Wildly inflated - a single person earning $60K a year is not poverty-stricken even in NYC. Even a “living wage” of $17.99/hr only comes to about $37K - and if “living wage” doesn’t mean the wage required to live a normal standard of living, above the poverty line then I don’t know what it is supposed to mean.
That of course doesn’t mean that every one who earns more than $37K is living a normal standard of living, but personal choices matter as well. I know a single person living in NYC who appears to be living in poverty - but he wouldn’t be if he would stop spending $12K a year on lottery tickets.
Income means very little for escaping poverty. An annual salary of $1 or $1000k puts you in poverty the day after you lose your job if your spending is 100% of that income, or worse +110% like so many who live off of debt. And that’s not limited to low income families - the more people make the more they tend to spend. In fact, doctors and engineers are more susceptible to this fate because the proverbial Jonses next door they’re racing to keep up with have even more gratuitous spending than the Jonses in the ghetto. Spending is the big number that defeats most people. Learning to eliminate superfluous spending allows one to maximize the number that actually matters: Savings. Raising your income is a waste of time if you’re just going to spend all the additional income on useless crap that has been scientifically proven to provide a very small, very short lived boost to happiness that rapidly decays due to the nature of the human brain…
The concept of a “normal” life in the US is so batshit insane when you actually examine the numbers involved that it boggles the mind that people think it’s sustainable. No, you can’t afford to live without room mates. No, you can’t afford fifteen different subscription services and a car payment and furniture payments and a $150/mo cellphone plan… that’s financial suicide!
I don’t think one can reasonably get their per capita food spending below $100/mo these days. I also don’t think it’s reasonable to put more than two adults in the same bedroom, and from what I can tell rent hovers around $800/bedroom (thus $400/mo per capita). Cell phone is about $40/mo for a luxury plan per capita. It’s difficult to average gas, electric and other utilities per capita (it scales down with more people sharing the same space) but certainly no more than $300/mo. It’s unreasonable to spend more than $400/mo on transportation (that’s total including the car itself, gas, insurance, maintenance)…
So, $1250 is a good monthly minimum. I tend to live luxuriously despite my own better judgment and get by with ~$1500/mo in spending. I’d also say add $150/mo per capita for sanity sake - you do need to entertain yourself from time to time. I also live in one of the most expensive cities in the US (and on the planet) in a state undergoing an extreme housing shortage, so my numbers may be inflated. I’m just not batshit crazy/brainwashed with my assumptions about what’s “normal” or “affordable.”
So a single person can live pretty luxuriously off of $20k/yr (after taxes), but that minimum only really allows an individual to run in place. Anything above that should be 100% invested across a variety of asset classes with whatever asset allocation makes sense to the individual in question.
With a sufficient savings rate, it doesn’t actually take that long to achieve FIRE. Unfortunately I’m too lazy to get really disciplined and cut out all the luxury in my life.
1M? There’s a lot of ways of calculating this that will produce wildly different numbers, you also didn’t mention inflation so I’m going to just use “1M in 2020 dollars” instead of $1M in 2055 dollars." I assume inflation of 3% per annum which is a longstanding historical average, but not a reliable estimate with the abnormalities going on with the dollar right now. That said, $1M today becomes ~$2.85M in 2055 and will be the target number. We’ll assume an overall portfolio return no greater than the historical stock market (you should have small businesses, real estate and other assets that have cashflow and returns greater than the stock market, but let’s keep this calculation conservative and simple) thus 8%.
The future value of an annuity lets us calculate a future asset value with new payments happening over time, and is how I will estimate the required input. F = C *((1+r)^t - 1)/® where F is the future value, r is the rate of return, C is the recurring payment and T is time (in years). As stated, F = $2.85M, r=8%, T = 35 and C is our dependent variable.
C = ~$16.3k per year.
So, according to my sloppy kitchen counter math, a single person making $52k (27k living+16k investment / 0.70 because I assume 30% tax rate) per year can reasonably expect to retire with $1M net worth of todays’ purchasing power by 60 starting at 25 while living in one of the most expensive cities in the US and living fairly luxuriously. That number goes WAY up if that individual wants to have kids (I don’t have figures sufficient enough to support a reasonable estimate).
Personally, I think 1M dollars is a very, very small amount to aim for and 60 is a very, very high age of retirement, but these are the figures you asked for. A childless couple does not significantly change these figures (simply add another $20k/yr+taxes for minimum per capita living expenses) and can make it much easier to achieve if there’s not a strict homemaker/breadwinner division of labor. As mentioned, I can’t speak to children’s expenses.
Anyone making only $52k/yr should consider taking up a business, finding additional work, or improving qualifications for employment because the payoff for higher income is many, many years of retirement.
I know you mentioned how you live in a very high cost of living city, but those figures tend to be lower in other places.
When I was in college a 2 bedroom started at $500-600. I knew a few apartments that had 3 people sharing a 2 bedroom, for them the rent only came to $200 a person. Utilities probably added an additional $70 or so per person.
