Chart: Will Your Kids Earn a Higher Income Than You?

Posted on October 28, 2019 // 6 Comments

Parents want their children to have a better life than their own. We want our kids to eat more healthily, accumulate more knowledge, enjoy closer relationships, live longer, and – if we’re honest – make more money. However, the academic paper The Fading American Dream: Trends in Absolute Income Mobility Since 1940 by Chetty et al. shows us that earning more money than your parents has gone from nearly a sure thing to no better than a 50/50 coin flip. Via WSJ Daily Shot.

Here is a chart where each line shows the percentage of children born in the indicated year that earned more than their parents, as a function of their parent’s income percentile.

Every decade, the numbers get consistently worse. In terms of overall percentages:

  • For children born in 1940, over 90% grew up to earn more than their parents.
  • For children born in 1980, only 50% grew up to earn more than their parents.

What does that mean? Even if you as parents today earn an above-average income, there is no guarantee that your kids will grow up to earn more than you on an inflation-adjusted basis. In fact, if the trend holds, the odds are that they will end up earning less.

Very few parents have the kind of wealth that guarantees financial security for their offspring. This creates increasing stress about gifted programs, private schools, magnet schools, sports teams, test prep, and any other opportunities that can give them an edge.

We took our kids to a local pumpkin patch this weekend, and in between choosing your own pumpkin and feeding farm animals, our oldest started complaining about not having $5 lemonade. This reminded me of a simple rule:

Happiness equals reality minus expectations.

My kids should not expect to have a certain lifestyle. I hope (!) to teach them gratitude for the many advantages that they have been given, a strong work ethic for obtaining what they want to achieve, and tempered expectations of what makes a good life (not just money). Now, how do I pull that off?

Filed Under: Estate Planning, Family //

The Other Side: Reasons Why You Might Not Want To Retire at 40

Posted on August 25, 2019 // 6 Comments

Previously, I wrote about how you might consider retiring earlier if you have adequate flexibility to decrease your spending temporarily and/or earning additional money. If you have early good luck with market returns, you will gain many more years of freedom.

Now I’d like to present the other side of that argument. If you retire in your 40s or 50s, there are hopefully many years of fun times ahead of you. However, there is also a higher chance for events that significantly increase your expenses and decrease your ability to earn more money.

Let’s say you and your spouse/life partner are both 40 years old and have saved up $2 million and are pretty confident that you can live off of $60,000 to $80,000 per year. That’s may seem like a lot of money. However, here are some things that can throw a wrench into your plans.

Yourself

  • You may become disabled and become unable to work. Your daily healthcare expenses may also rise significantly.
  • Your spouse may have a health event or pass away prematurely, which will affect your household finances.
  • You may be the subject of a liability lawsuit.
  • There may be an expensive accident – Home fire, theft, fraud.

Many of these situations can be offset by proper insurance. Disability, life, homeowners, long-term car, and/or umbrella liability insurance.

Your spouse (Divorce)

A divorce can be devastating, both emotionally and financially. There are many articles about increasing divorce rates amongst those aged 40+ and 50+. Even if you split your assets equally into two parts, a couple can usually live more efficiently than two individual households. In addition, you may no longer be eligible for the full spousal portion of a pension, healthcare package, and/or Social Security.

Parents, Elderly Relatives and/or Siblings

  • You may have a perfect financial situation, but your parents (or other close family members) may not.
  • You can’t control your parents (or siblings) and their decisions. They may develop dementia, fall for fraud, have substance abuse issues, or simply be bad with money.
  • Some people may be able to easily separate themselves from the responsibility of taking care of their relatives, but many will find it very difficult. Every person’s sense of familial duty is different.
  • Fulfilling what you believe is your responsibility may require great deals of time, energy, and money.
  • Your parents’ ongoing health issues may permanently change your life for decades. See NYT: At 75, Taking Care of Mom, 99: ‘We Did Not Think She Would Live This Long’

Children

  • If you are in your 40s, your kid status is not set in stone. If you don’t have kids, you still might have some. If you already have some, you might have more. Even if you don’t want kids now, you might change your mind. I know of many friends who had at least one kid well into their 40s.
  • Even though kids don’t necessarily need everything they seem to get these days, kids do require significant time, energy, and money.
  • Your child may have special needs. Imagine a multiple of that time, energy, and money.
  • Your child’s special needs may permanently change your life. It may not stop after 18 years.
  • Your child’s special needs may not become apparent until they are 5 months old, 5 years old, or 15 years old.

