Gyroscopic Investing

I would estimate that 95% in here are >= top 20%.  It is scary to think that the other 80% in America are flat-out, dead broke.  That's a powder-keg waiting to rumble!

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If you have a total net worth of $344,000, or $179,533 excluding the value of your home, you are better off than 80% of Americans today.

The top 7% of the population begins at $856,000, but when you exclude personal-residence values, it's $586,507.

In simple terms, if you have a home worth around $270,000 and a $587,000 portfolio, you're ahead of 93% of Americans. Those 93% think you're rich, even though you're a long way from $19 million. [average net worth of top 1%]

Wow. Even if you are in the top 7%, all is in the PP for "fail safe investing," and you draw off 3%/yr for retirement, you are talking 17.6k/yr income. Just shows how dependent we are on social security.

BearBones wrote: Wow. Even if you are in the top 7%, all is in the PP for "fail safe investing," and you draw off 3%/yr for retirement, you are talking 17.6k/yr income. Just shows how dependent we are on social security.

This is terrifying. Budgetwise, my family should be fine excepting some savings-gobbling disaster like a lawsuit or medical emergency. But, why do I feel like Occupy Wall Street was just a childish hint of what's to come?

MachineGhost wrote: I would estimate that 95% in here are >= top 20%.  It is scary to think that the other 80% in America are flat-out, dead broke.  That's a powder-keg waiting to rumble!

Interesting stats, MG!  I was wondering, though, what you mean by the remaining 80% of America being flat broke?  The Top 20% have a net worth of $344,400.  I'm not sure I'd call anything below that "flat broke".

From what I read in this article, it would seem that 20% of households have a negative net worth.  That's still bad, of course, but at least it's a lot less than 80%.

BearBones wrote: Wow. Even if you are in the top 7%, all is in the PP for "fail safe investing," and you draw off 3%/yr for retirement, you are talking 17.6k/yr income. Just shows how dependent we are on social security.

Pretty scary.  This is why you find the 3% guideline, excellent as it is, so rarely implemented in practice.

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I think those graphs, particularly the "Percent Change ... by Level of Income", are misleading.  No single person has followed any one of those lines.  Over the 20 years covered, I bet most everybody involved switched categories, probably many times.  That's something that the statistics about "the rich getting richer" and the "poor getting poorer" usually miss: the "rich" and the "poor" aren't the same people across time!

That's certainly true of me, Xan. Several years ago, I was probably in the lowest category, with a high five-figure negative net worth, no assets, no savings, and hardly any cash. Today I'm probably several categories higher.

Social mobility in the US compared to other advanced nations is actually very low as well.  Access to good schools, healthcare, etc has quite a bit to do with picking the right parents.

Xan, so that link basically says that an ever greater proportion of income goes to one-off jackpot earnings by a few people who don't go on to regularly earn that much. I still think that poses a problem and accounts for a lot of the economic problems.

How so?  For example, I had low earnings for several years while building a small business.  This year I'll have fairly high earnings.  Ultimately, I may sell it, leading to low earnings again.

Why should I be punished with a hugely progressive income tax system?

"Mobility", that is, the ability to move, is not defined by how much moving is done.  If I have a car but leave it in the garage most of the time, I still have mobility.  I contend that social mobility is plentiful, but many choose not to take advantage.  What is it that causes people to not be aspirational?  Government dependence.  viz: http://www.examiner.com/article/the-sad ... 000-a-year

That article perfectly illustrates the power of lowering your expenses to retire early. Once you're able to comfortably live below the "poverty level" on an income derived solely from investments, you're paying zero taxes, collecting checks from several nice tax credits, and you're probably able to take advantage of some of the more stupidly constructed welfare programs that don't check your assets (I know that SNAP does). Why complain when you too can become a beneficiary? As MMR teaches us, it's not like the money comes from tax revenues anyway, so you're neither depriving the truly needy of anything nor fleecing the taxpayers! 

Pointedstick wrote: That article perfectly illustrates the power of lowering your expenses to retire early. Once you're able to comfortably live below the "poverty level" on an income derived solely from investments, you're paying zero taxes, collecting checks from several nice tax credits, and you're probably able to take advantage of some of the more stupidly constructed welfare programs that don't check your assets (I know that SNAP does).

I've looked into this recently. It's not as easy to qualify for government handouts as the right wing wants you to believe. For one, while many government programs ignore retirement assets, they do consider your car as an asset. I find a $5k car to be the bare minimum acceptable vehicle to drive that gets good gas mileage and is reliable. Right now that might be an early 2000s Honda Civic. Below that, you're driving a beater that will break down all the time. A lot of government programs exclude you if your assets are around that $5k mark so you'll be screwed.

Additionally, most government programs are directed towards single mothers. As a man with no children, you won't qualify for much. You could likely access a food bank, but they are privately run and the ethical boundary changes when you're taking from private enterprise rather than government (at least to me it does).

