves our imaginary couple with $104 each a week to pay for anything else. Like health insurance. Or a winter coat and a new pair of shoes. Or a needle and thread to darn their socks with.

    That’s some fucking life discipline, dear.

  12. I guess I won’t go shopping after all. Darn those silly money monkeys!

    Oh dear, wait, I’m a highly paid, semi-retired system architect with no kids or bills! Silly me! I’m glad I have smart people to patronize^H^H^H^H^H^H^H^H^H explain things to me or I don’t know what I’d do! Probably buy more shoes or get my horoscope explained to me by highly-qualified lunatics!

    I’m *such* a ditz.

  13. Savoy Truffle dear,

    It was Helen that mentioned she thought she would never have $100,000 in her blog. She states, “I will probably never have to worry about having more money than the FDIC insures.”

    That sounded as though she was depressed about the issue. Caring friends encourage people they care about to excel, to achieve, to have a positive attitude looking to the future. Thats what being a friend is. At least that is what I do dear with good will and caring. As my blog stated, if they don’t want free private advice, then I could suggest some great CFP’s in her area. I have no dollar bone in this. Maybe I should have sent that part of the message though as a PM.

    The keynote here is that I would not want anyone reading these boards, especially Helen and Betty, to suffer later if they don’t have to. All of you in the Gen X-Y generation are in a tough situation for retirement because FICA is going bankrupt on you. All of you are paying into a system that will “never” pay back in its present form. In my opinion, that is unfair for all of you. There are remedies. Christinesus and myself are offering alternatives to that unhappy prospect.

    In defense of Christinesus $40,000 example, it “is” very intense but workable. If the $40,000 is gross, then by finding a way to defer income from taxes, the taxes themselves can be the savings. That makes it workable. New York City is a terribly high taxed area which proves Chistinesus’s declaration that such burdens harm everyone, especially the working and middle class.

    As to private financial information, I have not offered any of mine nor asked for anyone elses.

    And by the way dear, my name is Catrina, not “Sparky”. I was always taught, when someone started to swear or be inflexible in a debate (or conversation) then resort to derogatory names, that they have lost the debate… and they know it. However, they can’t get “their” ego out of it.

  14. “And by the way dear, my name is Catrina, not “Sparky”. I was always taught, when someone started to swear or be inflexible in a debate (or conversation) then resort to derogatory names, that they have lost the debate… and they know it. However, they can’t get “their” ego out of it.”

    Heh. Whatever you say, dear.

  15. Well Lynnewu its obvious you are not the target market for most of these postings. But others might be interested. As to the horoscope, although I don’t take much credence in astrology, I study consciousness, it is common knowledge, most investment houses “do” have an astrologer on contract. Their predictions are one of the independent variables in their predictor models.

    I don’t use astrology when managing my portfolio though.

  16. No, they don’t and no, they aren’t. (Or do you just have no idea what I do for a living and for whom I do it?)

    Unless, of course, you have some citations to prove that claim, about the investment houses, that is.

  17. Lynnewu:
    With kind courtesy to you, I don’t get the first part of the comments. This “is” a blog about financing and the financial world, maybe a little off topic i.e. Indymac. If readers don’t care, OK. But as Christinesus states, if they doubt that securing a basic financial nest egg is not feasible, these ideas are to ponder. That’s what blogging is all about… exchanging ideas.

    As to the “target market” comment, because you have kindly advised that you are semi retired it can be assumed you are maybe a late boomer but perhaps not Gen X-Y. The younger people are, the worst they are going to get screwed by FICA. That is all that comment meant. No offense at all.

    It is evident you are already well aware of portfolio theory, etc. It sounds like you earned that salary understanding it. However, many here might have degrees in liberal arts or sciences not familiar with business finance techniques. Is it not reasonable to offer commentary on something we know about. (My assumption.)

    I don’t know what your career is, nor do you know mine. Be glad to find out. Do you want to exchange credentials? It looks like we are about in the same period in our career, “highly paid, semi-retired system architect with no kids or bills!”

    In my case a “modestly paid, semi retired corporate exec and adjunct business professor with no kids or bills” too. Plenty of time to go shopping or write on this blog. 🙂

    I assume you are (or were) a system’s analyst for an investment house? If so, glad to meet you.

    As to the astrologer commentary, I will get the research up and posted soon. I read this some time ago.

  18. Lynnewu
    First, I do not endorse astrology as a serious study. For those that follow, I study consciousness, not parapsychology. As to the confirmation on Wall Street astrology, I can’t find the actual article about the astrology commentary. Its probably too old as it dates from the Reagan Administration.