$100/month for food isn’t horrible if you shop right. At that price level you generally buy food on a dollar per calorie basis. If you aim for 1000 calories per dollar, thats 3k calories per day which is enough for most women and many men. You ‘can’ cut your food budget deeper than that, but its generally not worth it for the savings. Living off rice and oatmeal isn’t worth saving $50 a month for a lot of people.
Point being, I knew people in college who lived fine on $800 a month or so. Sometimes less. However generally you can’t own a car on less than $800/month total living expenses (unless you already own the car and aren’t counting payments or depreciation in the calculation).
To me, the big factor in whether you can escape poverty is your health (followed by education). If you have serious health problems, its very hard to escape poverty. There are endless people out there who were living comfortable middle class lives until they got seriously sick and couldn’t work anymore. As long as you’re healthy and have an education along with marketable skills, escaping poverty isn’t impossible. But losing one or both will throw you into poverty even if you were doing well before.
But, how long ago was that? And, what’s inflation been since then?
When I was single, in the early '90s, my roommate and I were renting a two-bedroom apartment, in a quiet residential area in suburban Chicago, for about $500 a month. That apartment building is still there (it’s about 2 miles from where I live now), and those same two-bedroom apartments are now renting for just over $1000 a month.
Speaking of health, insurance and health care are also huge and every growing expenses. My insurance is my single greatest bill each month: It’s over $1k for a family of 3. And that mostly just gives us access to the “negotiated rates”, because our individual deductibles are over $2K each–so to have any chance of weathering a “bad” medical event, we have to set aside $200 a month. That’s not a “mandatory” expense, like rent, but if we don’t pay it now, we will surely pay it later when something happened (in fact, I ended up in the ER with a strange dog bite this Christmas, and that was over $2k out of pocket right there).
Insurance/health savings need to be calculated into a “survival” budget. In fact, in general we shouldn’t treat “savings” as a luxury category: if you can’t afford to save, you’ll never escape poverty because emergencies will pull you back in.
If I understand the OP’s meaning, I think they are thinking in terms of their rocket having enough financial thrust to escape poverty. Not necessarily to escape having to work ever again.
But otherwise it’s a decent, if imperfect analogy. Your financial “engine” (typically your salary, investments, other sources of income) has to generate enough thrust to escape the gravitational pull of your financial obligations (debt and day to day expenses). “Escape velocity” is a good analogy to where you have enough excess income to start reinvesting. Not just in other financial matters, but in activities like education and whatnot that can enable you to generate more income.
IOW, if you don’t earn enough money, you get caught in the gravity well of poverty where all your money goes to day to day living expenses. You don’t have any left over to build long-term equity or get training or education needed for a higher-paying job.
Not only is it unrealistic, so many IT and technology jobs are transactional by their nature - contractors, consultants and whatnot.
Still, assuming you aren’t awash in debt, getting laid off from a six figure job (possibly with stock options,etc) in a high demand field is different from getting laid off from a job where you are living paycheck to paycheck.
Heh, I first read that as strange “dog bite” as opposed to “strange dog” bite, and I was trying to picture how weird a bite it was (not meaning to make light of your pain, but it’s weird how the brain works sometimes).
I’d say no. In fact, it’s something of a joke among my IT colleagues and friends that you aren’t a real IT guy unless you’ve been laid off at least once in your career. Like making your bones or something. But expecting to stay employed isn’t entirely unreasonable; in my experience, people tend to follow a trajectory something like this - in their 20s and 30s, they stay up to date on the latest technology, etc… in their 40s, they do a transition of some kind- either they transition into management of some kind, or they transition out of active development and into more of a support/maintenance/guru type role for the remainder of their careers. That rarely all happens at the same company though.
As far as the OP’s contention is concerned, I don’t’ think that looking at net worth at age 60 has anything to do with “poverty escape velocity”. I’d actually argue that “escape velocity” with regard to poverty and escaping it is more directly related to cash surpluses above and beyond meeting basic needs and paying bills. Someone who can make their bills and keep their family fed, clothed and housed AND have enough cash to cover repairs or replacement of a major appliance/house system without going into debt is a long way toward no longer being in poverty. Of course, this is predicated on reasonably good spending- nobody expects everyone in that situation to always make the optimal choice, but it is a reasonable expectation that they’re not continually doing windfall and/or spendthrifty type spending patterns.
The question then becomes what income allows that to happen? I suspect it’s lower than we might think- probably on the order of 40k in gross pay for a single person if I had to guess.
In the hinterlands of Idaho’s capital city I lived on around 45k gross and was not at all impoverished, so depending on where you are and how lucky you are with regard to emergency expenses, I imagine you could push even lower than that.
Not to digress, but I would say that is accurate. A long-term career in technology typically involves more than just being a developer or the company “IT guy”. Sales, client management roles, traditional roles like marketing, HR or accounting, etc at technology firms.
