Tell Me How Much Money You Make

If you haven't already, please comment on my survey of income and net worth and how they've changed over the past couple of years. We're at 119 responses and counting! Thanks!

Earnings of the Richest 400 Americans

This was buried in the Business section of the NY Times today-- the IRS has released statistics on the 2006 income and taxes for the wealthiest 400 Americans.

The income of the 400 wealthiest Americans swelled in 2006, soaring nearly 23 percent from the previous year, to an average of $263 million, according to data released Thursday by the Internal Revenue Service. Since 1996, this group has nearly doubled its share of all income earned in the United States.

The top 400 paid just more than $18 billion in federal income taxes in 2006, or an average of $45 million, on a record $105 billion in total income — the lowest effective tax rate in the 15 years since the agency began releasing such data.

How lovely for them.

Questions from Readers

Here's a few recently asked questions from emails and comments:

"When are you going to continue your matchmaking series? I'm newly single, and realize that one of the big downfalls of my last relationship was our differences in the philosophy of money."

The Money Match series will still continue whenever someone wants me to post a profile! We've had seven entries, and I think I've only had two requests to make contact. I forwarded those on but never heard back as to whether anything happened. I thought it might not be working because the readers of this blog are so far flung across the US and other countries-- but you never know! I recently had an email from someone who discovered that one of his work colleagues also read the site.

"When are you going to post the story about your big expensive vacation?"

Groan-- I've had the post in draft for ages. I need to go back and itemize the various expenses and also collect some photos to put up. I don't know why I keep procrastinating about it-- at first I think part of the reason was that I was embarrassed to say I spent around $8,000 on a vacation in this economy, even for a once in a lifetime experience. But posting my annual expense wrap-up at least got the total travel number out there, so now I think it's just that I've been busy and have been finding it harder to write longer posts lately. I swear I'll try to finish it soon!

"How were you able to get such a high ranking in the Google search results for 'Personal Finance Blog?'"

I'm not sure, exactly, other than that I've been blogging for quite a while now, have built up a lot of incoming links, and the words "personal finance blog" are in the title, meta name descriptions, and meta name keywords in my blog template. I forget where I picked up that tip, and please don't ask me any more technical questions than that!

"Would you link to my blog?"

Yes, if you have a personal finance blog that really is personal, and not something that is just spammy advertising, I'd be happy to exchange links. But I use Blogrolling.com to maintain my links and their system hasn't been functioning for a few months. I don't really want to recreate my whole blogroll from scratch so until they fix the ability to edit links, I won't be doing any blogroll updates. But I've been saving requests and will hopefully be able to put up new links soon.

"Will you post this article that we have written? You can have it for free as long as you link back to our site!"

No, thank you. Aside from the occasional guest post from blog pals whose writing I enjoy and respect, I prefer to stick with what seems to work best on this blog: personal stories and explorations of financial issues as they relate to my own experience. I try to link to useful articles and resources when appropriate but I'll leave generic advice to others who are better equipped to offer it.

"Will you review this new personal finance book? I'm happy to send you a copy."

Alas, though I love free books, I don't give out my mailing address. But if you have a Word document that you can email to me, I'll read the manuscript electronically and post a review-- if I have the time, interest, etc. No promises, but hey, I'm saving you the postage anyway! (By the way, the publicist for The Secret Currency of Love was kind enough to share a manuscript this way, and I'm working on a review to be posted soon.)

Thanks for all your emails and comments everyone, I'm always happy to get them!

"Dating a Banker Anonymous"

Today's grossest story from the NY Times: It's the Economy, Girlfriend, which is about a support group for women who are dating investment bankers.

Dawn Spinner Davis, 26, a beauty writer, said the downward-trending graphs began to make sense when the man she married on Nov. 1, a 28-year-old private wealth manager, stopped playing golf, once his passion. “One of his best friends told me that my job is now to keep him calm and keep him from dying at the age of 35,” Ms. Davis said. “It’s not what I signed up for.”

[She and other women] shared their sad stories the other night at an informal gathering of Dating a Banker Anonymous, a support group founded in November to help women cope with the inevitable relationship fallout from, say, the collapse of Lehman Brothers or the Dow’s shedding 777 points in a single day, as it did on Sept. 29.