    However, the net does show it was Donald Regan, Chairman & CEO of Merrill Lynch from the early 70s to the 80s that once said, “It’s common knowledge that a large percentage of Wall Street brokers use astrology.”

    As Chairman of Merrill he should know. This quote is the basis of my commentary. He also wrote more extensively about it in his book read way back in the late eighties.

    BTW: It appeared astrology didn’t help Regan much. He got canned for screwing up Iran Contra. Further, as I recall from his book, he was the person to introduce Nancy Reagan to Joan Quigley, the San Fran astrologer.

    If you need more, I will have to dig up the quotes from his book.

    Again, this is not an endorsement. Yet, perhaps out of maybe 100 independent variables in a predictor model, astrology appears to be one variable. It is used by Wall Street I am sure with mixed results like every other predictor.

  19. no, not like every other predictor. Some predictors actually have some validity.

    Regan saying something about brokers using astrology a) doesn’t demonstrate that they did and b) doesn’t demonstrate their efficacy. You could say goat entrails are another predictor. You’d be wrong if you meant, “a valid predictor of future outcome,” but you could still say it.

    All of which is beside the point. Bend some of your consciousness to your first couple of posts. Lost in all this crap is a rather condescending attitude you have taken when trying to proffer advice to Helen and Betty. Dear.

  20. The last thing I would want to be is condescending to Helen and Betty, especially on their own blog. If that is the case, I am big enough to apologize. If my comment’s causality was taken wrong by many on the blog then, “Sorry”. However, I do refer to my comments about caring as the causality that I thought I was projecting. What are friends for?

    One of the reasons why I enjoy your blogging Savoy dear is because you so well represent the western scientific empirical mind and that is quite valid a way to see reality. And seriously, you do it well. As a statistician that is a part of how I see reality too. However, that is not the reality paradigm that many other members of humanity across the planet view the world they live in. There are so many other paradigms and consciousness lenses. Those differences is what consciousness studies is about. It is not fully about psychism.)

    As to astrology, I certainly don’t use astrology to run my portfolio. However, I am not going to refute the former Chairman of Merrill that it is used. As I said I do not endorse astrology nor advocate its use other than for fun.

    With that said, something “might” be there. After all until the advent of western empiricism became the dominant means to perceive the world, astrology was pervasive for milleniums. Hence, I do not altogether refute it either. There are also cultures and apparently investment firms that consider that it does have some credence. It would be interesting to evaluate the “p” factor of it as a variable in a multiple regression. Yet, this comment does not advocate its validity either nor does it claim to know what that p factor would be. Apparently something might be there as the people who make millions on Wall Street don’t waste time on things that don’t make them money!

    From a consciousness perspective, it is interesting that empirical scientists find astrology anathema, but others find it useful, and they are smart people too but with a different viewpoint of reality. They might be a little more open minded or intuitive in their lens perception. This is not a derogation of your contention or of the empirical means of provability. Astrology (nor psychic phenomenon) has never been proved within the laws of empirical science. To this we fully agree.

    But that does not mean it does not exist (psychic phenomenon) or has no validity (astrology). They might simply be so rare in operation that they do not fall within the established laws as we presently know them. Hence, perhaps an open mind is warranted while maintaining skepticism. We don’t know what science will look like 500 years from now.

    Finally, and with a little levity, if a study of “goat entrails” would improve profits on Wall Street, there is no doubt investment banks would investigate the use of that too! But on that one, there is no doubt validity would be damn hard to prove. 🙂

  21. I didn’t hear any condescending attitude. I thought her post was right on the money.

    Different strokes.

  22. Moving out of NYC will immediately save $2600 in taxes. There is your $4000.

    What you seem to be saying is that you can’t save while living in NYC. You’re right. If you want to save, you have to move. No one said it would be easy. As I said, you might have to move back in with family. You might have to share an apartment. You might have to stay at home after you graduate so that the savings on rent will help you to pay off student loans. Where there is a will, there is a way.


  23. I can’t speak for Catrina, but I don’t think that any nastiness was intended. I for one only wanted to convince people that they too could save $100,000 if they wanted to. It was within their reach. There was no attitude, condescension, or insult intended. It is as if I knew about a place giving free ice cream cones, and wanted to share the info with the board.

    Nothing more. Nothing less.


  24. Joanne:
    I am a little confused about why you deducted the standard deductions of $2213. Actually those are deductions so that one pays less taxes. It really does not come off your income.