I may be wrong, but my impression is that early retirees are more likely to be childless than the general population. Perhaps knowing that you have less people to be responsible for makes it easier to take the retirement leap. I strongly believe that you should only have kids if you want to have kids, not because your parents or society wants you to have them. I can’t imagine how I would get through a single day with my kids if I didn’t want to be a parent.

It may be my own personal situation coloring my view, but the 30s, 40s, and 50s feels like the “sandwich decades” where you are most likely to be responsible for both parents and children. Retiring very early may permanently impair your ability to earn any more money, which in turn may be a source of future regret. You can (and should) insure against certain things, but not everything.

My take. Retirement timing is a form of regret minimization. You want to minimize the regret of “I should have retired earlier and had more freedom time”, but also minimize the regret of “I wish I made more money so my limited freedom time is more enjoyable”. It’s hard to find that happy medium where you give yourself enough financial wiggle room while keeping an eye on your mortality.

I started down the path of “semi-retirement” in 2012 with the birth of our first child. “Semi-retirement” is a rather generous take on our reworking of the traditional one full-time working spouse and one full-time parent arrangement so that we were both 50/50. Since then, we have both had the urge to try to live solely off our investments, but we are also keenly aware of the large number of people that we are responsible for caring for. In the end, we’re still both working part-time as that seems to be the solution with most optionality for now.

Filed Under: Family, Insurance, Retirement //

The Toddler IRA: Should My 3-Year-Old Have a Tax Shelter?

Posted on July 10, 2019 // 25 Comments

I love my Roth IRAs. They just keep on growing tax-free and never send me any annoying tax documents. Vanguard has a post about Working teens and Roth IRAs. I like the idea of a teenager putting some hours in at Jamba Juice and having the discipline to tuck some away for the future. However, the article suggests that you gift your teenager money in order to fund the Roth IRA (with the teen keeping their earnings).

Why wait until they are teenagers? You could take this further into what I call the Toddler IRA. Basically, you find a way to have your 3-year-old (or 6-year-old, etc.) have some earned income, usually via your small business. Maybe they “model” in an advertising spot. Maybe they did “administrative work” and helped organize some business papers for you. Can they weed or dig? Time to pay them for their lawn maintenance skills. Now that your kid has earned income, they (you) can contribute the same amount into a Roth IRA.

At first glance, it’s a little weird. Can I really justify these payments? I’m inclined to pay them more (so I can stuff more contributions into the Roth IRA), but would I really pay that much money if they weren’t my kid? Some parents go as far as making arrangements with other parents where they pay each other’s kids. In fact, there used to be a website (I forget the name) where your kid did some sort of simple online “work” and they would send your kid a check. (The parents would pay for this passthrough employment service.) Yet another example of government incentives working in unexpected ways.

The math sounds pretty impressive when you compound returns tax-free for 60+ years. $1,000 at 6% annual return times 60 years = $33,000. $1,000 at 8% annual return times 60 years = $100,000! Here’s a simple chart from Vanguard that shows the possibility of your kid getting a $100,000 head start on retirement:

I would add that the effect is exaggerated because doesn’t take inflation into account, but even a 4% real return will make $1,000 into $10,000 after 60 years. You put in $1,000 times 12 years, they end up with close to $100,000 inflation-adjusted after 60 years.

Why my kids don’t have a Toddler IRA. I have a small business. See that cute picture on the top right? I could easily pay them to model for a new photo shoot every month. (Trust me, it’s hard work to get them to all smile at the same time… for me.) I’ve thought about it. In the end, it doesn’t fit in with my personal philosophy about teaching them to fish:

Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.

This act is giving them a big pile of fish. It’s a tax-advantaged gift, but still a gift that they’ll know about at a young age. I don’t like the idea of them turning 18 and finding out they have $XX,000 waiting for them without doing any work.