In addition to meeting once or twice weekly for brunch or drinks at a bar or restaurant, the group has a blog, billed as “free from the scrutiny of feminists,” that invites women to join “if your monthly Bergdorf’s allowance has been halved and bottle service has all but disappeared from your life.”

If you read the blog, you'll get the sense that this is all rather clever satire, but I wonder if the women attending these meetings really think so?

It's not that I don't sympathize on a certain level-- layoffs and a tough economy definitely put stress on relationships, and people in certain industries are much more likely to feel like they're next on the chopping block. But please-- "it's not what I signed up for?"

Gross. Gross, gross, gross.

How About Keeping Your Money ON TOP of Your Mattress?

What do you think of this little home accessory? It's a pillow, in case you weren't sure:


Actually I think it's more "not" than "hot." I'm afraid I'll be spending my decorating budget elsewhere!

(Courtesy of Apartment Therapy)

Changing Neighborhoods in New York City

The NY Times recently published some interesting statistics about changes in various neighborhoods since the last census in 2000.
Here's what they said about my neighborhood, "Sunset Park/Windsor Terrace," labeled #7 in Brooklyn on the graphic.

• 72% more adults with bachelor's degrees but no higher degrees
• 33% fewer residents who work in construction and manufacturing

None of that surprised me at all. My gentrifying neighborhood has changed a lot over even the past few years, let alone looking back to 2000. I wish I had more statistics about how rents have gone up in line with these demographic changes!

McDonald's

I love McDonald's. I love the fries, the chicken nuggets, the burgers, the chicken sandwiches, and the sausage egg McMuffin. I even love the Happy Meal toys. Writing this post is making me hungry. But I'm not on the subject because of yesterday's food budget post.

Recently, Five Cent Nickel published a list of the most consistent dividend-paying stocks and McDonald's was on there. And the New York Times recently wrote about McDonald's as a counter-recessionary success story. McDonald's had been off my radar for awhile, but these two things reminded me that McDonald's has been a great investment for most of its history.

I bought stock in McDonalds in January 2003. It was actually the first individual stock I ever bought, and I don't dabble in individual stocks very often. I bought it because I'd read an article about how to estimate the down-side price of a stock and McDonald's was one of the examples of a price that seemed to be under-priced. I wish I still had that article, as they really were right. McDonald's turned out to be a very good investment for me:

Bought: 1/13/06 @ $17.35
Sold: 4/21/06 @ $34.87

I sold it to free up some cash for my condo, but now I wish I'd bought even more shares and held onto them:

Current share price as of 1/22 close of market: $58.72

Check out the history at Google Finance. In tough times, I guess a lot of people are looking for cheap meals, and McDonald's seems to be well-positioned to take advantage of that.

Details on the Food Budget

As other readers have, SingleMa expressed some shock as to how a single woman could manage to spend over $8,000 a year on food, quite consistently. So I dumped some Quicken data into a spreadsheet so I could look at it differently:

Breakfast:
For coffee/bagels/yogurt etc. bought at delis, I had 176 transactions totaling $640, an average of $3.64 per breakfast.

Lunch:
For soup/salads/sandwiches/sushi etc. bought at delis, I had 178 transactions totaling $1,241, an average of $6.97. (I pretty much never eat a sit-down restaurant lunch unless I'm expensing it for work.)

Dinner:
For Indian/Chinese/Mexican/Thai/Pizza takeout dinners, I had 26 transactions totaling $622, an average of $23.91.*

For sit-down restaurant dinners, which always include a couple of alcoholic drinks, I had 58 transactions totaling $2,976, an average of $51.30.*

Liquor:
As noted above, drinks with meals at restaurants are counted under "dinner," not "liquor."
For purchases of wine at liquor stores, I had 16 transactions totaling $1,078, an average of $67.39. I stock up by the case at cheap liquor stores outside the city whenever possible, but sometimes buy just one or two bottles at a time.*

For drinks at bars, I had 5 transactions totaling $63, an average of $12.60. I rarely go out to just drink without a meal.

