Wednesday, September 9, 2009

Property Taxes and the End of a Comfortable Retirement

Let us continue our discussion of the Big Lie:

I worked on Wall Street for a number of years before starting my own firm in 1998. I spent a couple years at a smallish investment bank that did a lot of work for small companies.

When you work on small cap companies, there simply is not the wealth of data about them that is available for the big guys. So we every client company went through our patented "scrubbing" process. We really took them apart: Probable cash flows, potential multiples of earnings in a sale, and most of all... EXPENSES.

This was great training - for my personal life. Being the obsessive that I am I could not help applying this to my own circumstances. So, I scrubbed my life, and here is what I came up with:

Repeating bills, you know... car payments, insurance payments, taxes - the stuff you pay monthly or yearly - are the enemy. But some enemies are worse than others.

There is ONE offender that is going to prevent the vast majority of professional folks from having any kind of retirement from working, let alone a financially secure retirement, and that is PROPERTY TAXES. You can't do much about income taxes, except to live in a state that does not have them, but you can have some control over this ruiner of your financial well being. (My readers know I have been lambasting the cost/benefit of private school and private college expenses... throw in property taxes, and you have the 2 biggest sink holes that prevent families from saving... not to mention, you get very little for your property taxes. More than HALF of your taxes goes to pay the pensions of former municipal workers.)

So, without further ado, let us scrub the life of a 40 year old professional living in the sunny clime of Boca Raton, FL...

Our hero is married with 2 children. His income averages $350k per year. To working class folks living in Detroit, he appears to be one of the "Rich" - and living the dream. Let us take a closer look under the hood.

Our hero bought a home in a country club when he was 35. He put down $100k on a $1mm home. His $900k mortgage at 5.5% has a payment due of $4,700 every month with $4,125 going to pay INTEREST and the balance principle. That's $49,500 in interest each and every year (yes, it starts to fall a little each year, and principal repaid goes up a bit... but not much for the first 10 to 12 years). His property taxes are $20k per year (one of the reasons Florida residential property will NEVER recover), and his home insurance is $6,000 (with a fat deductable). Utilities average 8k per year The country club community where he lives requires a club membership of $15k per year and H.O.A. fees of $5k.

He sends both of his young children to the local private school. He does not notice that the school starts at $11k for kindergarten, and finishes at $24k for senior year. He spends $24k this year on his two children's private school and $12k on summer camp.

He/she married his/her admin assistant/nurse/legal secretary WITHOUT a prenuptual agreement (hey, he was not my client back then or that would NOT have happened), so his/her spouse has him/her by the balls, and they spend accordingly. Ergo, 2 car leases of $21,600 per year, gas, maintenance, and insurance for the those cars comes in at $15k per year, a personal trainer for the "Spouse" at $5k, and a $3k gym membership at the swanky place (LA Fitness is does not meet the new social standing of the "Spouse"), all of this to keep the "Spouse" toned and emotionally stable so that the "Spouse" may conduct an extra marital affair with said personal trainer or the pool boy... If our hero should complain about the affair? Under Florida law the "Spouse" would most likely get the home, custody of the children, alimony, child support AND half of the current assets. In keeping with local tradition, the "Spouse" has a steamy affair with their divorce lawyer. Our hero gets to work himself to death, and die young of heart disease...

(Notice how I am doing everything in YEARLY EXPENSE (not monthly)? There is a reason for that.)

Feeding the family at home ($24k) and restaurants ($36k) sets our hero back a total of $60k. The "Spouse" wouldn't know how to clip coupons any more than they know how to do their own manicure anymore.

OK? With me so far? Our hero has spent $244,100 and has not clothed his family, paid for a vacation, paid on any student loans, paid for health insurance (professionals have to pay for their own health insurance and it is only 25% deductable).... AND MOST IMPORTANTLY, has not paid any INCOME TAXES.

Let us assume that after deductions, our hero will have a Federal Income Tax liability of 33.3%:
$116,550. Added together with is basic personal overhead of $244,100 and our hero has negative savings of $10,650 per year (he spent $10,650 more than he made.)

I am not asking working class folks to feel sorry for our hero, only to understand that he is flat broke and running just as scared as you are.

The funny things, after 20 years or so of this, our hero can look forward to a fat gut and a VERY costly divorce. He will be 50 years old with little to show for a life time of hard work. (Some professions allow the sale of the practice, and some do not. This can be a significant asset.)

It does not have to be this way. The Big Lie, part B, does not have to suck you in.

(If you have been blessed with good family and intelligence and an inclination toward achievement (believe me that our hero's parents were not mopping floors and pulling chicken guts out of the chicken's asses for a living)... good for you! But it does not stop there. You need a calculator and a brain and some discipline. And, if you are professional and an excellent provider you need a prenup agreement, or you won't have the power within your family to maintain any form of fiscal discipline, you will have become a slave. Prenup agreements came into existance because of the GROSSLY unfair treatment of Men in divorce trials (more on that later). More often than not, marriages end in divorce... and half of those that remain together destroy the participants... not trying to rain on your parade, but Christmas is over, and business is business... and marriage IS business... or at least a part of the marriage/divorce industrial complex).

