Thursday, November 25, 2021

529 For The Grandchildren


Before our first grandchild was born my wife and I decided that we would open a 529 for her and then for future grandchildren as they were born. A 529 savings plan has many benefits. You can contribute towards future educational expenses with all earnings being tax free, much like a Roth IRA. You can open a 529 for anyone at anytime. The plan can even be used for K-12 tuition and college expenses. You can withdraw the money at any time, but earnings can be subject to income taxes. The plan has tremendous flexibility. You can also change the beneficiary at any time. If one child or grandchild doesn't go to college or gets a scholarship, you can change the beneficiary to another child or grandchild.

I discussed with my wife that I thought we should open an account, put in a starter amount and then contribute $25 a month. It won't be a huge amount when they go to college, but it will help a little. She quickly suggested that we should do $100 or more. I said that would be fine for now, but what happens when we have 8 grandkids! So we stuck with the $25 for now. It was a good call because we have twin granddaughters on the way! If you put $25 a month in for 18 years you wind up with $5400 plus earnings. So, not a bad sum to help with college expenses. Of course, this is a starting point and you could always contribute larger amounts and pay for most if not all of college if you wanted to.

The rules are pretty simple on opening a 529. You must be a US citizen, over 18 and have a social security number and mailing address. There are no income limits. If you have grandkids, I encourage you to look into opening an account for them. Even a small amount, given monthly, adds up over the years. With the cost of college continually increasing, maybe we can save enough to buy a book or two at minimum. Most states have their own 529 plan as well as the various brokerage companies out there.  

I believe you can also save for college expenses through a Roth IRA. You can withdraw from a Roth IRA, tax free, for college expenses. Whichever avenue you use, always contribute as early and as often as possible. 

Have you had success with 529 plans or Roth IRA plans? Did you save for college a different way? Are you currently funding an account for grandkids? If so, do you have any additional advice?

Friday, November 19, 2021

How Much Is Too Much?


Two of my favorite comic book characters when I was a kid were Ritchie Ritch and Scrooge McDuck. Ritchie had all the cool and fun toys and even had a dog named Dollar. Ritchie was always smiling and having fun adventures. On the exact opposite you had Scrooge McDuck who swam in his money and only wanted more and more money. 

Recently, there were news stories about the Democrats considering a tax on the ultra wealthy. They had plans to tax those who were worth billions of dollars. The issue was shelved and replaced with a possible tax hike on those making $5 million or more with an extra 3% surtax. There is a large section of the public that wants to tax the rich as much as they can to pay for social programs. So, "how much is too much?'" is being looked at on the government level. 

Recent statistics show that there are about 8.3 million millionaire households in the US or about 6.7% of all US households. A lot of millionaires would consider themselves well off but not "rich". A lot of households may reach the millionaire status by owning a home and having a good retirement next egg. But even if you have a $1 million dollar nest egg and draw out the recommended 4%  a year, your yearly income may only be $40K even though you are a millionaire. You certainly can't live the rich lifestyle unless you cash it all out and blow it in year one or two!   The US is also home to 630 billionaires. That is a lot of wealth! The first person in the world to hold the title of billionaire was John D. Rockefeller. He reportedly crossed that threshold in 1916. His wealth is estimated to be $300-400 billion in today's money. Rockefeller made his fortune in oil. Other wealthy Americans over the years include Cornelius Vanderbilt,  Andrew Carnegie, Henry Ford, Sam Walton, Bill Gates, Jeff Bezos and Elon Musk just to name a few. In my opinion, these men made huge contributions to society by building railroads, cars, computers, electric cars, space travel, etc. There is a certain class of the rich that have done mankind a tremendous service while also making a fortune for their efforts. All have provided employment to countless people and have changed the world for the better. They have shown they are more capable of accomplishing something quicker and more efficient than the government. Regardless of their contribution to society, is it too much when the 7 richest people own about $1 trillion?