Groceries:
I'm dividing this one into two categories, "supermarket," and "upscale supermarket." The Supermarket category can include cleaning supplies, but otherwise is pretty basic groceries. The Upscale category is for places like WholeFoods and Garden of Eden, a gourmet chain in NYC. I'm usually just buying basic items like meat, fish, fruit and vegetables at these places, but they tend to be more expensive, and every once in a while I will also get a prepared food item, so I think it's worth separating this out as luxury grocery shopping. Either way, I tend to buy groceries a couple times a week or more-- I don't stock up for very long periods of time as it always seems to lead to more waste than it's worth. Lately I've also been trying to find some healthy frozen meals for nights when I get home from work late-- Trader Joe's has some inexpensive options, but you have to be careful on the fat content.

For supermarkets, I had 96 transactions totaling $1,158, an average of $12.06.*

For upscale supermarkets, I had 15 transactions totaling $204, an average of $13.59.*

Other:
There wasn't much other-- just $2.19 for 2 instances of buying candy bars, and $35 for lunch at some wine bar that seems to be an error, probably belonging under business expenses.


*For all the dinner, grocery and liquor items, it should be kept in mind that about 3 or 4 nights a week, I'm with the sweetie and we're either splitting or alternating picking up the check, so sometimes the per-transaction amount may seem high. We eat out sometimes, but also tend to stay in and cook at least 2 nights a week, so grocery bills are also somewhat shared.

So what does this all show? Obviously it's those restaurant dinners that are a killer. I don't go to extremely high-priced restaurants, but these days, anything that is a cut above take-out runs you between $15-20 for most entrees, and the markup on alcohol is deadly, about 4X what it costs to buy a bottle at a wine shop. But dinners out are also a fun, social way to enjoy food and try things I could never make myself-- there's more to it than just getting my daily required intake of nutrients. And when you average everything out, I am only getting take-out and restaurant dinners less than 2 nights a week. I could also save a lot of money by bringing my lunch to work more often, but there is definitely a convenience factor involved in buying it at a deli. I buy breakfast and lunch on about 75% of my work days, so I could definitely do better there. Part of my strategy is to try to cook more dinners that I can eat as leftovers for lunch the next day.

All in all, though I do have a somewhat luxurious level of dining expenditure, my food budget is probably lower than many New Yorkers', as a percentage of my overall income, at least. So many people here just don't cook at all, even if they're on tight budgets. But it's no excuse to just say "oh, it's the New York lifestyle." Yes, we live in tiny apartments where it's hard to have dinner parties, and yes, we're surrounded by a wealth of restaurants offering some of the best food in the world. But most of us still have perfectly usable kitchens and plenty of sources for cheap yet interesting groceries, including lots of ethnic ingredients that are hard to find elsewhere. I like to allow myself to spend a little extra money on food that is enjoyable, relatively healthy, and part of a fun experience with friends. But I'm conscious of this spending and strive to lower it, rather than just taking it for granted.

Gift and Estate Taxes

In the post on my parents and Medicaid, I said that after my father's death, my mother might want to give my sister and me cash gifts up to the maximum allowed amount. Commenter Moom asked if we really needed to limit ourselves to that maximum because my parents' estate would be too small to be subject to the estate tax anyway. I thought the maximum annual amount still applied because my sister and I would have to pay taxes on it if it was over that amount-- but I just looked into that a bit more, and it seems I was wrong:

No tax payable by the person receiving your gift or
bequest. Generally, the person who receives your gift
or your bequest will not have to pay any federal gift tax or
estate tax because of it. Also, that person will not have to
pay income tax on the value of the gift or inheritance
received.

But in general, the person giving a gift does have to pay taxes on it unless it meets certain criteria:

Gift Tax
The gift tax applies to transfers by gift of property. You
make a gift if you give property (including money), or the
use of or income from property, without expecting to
receive something of at least equal value in return. If you
sell something at less than its full value or if you make an
interest-free or reduced-interest loan, you may be making
a gift.
The general rule is that any gift is a taxable gift.
However, there are many exceptions to this rule.
Generally, the following gifts are not taxable gifts:
• Gifts, excluding gifts of future interests, that are not
more than the annual exclusion for the calendar
year,
• Tuition or medical expenses you pay directly to a
medical or educational institution for someone,
• Gifts to your spouse,
• Gifts to a political organization for its use, and
• Gifts to charities.