What about “teaching” them to save? If they don’t feel the pain of earning the money and the separate pain of not spending it either, then I don’t really see the educational benefit. When they start to really earn money as teenagers by waiting tables or bagging groceries, then I will consider doing some sort of 401k-like matching program as a “carrot” to letting me teach them about investing and IRAs.

When they are kids, I will instead contribute any money towards college tuition via a 529 plan. I doubt that I’ll be able to cover full tuition and housing for three kids anyhow. Most parents can’t. Above that, I’d still rather give them $500 to start a food stand at the local farmer’s market than stick it into their IRA.

I feel this is a topic where opinions will vary widely. What do you think?

Filed Under: Family //

Can You Teach Your Kid To Be Rich?

Posted on July 8, 2019 // 5 Comments

There is an ongoing debate about personal finance education in school. It sounds like a good idea, but multiple studies have found that financial literacy classes don’t really improve future behavior. It may be too much to expect an easy fix to such a complex problem.

As a parent, how do you best set up your kids for financial success? In the end, how can you really tell if you made a difference anyway? You can only try your best. My personal philosophy boils down to this famous proverb:

Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.

Some parents plan on giving their kids a big pile of fish. An inheritance. Real estate. A business to take over and run. That’s out of love, and I am not judging that choice. I might leave them something, but I’m going to tell them to expect nothing. Instead, I hope they will see that I put in a lot of effort to help them develop the tools to go out and “fish”, and that as adults it’s up to them to make money for themselves.

To be clear, this is not the only thing that I am teaching them. Good relationships with family and friends are more important than an early retirement. However, I have observed several specific traits useful in navigating the financial world. As a result, I want to help them:

  • Develop good character traits like self-discipline, gratitude, and perseverance. If they can control their emotions, have empathy for others, and endure hard work, it helps everything else.
  • Obtain quality formal education. If they are going to solve the world’s problems, they need a strong, wide base of knowledge. A solid education and good teachers can really inspire and change a child’s life.
  • Experience entry-level hourly work in the retail, construction, and/or food service industries. They should understand how hard it is to make a living without specialized skills.
  • Create their own business ventures. I plan on helping them start any kind of micro-business that they want. It might be even better as a non-profit, donating the proceeds to the community. Through this, they will learn basic accounting, marketing, and interpersonal skills.
  • Improve interpersonal skills. Across all of their activities, from school projects to extracurriculars (sports/arts/music) to starting their own business, learning how to work with others is key.
  • Feel encouraged to take calculated risks. There are many ways to take asymmetrical risks where the upside is huge and the downside is small. This especially true when you are young and without dependents. I want them to take such risks.

None of the factors above require a ton of money, although private schools can be quite expensive. The best option may be maximizing the public school options available. My parents rented a small apartment in a good school district, as they couldn’t afford buying an expensive house with high property taxes. I only realized this recently when I visited our old duplex and found a house down the street listed for nearly $2,000,000 (median price in this city is $370,000).

I do plan to contribute to a 529 plan and minimize student loan debt. Maybe college tuition will be more sane in 15 years, but I think this is the best use of cash right now – keeping them from having to fight the power of compound interest in reverse. (I also classify paying for education as “teaching them to fish”.) I want to show them that we value education and also strive to avoid debt whenever possible.

Bottom line. How does anyone get rich? Most people who got rich quickly had equity in a business venture. This takes a combination of specialized skill, interpersonal skills, risk-taking, and luck. Most people who got rich over decades got there with a steady career, work ethic, patience, self-discipline when it comes to spending, and investing the difference repeatedly. I’d be happy with my kids taking either path, and tried to think up a list of ways to help promote these traits.

Filed Under: College & Education, Entrepreneurial, Family //

Couples and Money: The Proportional Sharing Method

Posted on May 28, 2019 // 28 Comments

If there’s one topic that’s probably more sensitive than people talking about their money, it’s how they split their money with their partners. I am swayed by the method proposed by this post – Why Couples Should Split Expenses By How Much They Make by Tracy Moore.