So, back to the question. Is there an upward limit to how much any one person should be allowed to possess? Where do you set the bar? Is it $1 million, $100 million, $1 billion, $100 billion or more? In my lifetime I may see the first trillionaire. When I was young, I remember being in awe that Sam Walton was worth $1 billion. My how things have changed and now billionaires are everywhere. If the government gets into the business of setting a limit of "how much is too much" it will get it's hooks into a whole new line of taxation. Once the government sets the limit of $100 billion, how quickly will that number be reduced over the years until more and more people get surtaxed to death?  If a large amount of their funds were transferred to the government through taxation I fear the government would not get that same return on those dollars. 

Many of the billionaires listed above are also the world's top philanthropist and have given billions of dollars to charity and good causes. Many cities have libraries built by Carnegie. Bill Gates has a huge foundation giving away billions of dollars. Many have pledged to give away the majority of their wealth.

There are also the bad billionaires out there in the world. Pablo Escobar is one that gained his wealth from illegal drugs and ultimately died in a hail of bullets. Bernie Madoff made his wealth swindling people and died while in prison. The Sackler family made billions by selling the poison Oxycontin which contributed to about 190,000 opioid deaths since 1999. The Sacklers settled lawsuits for $4.5 billion but kept most of their wealth. (I've been watching Dopesick on Hulu about the Sackler family and Purdue Pharma).

Is there a difference in a self made billionaire and one who inherited billionaire status from previous generations? The original one may have earned the money by making society better while the latter just got the status by just being born in the right family. Should that make a difference in answering the question of "how much is too much?".  In trying to figure out "how much is too much?" what parameters should there be. Once the limit is set, how do you enforce that limit? Does the government just take over their assets and businesses of one who reaches the limit like some communist country? Do you just tax everything over the limit at 100% and have them write the IRS a check? Do you make them give everything over the limit to charity. These are hard questions with no clear answer. 

What is your opinion of "how much is too much?".

Saturday, November 13, 2021

How Much Is Enough?

How much money is enough to be happy, to live and to retire? I have heard the quote below many times over the years and it seems to be the thought of most humans regardless of how much you have. 

John D. Rockefeller, the founder of the Standard Oil Company, the first billionaire of the United States of America and once the richest man on Earth was asked by a reporter, “How much money is enough?” He calmly replied, “Just a little bit more”.

I think of how many times over the years that I have thought that the next raise will allow me to save or spend a little more and will make life easier. I quickly adjust to the extra money and it becomes the new normal. I was in the mode of "Just a little bit more". I have read many studies and articles that say more money doesn't affect your happiness once you reach an income of around $75,000 a year. Most of us think that a million dollars or a billion dollars would make us so much happier. I would at least like to give the billionaire lifestyle a try just to see if the studies are right! The studies show that at $75,000 your basic needs are met and you have enough for leisure activities to make you pretty happy. 

One study says that after $75,000 happiness is increased at a smaller degree with increase in income but that you reach peak emotional well-being at $95,000 and peak life satisfaction at $105,000. While much higher than the average income of US citizens it is definitely obtainable for the middle class. Studies also show that the level changes depending on where you are in the world. People of New Zealand need $125,000 for peak happiness while people of the Caribbean only need $35,000. I would guess this also would apply to how you grew up here in the U.S. If you grew up in poverty, I would think that an income of $40,000 would make you happy and that if you grew up in a wealthy family, even an income way over the $105,000 would not make you happy at all. 

As I get older, my thoughts on happiness have changed. I think the younger you are and just starting out in a career and life, the more you think money and material things will make you happier. You look forward to that new furniture, new car, first new house, etc. and it does make you happier for a little while. Then the furniture gets scratched, the car gets up in mileage and the house is not as big as you need and the happiness fades away. As I get older, I find happiness in being with friends and family, sipping coffee on a cool rainy morning, reading a good book, enjoying a vacation. I have read that things we experience are much better for happiness than things we buy or own. I agree with that whole heartedly. So, get out there and "do" rather than "get".

This moving target of "how much is enough" applies to retirement savings. You hear numbers thrown out all the time such as a million dollars, or ten times your salary and many other benchmarks. There is so much information out there in the world on how much you need to retire and how much to withdraw each year. There is information on where to invest and what your portfolio percentages should be. My advice is, if you aren't already retired, is just to follow the old saying "save as much as you can and start as early as you can". Retirement nest eggs are much like the income needed for happiness in that it all depends on multiple factors. There is no perfect number for a satisfying retirement. Some may want a retirement that requires a smaller income and some may want to sail around the world in a new sailboat and require a much larger nest egg.