The annual exclusion amount for 2008 was $12,000.

[IMPORTANT NOTE: coming back to Medicaid issues again for a minute, you have to remember that this gift limit only relates to taxation. For the purposes of Medicaid eligibility, you can't give away any money at all other than maybe a few hundred dollars here and there.]

I won't get into any details about the estate tax--for 2009, your estate has to be $3.5 million or more, so it is relevant to only a tiny percentage of people, and certainly not my parents, alas! But you can read more about gift and estate taxes in the IRS document linked below.

IRS publication 950, Introduction to Estate and Gift Taxes

My Parents' Medicaid Eligibility

Returning to the subject of Medicaid: after the previous post talking about general Medicare and Medicaid issues, here's more on the specific case of how my parents might pay for a nursing home... please, as you read this, remember that these are not the words of an expert. They are the words of someone who has tried to research the issues and who has spoken to a lawyer a few times, all while being stressed out and confused and grasping at anything she can do to feel like she's helping her parents deal with a terminal illness-- in other words, I may be wrong about a lot of things, but this is how I'm muddling through.

As discussed before, when it comes to nursing homes, Medicaid is for people who don't have the cash to pay for it themselves. But because the cost of nursing home care is so astronomical, you don't have to be "poor" to need Medicaid, especially if you're married-- Medicaid acknowledges that the spouse who's not in the nursing home still has to have money to live on.
In the example of my parents, who are married, they will have to spend quite a lot of their own money before they qualify for Medicaid, but not all of it. The spouse who goes into a nursing home can keep a small amount of money for him or herself-- about $2,000 plus about $60 a month in income in my parents' case, I think. (If you're not married, that is literally all you get to keep. Medicaid will put a lien on your estate for repayment from anything that is left from the sale of a house, etc.)
The other member of the couple, referred to as the "community spouse," can keep the couple's house (at least if it's worth under $500k) and car. The couple can also keep enough money to cover burial plots and funeral expenses. Beyond that, the community spouse can retain income and assets up to an amount determined by the state you live in-- this is referred to as the CSRA, Community Spouse Resource Allowance. Where my parents live, my mother can keep up to about $110,000 worth of cash assets-- that may sound like a lot, but not if she has to live on it for 20 years. She'd also get to keep some portion of my father's pension and Social Security income, up to another state-determined amount referred to as a MMMNA, minimum monthly maintenance needs allowance. I had a hard time getting straight answers on how much this would be-- apparently housing is expected to be about 30% of it, and in my parents' state, the maximum may be about $2,500 a month, but it wasn't totally clear.
My parents house is probably worth around $400,000 or maybe less, so they don't have to worry about that. The rest of their assets are around $350,000. Subtract the $110,000 my mother can keep, plus about $20,000 for their funerals & burial, plus maybe $25,000-30,000 for a new car bought with cash, once the current one's lease is over. There are also some repairs and renovations needed for their house, which can be an allowable way to spend down your money, though the lawyer said it would be better to do all that before my dad went into a nursing home. All in all, my parents are probably left with at least $150,000 they'd have to spend before qualifying for Medicare while both of them are alive. Given that a nursing home can cost about $90,000 a year, the money wouldn't last all that long.
One thing my mother can do is use that $150,000 to buy an annuity that is in her name only-- that would then be income that she'd be able to keep more of, as opposed to an existing asset that has to be spent up front. But otherwise, there is nothing she can legally do to keep that money from being required for a nursing home before Medicaid kicks in. Theoretically, she could give away some of that money, or put it in a trust, etc. But these are all considered non-qualifying transfers that are subject to a 5-year lookback. If my parents' records were reviewed and any non-qualifying transfers were found in the past 5 years, my father's Medicaid eligibilty would be delayed by a number of months equaling the total amount of those transfers divided by the monthly cost of his care. Given that my father's entire life expectancy is far less than 5 years at this point, it would be crazy to mess around with this, even if my sister and I just used any money we'd been given to make up the gap of paying for the nursing home. But also, with that life expectancy, he might not live in a nursing home long enough to even spend down $150,000 and have to apply for Medicaid.