When I dreamt up the 40k number I was actually looking at a period when I was single and lived on the equivalent of about 50k in present-day money, and it was FAR from impoverished. I mean I didn’t have a tremendous amount of spare cash, but I had enough to have a reasonably sizeable savings account and also buy the occasional larger item (~200-300 dollar) after saving up a paycheck or two in order to have it. All that above the background expenditures on bills/expenses, mid-20s entertainment, etc.
So I just knocked that back by about 20%, figuring that would still be enough to have a little left over after paying the bills, etc… and would be enough to not be impoverished.
I’m in IT and have been working for the same company for over 5 years. I’m not looking around, but I STILL feel like a mercenary. It’s very hard to feel the “rah rah my company’s awesome” feeling, even though it is pretty nice. I’ve just gotten “laid off” with zero warning too many times to really settle in and be comfortable and trusting.
Anyways, I make a lot of money, but I do spend a lot of money, and don’t have much savings to speak of. No debt. But if I got sick and couldn’t work for an extended period of time, I’d be in poverty right quick.
Expenditures can vary a lot even in the same geographic area. To give an example, a friend of mine has “wealthy” parents. Their combined income is less than mine (I’m middle class by Canadian standards). However they bought a reasonably priced (for its large size) house long ago, and paid off the mortgage. The house could sell for just under $2 million CAD if sold today. The required upkeep is probably 1% of the reasonable price for that house (so their annual expenditures are quite low). While they are “wealthy” I feel obligated to put that term in quotes. It’s not liquid, and if they sold they’d have to buy another house, which would probably cost something similar.
Despite having more income than them, if I bought that house I would be house poor immediately. (I actually couldn’t buy the house. I have great credit, but the monthly mortgage payment would exceed my income.)
Some people require more money than others to get a decent start in life. In addition some people “have” to pay the “family tax” (they’re successful, but other family members aren’t, and they put their hand out). Some may have higher expenditures due to health problems.
The worst thing you can do is to have the “my company is awesome” feeling. A big mistake I’ve seen people make is to ignore the writing on the wall and believe the execs that everything is just fine - right up to when they get called in for the layoff.
It is much better to split before the company ship hits the reefs.
That said, I don’t know that it’s a good thing to have a totally mercenary attitude if you’re a full-timer either. Don’t drink the Flavor-Aid, but don’t treat it like it’s a temporary gig either, I’d say.
The trick is to be well-connected enough in the company that you’ll notice when certain people in positions of authority start acting weird, especially with respect to future projects, etc… or when you start hearing rumors about personnel moves and other unusual stuff, etc… That’s the time to start polishing up the resume and seeing what’s out there, because something’s about to happen.
One thing is interesting: there is another “income trap” at the top, among the children of high-earning professionals. I see this a lot in college access.
So you have a high earning family. They are the first generation to be high earning, and they stumbled into it as much as anything: caught the tech wave at the right time, were inherently interested in law or medicine or finance and got some lucky breaks. And they married someone with a similar story. So now the household income is $300-$450. Kids were (wisely) delayed, so they’ve grown up in a very rarified environment.
But they aren’t rich, they are affluent. Parents can afford the best schools, can pay for college out of pocket, but it’s still first generation wealth. There isn’t enough of a trust fund that the kids don’t need to work. Those kids are in a terrible trap. The parents stumbled into affluent–due to interest, affinity, and luck. If they’d stumbled a little differently and the family ended up with a household income more like $150k, that would have been fine. But the kids need a “sure thing” to be high earning, because this is the life they are used to. It isn’t just greed or being spoiled: this is how the family lives. No one wants to be the one who can’t join the family on a trip, or buy equivalent Christmas presents, or send their kids to the school the cousins go to. No one wants to have to chose between being a black sheep or a charity case.
So these kids need a sure thing, a job that they know will pay enough to keep them at a super rarified level. Which means they have to go into law, medicine, or finance. And they have to do it at the right kind of school, where they will have connections and internships. They have to marry someone who will pull their weight, because this is a two-high-income lifestyle. There’s no choices. There’s no taking a risk and hoping it works out–because no matter how nice the family is, if they can’t “keep up”, it’s going to be awkward. They won’t quite be part of the family any more. That’s a big thing.
On one hand, it’s easy to be “cry me a river, rich boy”, but on the other hand, having dealt with so many of these kids, their panic and desperation are real. It’s absolutely fucked up. We call them “Bay Area Kids”, no matter where they live.
Your hypothetical kid sounds like Mitt Romney. For the rest of the world, even a kid going into a high paying field is not going to make the parents’ income right out of school. And kids with a safety net might go into a lower paying field they enjoy.
In my experience it is a rite of passage for a kid to stop getting trips subsidized by parents and start subsidizing parents trips. (Or dinner.)
Of course it depends a lot on the parents and the kids. And remember, kids in this situation don’t have the burden of high college debt, and can afford to take lower paying jobs a lot more than their peers.