Paying 20k PLUS per year in property taxes over a 30 year career is BEYOND silly - it is UNCONSCIENABLE - and if you are paying that kind of dough to live in a community where the public schools are unacceptable and you feel you HAVE to send your kids to private school for 15k, 20k or 25k EACH... you are really, really, really getting jacked... And you will absolutely, positively never have a day's peace or a night's unless you get lucky, or make a great deal more money... because no matter what the Democrats say, as I have just demonstrated people making over $200k per year ARE NOT rich... and most have little to no savings.



bureaucrat said...

I don't know whether to yell at you for being so friggin' delusional or whether I should do the same thing to myself.

For one thing, you and I and everyone else are spending, spending, spending as if everything is a need, not a want. You have your justifications for every one of your expenses, I'm sure. I also go thru the credit card bill line by line (balance now at $16,500 and growing) and say to myself .. what did I spend on that I really didn't need? The answer is always the same ... I NEED everything. Vet care, car repairs, car fuel, dog food for a friend, repairs to the house, dental care, medical care, etc., etc. We always have excuses for all our damn expenses. Lucky for us, though, the Chinese are going to cut us off someday soon and THEN we'll have a real discussion about what are really wants and needs.

And how does this all come back to the average bureaucrat who is costing you so much money in property tax? Your property taxes are sky-high in Florida cause you have no income tax!! The government will satisfy all your demands for govt. services by taxing for it one way or another!

$350,000. The top 2-3% of income earners in America. I make $94,000, and I'm in the top 20%, which I myself can't believe.

Accept your place in the food chain, cut your "needs," and wonder how the other 95% of people in America get by at all. ;)

tweell said...

One of my favorites to look at. Also there is

As far as marriage goes, I had a good one. My spouse was very good at pinching pennies and saving. She passed away two years ago, I still miss her terribly.

Greg T. Jeffers said...


I am saddened to hear of your loss. My wife, too, is a fantastic penny pincher and a very hard worker as a wife and mother. She is, however, the extreme exception in our community.

Divorce runs at 50% of ALL marriages. This must be addressed by young people today.



You have NO idea what a MARRIED professional WITH CHILDREN has to contend with and provide for! OF COURSE there are MANY things we think we NEED but a mere WANTS. THAT was the F*&KING point!!!!!

So, I dare you... Get married... and see how long it lasts if you try and tell your American wife about your little needs vs wants speech.

Most of these guys are too exhausted when they come home from work to do battle with their wives. If they are lucky, they won't have to. My wife would beat her toes off with a hammer before she would waste a crumb of bread (she is so frugal it turns me on....)... but not all of our spouses are like that.

And this was not an indictment of women per se (look, 85% of retail purchases are made by women so maybe it is)... there are marriages with a professional woman and a bum for a husband doing his best to be a drag on the family.

Greg T. Jeffers said...

bureaucrat again:

The freaking point of the post was that even if you are one of the lucky few, extravagance is the f&^*ing enemy!

Or as my mother once astutely quiped:

"Its not the income, its the out go".

Anonymous said...

Life's a bitch, then you die.
You pay the countless keeping up with the Jones taxes and you ain't even keeping up. The people up the coast in Palm Beach just think of you all down in Rat's Mouth as just barely above the white trash or Latino help.
And you just bitch about the police, firemen, EMT's,garbagemen,roadbuilders, teachers,etc. and how much they are stealing from you.
I bet you support Obama's commie, Hitlerite, Sarah Palin socialized medicine death panels so you can snuff'em as soon as they retire.
Typical confused antisocial libertarian thinking.
oooh, that felt good!:-)))

Anonymous said...

He Greg,

Great post. I'm kinda midrange. I don't have all those expenses, but it ain't as easy as it looks, even with a frugal wife. When you have kids, things get expensive. Little kids, little expenses. Big kids....

Public schools aren't what the once were. Even supposedly nice suburban ones. One of our daughters started hanging out with the druggie crowd. When you talk to TPTB they tell you that there is no defense against peer pressure. They are no help at all. Hell, they couldn't really see a problem with drunk kids at school functions. But, you can sure as hell change peers. So, it's off to private school, if you can possibly afford it. And the sisters too! And, I will say, that when you pay, they listen. Saved our daughter. She's in a PhD Pharmacy program now. (At her own expense!)

But yes, there are so many important good things to spend your money on when you have a family. No, your hero is not rich, even though he makes more the Bureaucrat.


Coal Guy

Greg T. Jeffers said...

Anon @ 12:23PM

Bro, lay off the Hateraid. You have to much anger in you. If you are going to continue hating may I suggest a strong rope and a stout tree.

Why do you hate our hero? You don't feel for him? Why? Because he is "successful"? At WHAT? His life's in disarray, he is killing himself on the treadmill, but he is only a step above white trash? Bro, I AM white trash. Allow me to show my true colors: DROP DEAD.

People that HATE as much as you do would leave the world in FAR better state if they left it.