What about after my father is gone? My mother is still only in her mid-60s, so hopefully she will have many years to live. It should also, hopefully, be more than 5 years before she needs a nursing home. If she wants to transfer money to my sister and me, she can start giving us the maximum annual gift allowance amount each year, and we could somehow put the house in our names so she'd be in a position to qualify for Medicaid sooner.

The other thing that the lawyer advised us to do was for my parents to put all their assets in my mother's name only, and create a will that leaves everything to my sister and me, bypassing my dad. This is completely opposite to what my dad originally thought of doing, because of my mother's money management problems. And it's a change from the trust the lawyer recommended at first. His thinking was that if in some freak accident my mother ended up dying before my father, then all the assets wouldn't be my father's, leaving them to potentially be spent down to almost zero on a nursing home. It puts my dad in a risky position, because he's left with nothing, and has to trust that my sister and I would use the money to look after him. And I do worry a bit about my mother having sole control of all that money. But we're all trying to tackle this together, and in the end, we all believe that we'll take care of each other.

So that is my somewhat scattershot explanation of our situation, as I understand it. I feel really lucky that my parents do have savings and that they want to leave some kind of inheritance to my sister, her kids, and me. It's not fun dealing with all this stuff, but it's far better than having no money and no options.

News Flash: A Time Machine Has Been Invented!

Wow, I bet you never thought you'd see this happen during your lifespan: it has recently become possible to travel backwards in time! I and many others have been experimenting with it over the past few months. At first I just tried some short hops backwards and forwards, sometimes only by a month or so at a time. More recently I took a much bigger leap back by a couple of years! I am currently living somewhere in mid-2006. Another personal finance blogger, Moom, has been even more adventurous-- he's managed to turn back the clock to late 2004! But I guess Boston Gal's time travel experiment made her a bit queasy, so she only went back to about January 2008.

Here are some photos from our fantastic voyages:

Madame X:

Moom:

Boston Gal*:

How about you? Are you living in the past?


*BostonGal hasn't updated NetworthIQ lately, but the red horizontal line indicates her current net worth.

Thank you to the folks at NetWorthIQ for the charts!

2008 Income and Expenses

On Monday, I recapped the changes in my net worth in 2008. Now it's time for a look at last year's income and expenses. This year I decided to compare 2008 vs. my budget and also against 2007 to see how my spending habits might have changed. (Click on the image to see a larger version.)


Income notes:

• Salary increase was just the usual annual raise. Wish I could continue to be so blasé about that, but I already know I won't get any raise in 2009!
• Bonus increased nicely in 2008, though this was by no means guaranteed so I budgeted quite conservatively for that after some debate about putting any budget number in at all.
• Tax refund increased nicely as that is based on my first full year of having mortgage interest to deduct.
• Investment income was way down, no surprise-- this includes dividends and capital gains from both retirement accounts and my other investments at E*Trade.

Expense notes:

• This year's big increases were Charity, Travel, and Miscellaneous. I took an extremely expensive vacation which sucked up about 3 years' worth of vacation budget. Under miscellaneous, I bought a new laptop. As for charity, I keep feeling guilty that I don't give enough so I tried to up that this year.
• Gifts Given is a bit skewed as I returned a few hundred dollars' worth of stuff in '09.
• Medical is up because of the various shots and pills I needed for my vacation, as well as increases in my health insurance premiums and co-pays.
• Housing is also up a bit as I screwed up one of my mortgage payments which resulted in an entire month's payment going towards the principal. Nothing wrong with that, it was actually kind of a happy accident. (Here I am counting repayment of principal as an "expense" even though I still "have" that money in the form of home equity.)
• Big decreases were Telephone (no more long distance relationship), Clothing (for no particular reason, I guess I just managed to keep my weight stable enough), and both Household and New Home-related Expenses. Last year I was still buying more miscellaneous hardware and cleaning items, and I finished buying furniture. I still have more decorating I'd like to do eventually, but I really forced myself to put that on hold for a while.