Let’s say Partner #1 makes $7,000 per month and Partner #2 makes $3,000 per month. That means Partner #1 makes 70% of the total income and Partner #2 makes 30% of the total income. The proportional sharing method would have Partner #1 pay for 70% of the total expenses and Partner #2 makes 30% of the total expenses.

Result: If the household expenses are $5,000 per month, Partner #1 pay $3,500 per month (70%) and Partner #2 makes $1,500 per month (30%). Why not any of the alternatives?

You can act all day long like you don’t mind supporting someone, but you do. You can act all day long like you don’t mind being completely subsidized by someone else, but you do. You can act all day long like you don’t mind going halvesies even though she makes $50k more than you do, but you do. And so on. You can pretend to throw everything together in a blind pot and pay everything out of it, but if the one who makes less spends more, and believe me, they always do, you’ll care.

I should disclose that my wife and I don’t do this, and we’ve always just put everything into a single pot and spent from there. However, I don’t think what works for us will work for everyone. First, we married relatively young with minimal individual net worth. (I did work really hard to pay off my student debt so I could at least start us out on a positive number.) Second, we both agreed to the communal pot idea from the beginning. I’ve always figured that if somehow we divorced, we’d just split whatever assets we had down the middle anyway even if I earned more. Third, although our incomes both varied, we never went through a prolonged period where one person was unemployed and resentment could possibly build up. We have both worked consistently the entire time, even after transitioning to working less than full-time and watch the kids the rest of the time.

In the end, I do know that both sides have to agree that the setup is fair. Our choice to both work and both take care of the kids was definitely a conscious decision to pursue our idea of “fairness”, although I know that setup isn’t possible for everyone. That’s why, for a couple that is starting out with a history of being on their own financially, it seems like this idea of proportional sharing is a good starting point for an open discussion.

Do you think there is a better “default” method for merging finances if you’re a couple with different incomes?

Filed Under: Budgeting, Family //

The Best Time To Plant A Tree Is Now

Posted on May 9, 2019 // 3 Comments

Have you heard of the “happiness curve”? According to multiple studies of life satisfaction, I am entering the unhappiest period of my life at age 40 (WaPo):

My theory is that this is simply the inverted curve of “number of humans that I am responsible for”. When you are in your 40s and early 50s, that is when you have both children and your aging parents to worry about. Younger than that, you have no kids and your parents are still healthy. Older than that and your kids are grown and you are back to being only responsible for yourself again.

In any case, I definitely feel that right now is the hardest time for me to stop and enjoy the moment. There’s always another fire to put out. Either a kid or a parent has a health issue. At the same time, I will never be younger than today.

Brendan Leonard has a great graphic is his Outside article Remember When We Were Young?:

I am reminded of the old quote (Chinese proverb?):

“The best time to plant a tree was 20 years ago. The second best time is now.”

The best time to improve your financial situation is now. The best time to gather the courage to live a life true to yourself, not the life others expected of you, is now.

I think this extends to life as well. The best time to work at building an happy and fulfilling life is now. The best time to enjoy time with my young kids is now. The best time to enjoy time with my parents is now. One day, I will look back on this period and realize it was one of the best times of my life… I just need constant reminders!!!

Filed Under: Family //

Blue Zones: Financial Lessons From the World’s Oldest People

Posted on April 18, 2019 // 4 Comments

While learning about Okinawan centenarians, I also came across the idea of Blue Zones – places where a high concentration of people live past 90 without chronic illnesses. While the eating habits of Blue Zone residents have been mentioned a lot, Richard Eisenberg of NextAvenue wrote a three-part series focusing on the financial aspects of their longevity. Here is Part 1, Part 2, and Part 3.

Rather than focusing on the residents’ diets, he reports on how the oldest people in the Blue Zones make their money last and what Americans and America can learn from this.

Here are my notes:

The Nicoya Peninsula of Costa Rica

  • Close-knit family structure. Rely on immediate and extended family members. Nursing homes and assisted living facilities are rare.
  • Government-run public health care system with minimal out-of-pocket expenses.
  • Small government-run pension systems.
  • Low cost-of-living. Lower spending due to low consumerism. Rarely travel.
  • Rare to find elderly that own stocks or mutual funds.