How much house is enough? The average American home has increased by an average of 1000 feet since 1973 and the living space per person has doubled in size. The average size of a new home today in the US is about 2700 square feet. Today's homes are often referred to as McMansions. For those of us who are retired, we are at the age that we remember smaller childhood homes vs today's larger homes. How in the world did my family (parents and 3 kids) get by with one bathroom back in the day? 

"How much is enough?" can apply to about anything in our lives. It can apply to money, material things, exercise, food, alcohol, etc. All have a limit, that once you exceed can have a detrimental impact rather than a positive impact. I routinely exceed my limit of sugar and carbs and the extra weight will impact me negatively with eventual health problems if I don't drop back down to the "perfect amount" range. 

How much is enough for you? Has your idea of "enough" changed over the years? If retired, did you reach the number that you needed to get to the retirement you dreamed of? Did you obtain a McMansion and later downsize in retirement? Have you exceeded the "perfect amount" range in some aspect of your life that has led to a negative impact?

Monday, November 8, 2021

Pet Peeves

 I have numerous things that I consider my pet peeves. Some irritate me a little, some a lot. Some of them I just shake my head at the stupidity of some of our fellow earthlings.

Definition of pet peeve

a frequent subject of complaint
My number 1 pet peeve is drivers on their cell phone while driving or at a stop sign or traffic light. I am quick on the horn when the light turns green and the other two lanes are already a hundred yards down the road while the person in front of me is oblivious as they check their latest "must see" text or post. Drives me crazy and I seem to be behind these drivers about 8 our of 10 lights! When I drive, my phone is usually in my pocket. Sure, I feel the vibration of a text or notification while on the road, but I will get to it in 30 minutes or an hour down the road. This activity really gets to me when I see a newscast about a death on the road caused by a distracted driver. It is a loss of someone's life just because that driver had to look down and focus on their phone instead of the road.
Another big peeve of mine, leaving your trash on the parking lot of Walmart or anywhere else. How many of you have seen the used diaper sitting in the parking lot? Why in the world does someone think placing the used diaper outside your car door, on the parking lot, is a great idea? I also see upright Big Gulp drink cups, small bags of trash from drive thru restaurants, etc. I was in the car recently waiting on my wife to make a quick trip into a store. While sitting in the parking lot, I see a car pull out of a parking spot and drive down the aisle and then stop, open the door, and set a Big Gulp cup on the ground and drive off. What the heck? My wife and I owned a coin operated laundry for a few years. Often, I would find a pile of cigarette buttes in the parking spots in front of our laundry. It was obvious someone emptied out their car ashtray while waiting on their laundry. I complained one day to my wife after cleaning the parking area and said "Why do they do that, do they just think someone is going to come around and clean up their mess?" She replied "Isn't that what just happened". She got me on that one.
Other pet peeves:
  • People who can't smoke inside a place but choose to smoke 2 feet from the front entrance. Please, just step away a little further.
  • People who go in the exit and out the entrance to some stores. I've even seen some of these people set off alarms at Walmart at the stores that have the little bars across the exit area. 
  • A very recent one.....People who let their 4 young kids drive the electric handicap carts at the grocery stores chasing each other and ramming them like bumper cars! Really! Where were the shopping cart police for that one?
  • People who stand in line to order food for 15 minutes and not know what they want when it comes their turn. 
  • People talking loudly on their cell phones in a small or crowded space. Even more of an irritation when they have it on speaker phone mode! Ditto, for those that watch a constant stream of Tiktok and other videos endlessly with the volume up or on speaker. 
  • Similar to above.....parents who let their kids watch videos and play games in restaurants with volume up. Please get some headphones!

I have a lot of other pet peeves that I can't think of at the moment. What are your biggest pet peeves? Do any of the above cause you some irritation also?

I often have told my family that I would like to take all the stupid people in the world and ship them to Mars. I just now realized that wouldn't be fair to Mars as it would not take long before that beautiful red landscape would be littered with dirty diapers and cigarette buttes!