The bottom line is that due to lower investment income and a few expensive splurges this year, my net savings were lower than in 2007. But I still managed to keep most lines of my budget well under control and sock away a pretty good percentage of my income. The Net Saved amount includes $15,500 deducted from paychecks that went into my 401k, and $12,735 in investment income/401k match that was automatically reinvested in those accounts. The remaining $14,975 is cash savings that I deposited in bank accounts and managed not to spend.

I was pleasantly surprised when I reviewed these numbers. Throughout the year, I was worried that I was losing my frugal habits and spending way too much, but I guess I managed to make up for it in other ways. I'd still like to be saving more, especially given the appalling hit my investments have taken. And 2009 will be a year where I really have to make ends meet on less, since I'm sure any bonus I may get will be much smaller than last year's.
I haven't begun to tackle my 2009 budgeting and goals, but I'll do that soon... and of course YOU, my dear readers, will be invited along for the ride!

Financial Adviser Tries to Fake His Own Death

Another story of what sounds like a desperate sleaze bag, trying to escape his comeuppance...

A financial adviser from Indiana disappeared into the Alabama woods early Monday after faking a distress call and parachuting from a small plane that crashed in Florida.

The police in three states were looking for the pilot, identified as Marcus Schrenker, 38.

No one was hurt in the crash. According to the police in Santa Rosa County in the Florida Panhandle, where the plane went down, Mr. Schrenker turned up safely about 220 miles north of there. And there is evidence that Mr. Schrenker was an experienced pilot who might have been trying to fake his own death.

His life seemed to be unraveling. Court records show that Mr. Schrenker’s wife filed for divorce on Dec. 30. A Maryland court recently issued a judgment of more than $500,000 against one of three Indiana companies registered in his name — and all three are being investigated for securities fraud by the Indiana Secretary of State’s Office, a spokesman, Jim Gavin, said.

Here's the link to the rest of the New York Times story.

After reading this, don't forget to tell me how much money you make in the comments on the next post!

Okay, I'm Asking Again!

At the suggestion of a commenter, I'm asking the salary question again. My post from October 2007, "Okay, I'm Asking", has gotten 275 comments to date, such as these:

24, single, 54k a year + possibility for bonus, work in the financial realm.

I am a 25-year old woman living in Lima, Peru, earning $7,200 a year.

29, single woman living in Vancouver, Canada. I make app $55K/year with guaranteed raises ranging from 5-9% each year.

22, F, married in DC metro (one of the poorer sections) trying to make ends meet on $30k plus

$5k from my husband's student teaching. Working as a receptionist/admin assistant.

30 something single mom with an MBA, earn $103k in the DC area.

34, unmarried male, living in Bergen County, NJ. Work in IT Security - $80k/year.

How about now, over a year later with a totally different economic outlook gripping our country? How much do you make now? Do you make more or less than you did a year ago? Do you still have a job? And this time, I'm also asking what your net worth is, and how it's changed over the last year. Please give us a little context as to your age, location, and work industry, and feel free to be as anonymous as you want. Pass this link on to your friends and encourage them to chime in too!

Net Worth December 2008

Finally, I'm wrapping up my 2008 numbers! Today I'll tackle net worth, and I'll post expense and income numbers tomorrow.

Here's how my net worth fared this year:

	2008	2007	% change
Cash/ Bank Accounts/ CDs	$38,688	$30,670	26%
E*Trade Stocks/Mutual Funds	$12,556	$17,255	-27%
Bonds	$4,860	$4,583	6%
Home Equity	$90,401	$84,620	7%
Retirement	$154,143	$224,742	-31%
Credit Cards	-$1,948	-$1,857	5%
Total Net Worth	$298,700	$360,013	-17%