Okinawa, Japan

  • They form a “moai”, which is a group of about 20 close-knit older friends who look out for each other both financially and emotionally. This acts as a replacement for assistance from blood relatives.
  • Government-run public health care system with minimal out-of-pocket expenses.
  • Low cost-of-living. Low consumerism. Low debt.

Sardinia, Italy

  • Close-knit family structure. Rely on immediate and extended family members. There are no long-term care facilities in Sardinia.
  • Government-run public health care system with minimal out-of-pocket expenses.
  • Low cost-of-living. Low spending due to self-reliant farming culture.

Ikaria, Greece

  • Close-knit family structure. Rely on immediate and extended family members. Nursing homes and assisted living facilities are rare.
  • Government-run public health care system, but no long-term care program.
  • Low cost-of-living. Low consumerism. Low spending due to self-reliant farming culture.

Loma Linda, California, USA

  • Technically, the Blue Zone consists of the members of the Seventh Day Adventist religious community.
  • Close-knit religious group that helps each other out.
  • Has a culture of self-discipline, planning, and preparation.
  • Tend to be wealthier with significant investments.
  • Tend to have frugal spending habits.

Commentary. One common thing that I notice about this list is that many are small, isolated communities, either by geography (islands), ethnicity, or religion. I feel that smaller groups more acutely appreciate the advantages of helping each other out. You can have long-term trust that you will raise your kids when they are young, and they will in turn watch over you when they are adults. When you get into larger cities, people seem to separate and start worrying mostly about themselves.

Of course, a bigger version of this is government-run health care, where everyone pitches in and agrees that nobody will become destitute due to a hospital bill. The American healthcare system is so complex and ingrained with powerful inertia that the idea of efficient, transparent, high-quality healthcare remains a huge puzzle waiting be (even partially) solved.

(I’m not saying we need the same system as Japan or Greece. But even billionaire capitalists Jeff Bezos, Warren Buffett, and Jamie Dimon realize that our bloated healthcare system is hurting our economy. Their new combined venture Haven has a goal of “simplified, high-quality and transparent health care at a reasonable cost.”)

On the smaller front, many familiar concepts still apply. Start saving early and plan ahead. Practice self-discipline in spending and lower your consumeristic appetites. If possible, move to a place where there is a lower cost-of-living. It’s so much easier to spend less when everyone around you spends a lot less! Get yourself involved in a close-knit community, whether based on blood, ethnicity, neighborhood, or religion.

Filed Under: Family, Frugal Living, Retirement //

How Often Should You Cook at Home on Weeknights?

Posted on April 16, 2019 // 4 Comments

I subscribe to a NY Times e-mail newsletter called Five Weeknight Dishes, which sends – you guessed it – five weekly “fresh dinner ideas for busy people who want something great to eat”. However, one of the recent newsletters was titled How Often Should You Cook? and you might be surprised at the answer:

One question I’ve gotten a lot since I started writing this newsletter is how many nights I cook dinner during the workweek. The answer is not five.

I typically cook a meal from scratch on two weeknights, maybe three. You don’t need to do more than that! Pick at least one recipe that makes good leftovers, doubling or stretching them with eggs, vegetables, toast or grains if necessary. Or supplement with something else in the fridge or cabinet. Dinner can be a fun, crazy mishmash; photographers will not be showing up to document the meal.

As for the other nights: My partner cooks, or occasionally we order chicken parm or go out (luxuries of urban and suburban life), or eat our preferred brand of freezer pizza with a nice big salad.

There is no single “right” answer to this question, but I still found it reassuring. I used to try to cook close to 4-5 nights per week, but now it is also closer to 2-3 nights per week. Sometimes it feels good to eat something green (or otherwise colorful), fresh, and healthy. It always feels good to share a meal with family and friends. I get the same good, wholesome feeling when I eat something where I know exactly what went into my food. It feels like hitting the reset button, and I always find that it helps keep my weight down. Saving money is secondary, but still a welcome result.

Food delivery apps are making things so convenient now, but it’s usually not very good for my bank account nor my health.