    One of the means to save-invest is to try and find a way to defer taxes, then use the funds that the Feds and States steal from us to fund retirement acounts. I see you do have a $2,000 IRA contribution in your planning and thats great! That kind of investing is precisely what can be a big benefit to retirement and proves that long tern investing can reap a $100,000 nest egg even at $40,000.

    Quick analysis:

    Initial funding to start account: $1,000
    Contribution: $2000 per year
    Est Annual Return balanced portfolio: 8.5% (over time)
    Years invested: 20 years
    Value of portfolio: $104,000

    So your commentary proves it can be achieved. Start at 23 after college. By 43 one will have $104,000.

    So in my theoretical scenario, all one would then need to do is find $1600 a year more to fund your investment to hit 100M in 15 years.

  25. “I am a little confused about why you deducted the standard deductions of $2213. Actually those are deductions so that one pays less taxes. It really does not come off your income.”

    You misunderstand. What I used in my illustration (not my -or anyone’s – financial plan, dear), is the federal tax on the couple’s income if they take 2 deductions and the standard exemptions.

    I have to note that your approach puts the accumulation of money for its own sake above any quality of life whatsoever. It also doesn’t leave room for the possibility of having a family for the first 15 years of marriage.

    But bless your heart for trying.

  26. Hi Veronique:
    No, I wasn’t aware that some one would assume that. I use “dear” as an affectionate to ameliorate and make more friendly any comments made herein. It is by no means “condescending” at all from my perspective. We sometimes touch controversial issues. The use of it is intended to continue personal goodwill and caring to the person when there is disagreement. I never try to show antipathy to anyone here even when my ideas are being savaged by them. After all we are just discussing ideas. Civility should be tantamount. That’s why I try to reach out in a spirit of good will and add “dear” not to be demeaning, but to show we can still be friendly while disagreeing. Some might detest me for my ideas. But I never detest them for theirs. Again, after all we are merely talking about ideas. Yet, because it is a written blog, we can not “see” the good will of emotions as if we were face to face. So the use of “dear” is meant to show good will.

    Hope this answers your commentary….

  27. Hi Joanne:
    Thanks for the clarification. First, yes, by all mens, we are distinctly discussing theoretical constructs here. As to the math, now understand what you were doing. Indeed, although I have not checked the tables as you have, and hence fully accept your figures for the Feds, a theoretical couple living in New York, filing jointly, which is the theoretical example, might even be faced with a higher tax load.

    I reside in Illinois. We have a 3.5% State Income Tax here and no City income tax. I understand that New York State’s income tax is higher and New York City also has an income tax. (Does anyone know what percent these are?) Hence, for a New York City couple, filing jointly, it appears even more important to find means to defer taxation, find a way to lower annual taxable income. That means finding some kind of tax shelter to defer the high tax burden that exists in New York City (affecting millions of people).

    Hence, my commentary is directed at the need to shelter income in legal saving – investment venues that reduce tax liabilities as the key strategy to accumulate the nest egg. Why pay the Feds… or the State… or the City, in the case of residency in New York City, if one can pay ones own investment portfolio and accumulate a nest egg through deferred taxation. Either one pays the Feds et. al. now, in that case the money is gone, or keeps it somehow in an investment account that is theirs…. an investment venue that spins off revenue for the rest of ones life after age 59 1/2. The decision which way to go seems obvious.

    Either way the money is inaccessible for lifestyle expression, or to pay bills in the near term. But if one pays the taxes, its gone forever. If one invests it, it yours.

    Essentially, for modest income people “avoiding” high taxation is the only way to save because the rest of your illustration is very indicative of the financial stress of urban living. The problem is especially acute if a couple does not have a lot of deductions such as a mortgage etc. Urban dwellers in all cities have that problem. Many still rent in the cities. Hence, more modest income people really can only beat the tax man by finding legal ways to defer income through investments. Part of your illustration distinctly reflects that by showing an annual IRA contribution that, at the returns feasible in my post, can provide $104,000 in twenty years.

    The keynote is, with some financial planning a theoretical couple living in New York City (population 20 million?) still can secure $100,000 by their mid forties and about $200,000 by their mid sixties if they start right out of school. The loser is the IRS.

    With this strategy, life style issues are really not too germane because high taxation limits lifestyle choices anyway. The money is gone to the feds as your illustration well indicates. 🙂

  28. the one thing that amazes me about this thread is that someone may choose never to have $100k in the bank simply because they think money should DO things – like feed & clothe people, etc – and not sit around.

    what i mean is: it’s assumed people who don’t save money somehow just don’t know HOW. when in fact plenty of people don’t have money because they choose not to (for whatever reason).

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