Section 8 housing might be a possibility with low assets but there's waiting lists and you will be living with people low on the socioeconomic pyramid. Most people at that level are not brilliant libertarian early-retirement gurus who have graduate degrees, and figured out how to retire cheaply at age 33.

I do, however, have a viable strategy that maximizes government benefits, primarily the standard deduction and personal exemption. You should defer a large chunk of retirement assets into traditional IRAs/401ks so you can convert $10k per year (adjusted for inflation as the levels change over time), into a Roth IRA. Assuming you're not actively receiving distributions to live off from those accounts that would otherwise be taxable, you'd want to do the conversion up to the point where you can do it for "free."

Part of my master fantasy involves buying a house in Texas or Florida where your primary home is sheltered from creditors, putting $100k into an immediate annuity so you can pay the annual property taxes in perpetuity (and the annuity is an insurance account, not a money account, and protected from creditors in these two states, and $100k keeps it under the state insurance level in case the insurance company goes under). Then have another $200k or so in a mix of Roth and Traditional IRAs. Convert any amount up to the point of "free/no taxes" each year into a Roth. You could live really nice and pay no income taxes for the rest of your life, because your annual expenses would be under $15k since you own your own home, and won't have a job to commute to each day, so low transportation budget and low food expense if you cook your own meals.

I was mostly kidding around.  Your annual Roth conversion idea is interesting. Would you mind expanding on that a bit? Do you do the conversion once you have no income so as to minimize the tax hit from the conversion? Or is the benefit that you're avoiding the payroll taxes that you'd have paid on that money if you put it straight into the Roth rather than  going 401k -> Roth IRA?

Also, could you explain how the annuity pays your property taxes? Couldn't you do the same thing with 100k in investments--or was the purpose to protect it from creditors? But if you've implemented this, I assume you'd have no debt, right?

Government dependence.  viz: http://www.examiner.com/article/the-sad ... 000-a-year

Thanks for providing that as proof of my hypothesis that its better to receive government assistance nowadays than compete in an increasingly skewed economy.  I say it's not government dependence thats the problem so much as it is economically rational to limit your stated income and assets.  Why would anyone want to work harder for less pay unless they have an inferiority complex and want to get rich?

TripleB wrote: I do, however, have a viable strategy that maximizes government benefits, primarily the standard deduction and personal exemption. You should defer a large chunk of retirement assets into traditional IRAs/401ks so you can convert $10k per year (adjusted for inflation as the levels change over time), into a Roth IRA. Assuming you're not actively receiving distributions to live off from those accounts that would otherwise be taxable, you'd want to do the conversion up to the point where you can do it for "free."

You can do it even better by setting up a part-time business and contributing to a Roth Solo 401(k) which has like a $69K contribution cap.

I think a single male could probably get SNAP since its based on household income (or by lying since theres nil verification).  But the rest of the benefits are virtually impossible to get as you state.  Like pro-housing, we have a pro-child public policy which is pretty odd considering the right-wingnut's irrational opposition to preventing unwanted/neglected/orphan children.

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MachineGhost wrote:

Government dependence.  viz: http://www.examiner.com/article/the-sad ... 000-a-year

Thanks for providing that as proof of my hypothesis that its better to receive government assistance nowadays than compete in an increasingly skewed economy.  I say it's not government dependence thats the problem so much as it is economically rational to limit your stated income and assets.  Why would anyone want to work harder for less pay unless they have an inferiority complex and want to get rich?

I didn't give the exact mechanism that government dependence causes a lack of aspiration.  In some cases it's psychological, "learned helplessness" maybe, and in other cases it's rational.  In all cases it's bad.

MachineGhost wrote:we have a pro-child public policy which is pretty odd considering the right-wingnut's irrational opposition to preventing unwanted/neglected/orphan children.

I don't get it.

What is inconsistent between wanting to provide for children and wanting not to kill children?

AgAuMoney wrote:

MachineGhost wrote:we have a pro-child public policy which is pretty odd considering the right-wingnut's irrational opposition to preventing unwanted/neglected/orphan children.

I don't get it.

What is inconsistent between wanting to provide for children and wanting not to kill children?

I don't get it either other than calling an entire political group irrational nuts.  Which people tend to say about anyone who doesn't share their views.

I guess I wasn't clear enough.  It seems to me the oxymoron is that rightwingnuts are against pro-child public policies while at the same time they are pro-disposable children because that is the historical real world consequences of anti-abortion public policies for which the stated intention is to save children.  How does that make any rational sense?

MachineGhost wrote: I guess I wasn't clear enough.  It seems to me the oxymoron is that rightwingnuts are against pro-child public policies while at the same time they are pro-disposable children because that is the historical real world consequences of anti-abortion public policies for which the stated intention is to save children.  How does that make any rational sense?