Filed Under: Family, Frugal Living //

The Lifestyle Secrets of Okinawan Centenarians

Posted on April 9, 2019 // 3 Comments

CNN has a new series called “Chasing Life with Dr. Sanjay Gupta”, and its first episode examines the lifestyles of the impressive centenarians of Okinawa, Japan.

Nearly two-thirds of the residents of Okinawa are still functioning independently at age 97. That meant they were in their own homes, cooking their own meals and living their lives fully — at nearly 100 years old!

Here are three factors noted in the show:

Ikigai. This means having a sense of purpose in life. Gupta says that one way to figure this out is to first imagine that you no longer needed to do anything for money. In that case, what would you regret not doing with your life? What do you love, and what does the world need?

ikigai

Here is a previous post on Ikigai – Finding Your “Reason For Being”. I have noticed that many people who seek out financial independence feel something “wrong” about their current trade-your-life-for-money environment. They are not living a life aligned with their “ikigai”.

Moai. This means having a social group within the community that has common interests and can provide both financial and emotional support. Family is important, but this appears to be an additional support system. This social component of longevity is critical and should not be overlooked.

Hara hachi bu. This means that you should stop eating when you are 80% full (and thus still a little bit hungry). People in Okinawa eat fewer calories in general, and the calories that they do eat tend to come from sweet potatoes, soybeans (legumes), a variety of vegetables, and only a little meat.

Okinawans centarians have also been examined in the book Blue Zones: 9 Lessons for Living Longer From the People Who’ve Lived the Longest (which I have not yet read). Here is another Venn diagram from the Wikipedia entry that shows the common characteristics between Okinawa and two other Blue Zones (Loma Linda, USA and Sardinia, Italy).

Bottom line. It’s not just living for a long time, but it’s living an active, engaged, happy life for a long time. You won’t get this by taking the right pills from orange bottles. You need to spend your time doing something that you feel matters to the world. You need love and support from other humans. You need to eat natural foods, but not too much.

Filed Under: Family, Inspirational, Retirement //

US Household Spending Breakdown: Top 20% vs. Bottom 20%

Posted on April 1, 2019 // 1 Comment

Engaging Data has another neat visualization tool up, How do Americans Spend Money? US Household Spending Breakdown by Income Group, using household spending data from the US Bureau of Labor Statistics. Below is a screenshot of this interesting visualization technique (the full version is more interactive). The biggest contrast is seen when comparing the spending breakdown of the top 20% of income earners with the bottom 20%. (Click to enlarge.)

There are a lot of complex interactions going on inside this data visualization. Here are just a few things that I noticed:

  • The average household in the bottom 20% of income only has 1.6 people and 0.5 income earners. The average household in the top 20% of income only has 3.1 people and 2.1 income earners. Is there any causation to this correlation? Does having a high income make you more likely to have a bigger household? Or do bigger households tend to make more money since there are more earners?
  • The bottom 20% by income earns about $25,500 annually while saving absolutely nothing (and either spending down savings and/or going deeper into debt). The top 20% earns $188,000 and saves $50,000 of that annually. For the top 20%, that’s a savings rate of over 25%. Instead of a generic goal like saving 10% of your income, perhaps it is more appropriate to judge yourself by income group. Should a household earning around $200,000 a year expect to save $50,000 a year or be considered an “under-saver”? Or do the ultra-high income earners skew this savings number?
  • The bottom 20% by income has the biggest chunk of their income from “Borrowing and Savings”. The top 20% has the vast majority of their income from salary and/or self-employment income. What is “Borrowing and Savings”? The tool says it could be students living off loans while in school, folks spending down cash savings during unemployment, or retirees drawing down savings. How much of this is people going into debt?
  • If you only looked at the “average” of all households, you wouldn’t see this big difference. You would see a total income of $73,500 a year (mostly from a salary) and a relatively solid savings rate of about 13%.

Bottom line. You see a lot of statistics that use average or median numbers. However, I think that hides the fact that most people aren’t average. The top 20% and bottom 20% of households by income are leading very different lives, at least according to their spending patterns.

You can also view household spending breakdowns by age.