Given that my net worth goal for the end of the year had been $410,000, I don't feel all that cheerful about this, but there are some silver linings within the cloud.
As you can see from the above, my declines were entirely due to the lousy stock market. My cash accounts were up because I spent less than I earned. For the most part, I didn't transfer much savings from cash into investments this year other than my 401k contributions, but I did put $3,000 into a mutual fund-- the cash performance would have looked even better if not for that! (That also means my E*Trade losses would have looked even worse without the added cash.) I continue to have no debt other than my mortgage-- I had a little more outstanding on my credit card at the end of this year, but I still pay the bill in full every month. And it's nice to see my home equity growing as I pay down the mortgage-- this assumes that the market value of my home has stayed the same. (From what research I've been able to do about sales in my area, I think this is still a reasonable assumption, but we'll see how things go with the NYC real estate market!)

The bottom line is that I did a pretty good job on things I could control... and got royally screwed by the things I couldn't control! Oh well... onwards and upwards nevertheless!

Fessing Up to Family Money

Check out World of Wealth, for what I think is a totally unique post in the personal finance blogosphere, at least from what I've seen. MEG's blog is always quite frank and personal, and now she has disclosed something that few people are brave enough (or lucky enough) to admit:

So here it is: my family gives me money. I'm not talking about the garden variety plane ticket home, $100 for "dinner," help with the rent money. I'm talking about estate planning, gift tax avoiding, maximum annual gift exclusion money.

There were lots of comments on the post, mostly congratulating her for obviously being a hard-working, sensible person who hasn't become lazy and spoiled by her family's generosity (it's worth pointing out that she's only in her mid-20s). One commenter wanted to know how much of MEG's net worth came from her own earnings vs. her family's wealth, which she answered in a follow-up post:

Only about $20,000 of my net worth has been saved by me personally, half of which is my 401k at work. Without my family's assistance I may have been motivated to save more - or unable to even save that much due to loans and other obligations. Who knows??

Since her net worth is currently around $317k and was as high as $390k earlier this year, I would guess she must have gotten close to $300k in family gifts, which is pretty amazing. I almost can't imagine what I'd do if I'd been given that kind of money. She's used a lot of it to buy investment properties and max out retirement savings accounts, which is very admirable.

And yes, I'm so jealous I totally want to slap her!
(Only kidding about the slap, MEG!)

General Thoughts About Medicaid and Medicare

The posts about my parents' estate planning has brought up a lot of interesting questions and comments about Medicare and Medicaid that deserve to be addressed separately... so here goes!

Many people have pointed out that there is often confusion between these two government plans: Medicare is a federal government health insurance program that covers all people over age 65. It covers hospitals and doctors, etc, when you're ill, but it doesn't cover nursing home care. The exception to this is when the patient is in a hospice program: if your doctor says you have less than 6 months to live and you're just getting palliative care for a terminal illness (as opposed to treatment aimed at curing that illness) then Medicare covers at least part of the cost of a nursing home.

Medicaid is a health program for people with low income and resources, of any age. But because of the increase in health care costs, many people turn to this program to help pay for nursing home care. In the case of many middle-class families like mine, any savings and assets can be wiped out very quickly by self-paying the $90,000 or so a year a nursing home can cost, so people who would never have been considered "low-income" can end up qualifying for Medicaid. Also, many families may wish to leave their assets to their children or charities, rather than using all of them to pay for the costs of a nursing home. Any estate planning lawyer will discuss what you can and can't do to keep assets within your family and still qualify for Medicaid.

This is where people start to talk about whether this is cheating. A commenter mentioned the phrase "tragedy of the commons," which is absolutely appropriate here. The term is often illustrated by an example from from centuries ago, when there were common lands on which anyone could let their animals graze. All the farmers knew the grass on the common land wasn't enough to feed everyone's sheep, but instead of each farmer thinking "ok, it will be better for all of us if I only let a few of my sheep graze on that land," they each said "I'd better send all my sheep over there and let them pig out before all the other farmers cheat me out of my share!" And of course the result is that the common land becomes barren and everyone shares the pain.

In our country today, it's much the same: everyone is looking out for themselves and trying to benefit as much as they can from public resources, which ends up depleting those public resources and increasing the tax revenue needed to pay for them. But no one wants to be the chump who volunteers to renounce those benefits. I don't like our health care system, but until it changes, I want my family to get the same benefits out of it that everyone else takes. I want them to use whatever legal strategies are available. I don't think there is any great moral high ground to be gained by not doing so.