Conservatives are ideologically against dependency system that is the government and are for a charity system of support.  So you are right when you drop your "public" reference, but you neglect the fact they would prefer a different solution, with private charity.

The abortion debate is 100% stupid, no matter what side you take.  One way you are condemning a life to death, when it has done nothing wrong.  The other way, you knowingly allow a child to come into the world that may never be able to provide for it.  On a side note: I would prefer you to not refer to a child as a disposable though, keep it civil.

Basically, you are drawing an illusory correlation.

The growing antagonism of the super-wealthy toward Obama can seem mystifying, since Obama has served the rich quite well. His Administration supported the seven-hundred-billion-dollar TARP rescue package for Wall Street, and resisted calls from the Nobel Prize winners Joseph Stiglitz and Paul Krugman, and others on the left, to nationalize the big banks in exchange for that largesse. At the end of September, the S. & P. 500, the benchmark U.S. stock index, had rebounded to just 6.9 per cent below its all-time pre-crisis high, on October 9, 2007. The economists Emmanuel Saez and Thomas Piketty have found that ninety-three per cent of the gains during the 2009-10 recovery went to the top one per cent of earners. Those seated around the table at dinner with Al Gore had done even better: the top 0.01 per cent captured thirty-seven per cent of the total recovery pie, with a rebound in their incomes of more than twenty per cent, which amounted to an additional $4.2 million each.

http://www.newyorker.com/reporting/2012 ... ntPage=all

MachineGhost wrote:

NewYorkerMagazine wrote: The growing antagonism of the super-wealthy toward Obama can seem mystifying...

Is there "growing antagonism of the super-wealthy?"

I hadn't noticed that, but if there is such a sentiment I would suspect they are afraid the gravy train is about to come to a crashing stop if Obama stays in power.

Doesn't Romney seem much more likely to help the super rich?  About the only way I'd expect him not, is if he overcompensates to avoid any appearance of such favoritism.

So inequality might suppress growth. It might also cause instability. In a democracy, politicians and the public are unlikely to accept depressed spending power if they can help it. They can try to compensate by easing credit standards, effectively encouraging the non-rich to sustain purchasing power by borrowing. They might, for example, create policies allowing banks to write flimsy home mortgages and encouraging consumers to seek them. Call this the “let them eat credit”? strategy.

“Cynical as it may seem,”? Raghuram Rajan, a finance professor at the University of Chicago’s Booth School of Business, wrote in his 2010 book, Fault Lines: How Hidden Fractures Still Threaten the World Economy, “easy credit has been used as a palliative throughout history by governments that are unable to address the deeper anxieties of the middle class directly.”? That certainly seems to have happened in the years leading to the mortgage crisis. Marianne Bertrand and Adair Morse, also of Chicago’s business school, have found that legislators who represent constituencies with higher inequality are more likely to support the easing of credit. Several papers by International Monetary Fund economists comparing countries likewise find support for the “let them eat credit”? approach. And credit splurges, they find, bring on instability and current-account deficits.

You can see where the logic leads. The economy, propped up on shaky credit, becomes more vulnerable to shocks. When a recession comes, the economy takes a double hit as banks fail and credit-fueled consumer spending collapses. That is not a bad description of what happened in the 1920s and again during these past few years. “When—as appears to have happened in the long run-up to both crises—the rich lend a large part of their added income to the poor and middle class, and when income inequality grows for several decades,”? the IMF’s Michael Kumhof and Romain Rancière wrote, “debt-to-income ratios increase sufficiently to raise the risk of a major crisis.”?

But wait. Which is it? Does inequality depress demand? Or does it inflate credit bubbles that maintain demand? Unfortunately, the answer can be both. If inequality is severe enough, there could be enough of it to cause the country to inflate a dangerous credit bubble and still not offset the reduction in demand.

And, no, we’re not finished. Inequality may also be destabilizing in another way. “Of every dollar of real income growth that was generated between 1976 and 2007,”? Rajan wrote, “58 cents went to the top 1 percent of households.”? In other words, for decades, more than half of the increase in the country’s GDP poured into the bank accounts of the richest Americans, who needed liquid investments in which to put their additional wealth. Their appetite for new investment vehicles fueled a surge in what Arkansas State’s Brown calls “financial engineering”?—the concoction of exotic financial instruments, which acted on the financial sector like steroids.

Those changes, the French economists Jean-Paul Fitoussi and Francesco Saraceno wrote in a 2010 paper, “help explain why the expansion of the financial sector was so out of touch with the economy. And why, for example, in the U.S., the financial sector represented about 40 percent of the total profit of the economy.”? Alas, when the recession struck, the financial sector’s gigantism and complexity helped turn what might have been a brush fire into a meltdown.

http://www.nationaljournal.com/next-eco ... 927?page=1