Filed Under: Budgeting, Family //

The Most Common Sacrifices Investors Make to Reach Their Financial Goals

Posted on March 26, 2019 // 3 Comments

According to a Wells Fargo/Gallup survey of U.S. investors, 78% say they are at least fairly disciplined in reaching their financial goals. About 50% of investors say they will have to sacrifice a “fair amount” or “a lot” to reach their financial goals, while the other half only expects to sacrifice “only a little” or “nothing”. Investors are defined as adults with $10,000 or more invested in stocks, bonds or mutual funds, either within or outside of a retirement savings account.

In what areas do they expect to sacrifice? Here is a chart showing the most popular ways in which the polled investors say they have and/or expect to sacrifice to reach their personal financial goals:

Filed Under: Budgeting, Career, Family, Retirement //

A Sense of Urgency: Money Can’t Buy You More Time

Posted on February 24, 2019 // 14 Comments

Over the weekend, I read the NYT Magazine article America’s Professional Elite: Wealthy, Successful and Miserable about the rich and unhappy, which included a man who earned $1.2 million a year in Manhattan and hated his job:

“I feel like I’m wasting my life,” he told me. “When I die, is anyone going to care that I earned an extra percentage point of return? My work feels totally meaningless.” He recognized the incredible privilege of his pay and status, but his anguish seemed genuine. “If you spend 12 hours a day doing work you hate, at some point it doesn’t matter what your paycheck says,” he told me. There’s no magic salary at which a bad job becomes good. He had received an offer at a start-up, and he would have loved to take it, but it paid half as much, and he felt locked into a lifestyle that made this pay cut impossible. “My wife laughed when I told her about it,” he said.

Based on a short conversation in a class reunion, it’s easy to extrapolate endless stressful hours at work, a huge mortgage, fancy private school tuition, expensive vacations, and a high-maintenance spouse. Such a picture makes all of us not earning $1.2 million a year feel better about ourselves. But is he really that miserable?

I suspect it is more like the same situation a lot of people are in. They aren’t happy, but things aren’t bad enough to keep them from still doing the same thing. It’s easy to just say OMY (One More Year) because change is scary. I’d certainly rather be in that position while earning a million bucks a year, rather than earning $40k. He has a lot more optionality than most.

Ever since my post on Retirement Nest Egg Calculators: Running Out of Money vs. Running Out of Time, this following statistic has been stuck in my mind:

If you’re 40, you have a 10% chance of dying before even reaching 65.

What is your likelihood of dying within the next 20 years? Here are mortality tables based on Social Security actuarial data for US citizens, sorted by age and gender. Below are the rough numbers, along with an edited screenshot of the source at the very bottom.

  • A male, age 30 has a 1 in 20 chance of dying in the next 20 years (age 50).
  • A male, age 40 has a 1 in 10 chance of dying in the next 20 years (age 60).
  • A male, age 50 has a 1 in 5 chance of dying in the next 20 years (age 70).
  • A female, age 30 has a 1 in 35 chance of dying in the next 20 years (age 50).
  • A female, age 40 has a 1 in 15 chance of dying in the next 20 years (age 60).
  • A female, age 50 has a 1 in 7 chance of dying in the next 20 years (age 70).

I try to use these numbers to motivate myself and create a sense of urgency. I’m 40 years old now. There is a 1 in 10 chance that I won’t be old enough to see my daughters even finish college. The person profiled in this article is also probably around 40 years old (15-year reunion of business school). I’m sure there are plenty of 60-year-olds who say “60 isn’t old!” and it isn’t, but that is literally survivorship bias. We all know people who didn’t make it to 60, and these are the overall odds.

Time is your most precious resource. It doesn’t matter what your income is, you only have so much time. Therefore, you should spend it in a way that aligns with your values. Look for ways to get closer to that. If you can’t quit, do the same job with a better employer. Keep working, but switch to a different job within that field/skillset with more personal meaning. Saving more can mean you can get by working fewer hours. If you think you can retire but just can’t seem to pull the trigger, you need to directly confront those last few worries.

Are you unhappy with your situation and still in the same spot as a year ago? Try to find something psychological that will create a sense of urgency. I tell myself “Why am still wasting my time with [insert task]? 1 in 10.”

Filed Under: Behavioral Economics, Family, Retirement //
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