The reality is that one way or another, my parents will have to spend a lot of their own cash on nursing home care-- they can't escape it, and they probably wouldn't want to even if they could. As another few commenters mentioned, not all nursing homes accept Medicaid, and those that do aren't necessarily very nice. As I understand it, some nursing homes only accept Medicaid patients. Some nursing homes don't accept Medicaid at all. Then there are some who may not initially accept a patient who can't self-pay, but would accept Medicaid later if that patient runs out of money. This is what seems to be the case with the nursing homes in my parents' home town. They are nice nursing homes-- I used to volunteer in one of them, and I remember it being a clean, comfortable, cheerful place where the residents seemed well cared-for. My parents would have to self-pay for at least a couple months to get in, but then they could apply for Medicaid once their funds start running low. In the next post, I'll bring this topic back to the details of our personal situation and lay out a possible scenario of what they'd be expected to pay before qualifying for Medicaid.

One More Reason Brooklyn is a "Hot" Neighborhood

According to Brownstoner, there are a number of electrified lampposts in certain areas of Brooklyn. These can be quite dangerous-- every so often you hear about a dog being electrocuted by touching one. But who knew that they're a source of fairly lucrative employment:

In New York City, Con Edison is hiring livery drivers, at $35 an hour, to shoo people away from about 1,500 electrically charged manholes, streetlights and other objects until repair crews arrive. Joe Flaherty, a spokesman for Local 1-2 of the Utility Workers Union of America, blames Con Ed for bare-bones crews that can't adequately prevent and fix the so-called hot spots, which are caused by nearby exposed wires. [from USAToday.com]

I'm shocked!

More Stats from New York Magazine

Another set of interesting stats from New York Magazine, though less scary than Monday's-- this, in fact, is rather heart-warming:

Citymeals on Wheels donations:

October 15, 2008:
603 donations
For a total of $49,201
Dow dropped 733 that day, closing at 8,577

October 15, 2007:
314 donations
For a total of $22,760
Down dropped 108 that day, closing at 13,984

It's good to know that some New Yorkers are more inspired to give when times get tough!

That Mattress is Looking Pretty Good Right Now...

I was just pulling some info for my December 2008 wrap-up and happened to notice this summary info on my 401k statement:

Contribution Summary, inception to date as of 12/31:
Employee deferral $89,450.67 (deductions from my paycheck at my current job)
Employer match $17,218.23
Discretionary employer contributions $13,437.97
Rollover $52,335.81 (from 401ks at previous jobs)
TOTAL: $172,442.68

Current market value as of 12/31: $133,657.16

I'm 40 years old and my entire lifetime of retirement savings amounts to a net loss of almost $40,000 (or about $8,000 lost if you only count my own contributions)!

Not that I'm arguing against participating in 401ks. The market value of this account should recover someday, hopefully, and I do have over $30,000 worth of employer contribution money that I would not have received if I hadn't used the 401k. It's not like I have nothing to show for my diligence in trying to save.

But still... how depressing.

Stats from New York Magazine

Every week, New York Magazine has a little column called the Recession Index, subtitled "A numeric summary of our troubled times." Here's a few tidbits that I found interesting:

Cars and light trucks sold in the New York metro area in September and October
2007: 81,800
2008: 66,736

Unlimited-run Broadway shows closing during December and January:
2007-8: 3
2008-9: 7

College-educated New Yorkers receiving unemployment insurance:
Oct. 2007: 13,381
Oct. 2008: 20,072

Prescriptions for anti-anxiety medications filled at city pharmacies in September and October:
2007: 302,160
2008: 317,268

Morgan Stanley's annual profit, in billions:
2007: $3.14
2008: $1.59

Average annual pay for a Goldman Sachs employee:
2007: $661,490
2008: $363,654

Income to the MTA from a tax on real-estate transactions, in millions:
Dec. 2007: $103
Dec. 2008: $37


Scary stuff!

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