Retirement, any takers?

(22-07-2013, 10:38 PM)d.o.g. Wrote: Personally I think there has been some loss of perspective here. According to the latest statistics from the Department of Statisics, for household income the 41st-50th percentile average is $7,608 per month, while for the 51st-60th decile the average is $9,133 per month. Let's take the average and assume it is representative of a household at the 50th percentile i.e. $8,371/month. This means the ENTIRE HOUSEHOLD is earning $100k per year. This is probably more representative of the middle class that is getting squeezed by housing prices, childcare fees, COE etc.

For a household where husband and wife each earn $150k per year, this means an annual household income of $300k or $25k per month. For 2012 it would put the household ABOVE the 90th percentile which averages "only" $16k per month. A $300k/year household is definitely not middle-class, it is in the top 10% in terms of household income! Such a household is definitely very comfortable and can easily acquire meaningful wealth ($1-5m) if the wage-earners are not silly about spending and are prudent about investing (no scams, and no truly awful investments). This income group should not be bothered at all by housing, childcare or COE.

For the households fortunate enough to earn $500k+ per year, their main risk to not living a comfortable life is probably envy - the need to keep up appearances by buying the latest and greatest. If they can keep such urges in check (or even reject them altogether) there is no way they would not have a nice nest egg in retirement. It would take quite a spending effort to NOT accumulate millions by the time they retire, simply because there is so much cash flowing in. But of course if they buy a new sports car every year, buy a new boat every 3 years, buy a private jet every 5 years... then it's a different story.

Agree totally. In fact from income tax perspective perhaps we should make sure that those who earn from 90-95% top earners actually pay decent amount of income tax. Cuz right now, if they are a couple with 3 kids earning 300k, income tax is really low.

Btw, my 800k couple example is quite realistic, the lifestyle is not quite what you think. Great but not TV great esp in SG.

All in all, just, just leave within your (Financial Freedom) means. If you have $50M, live within $2.5M. If have $500k, live with $25k. Don't buy what you cannot afford, and stay content. Life will be much better.

(22-07-2013, 10:32 PM)cif5000 Wrote:

(22-07-2013, 10:17 PM)yeokiwi Wrote: Pardon me.. I have a hard time empathizing a couple that earned more than half a million annually and paying a high tax.

Yeah, those poor buggers! When you have $100m you will feel for them.

I was reading this book 'The Millionaire Next Door' by by Thomas J. Stanley and William D. Danko. An extract copied from wiki,

Most of the millionaire households that they profiled did not have the extravagant lifestyles that most people would assume. This finding is backed up by surveys indicating how little these millionaire households have spent on such things as cars, watches, suits, and other luxury products/services. Most importantly, the book gives a list of reasons for why these people managed to accumulate so much wealth (the top one being that "They live below their means"). The authors make a distinction between the 'Balance Sheet Affluent' (those with actual wealth, or high net-worth) and the 'Income Affluent' (those with a high income, but little actual wealth, or low net-worth).

I suppose if the above also rings true in Singapore, we can empathise with a high income earner who looks and appears rich (with all the visible assets of house, cars, clubs,...) but who's actually having very low Net Worth...

Let me relate my true experience recently.

As I was looking for a s class or a ls460 , a used one, one which is at least 5 years old (the thinking is that the first owner has already lost a good 200k over the past 6years), I called a few dealers and owners. MOST of the vehicles are in some form of hire purchase(ie loans) and some of them, the previous owner even need to top up money to release the car.

Whether the owners are able to pay off the loans and make use of the loans to leverage on some higher earning investments I do not know. But in my recent enquiries, most of the vehicles up to 300k plus could be in loans. What kopikat said is true.

But for an owner who has a fleet of supercars, I think he is truly a man of immense wealth. No way he can take loans to cover the cars and no way a person of right mind would do so just to show off.

For me, till I can convince myself that the first owner has lost a bomb already and there's actually not much more for me to lose apart from the higher repair fees and petrol fees etc, I am still struggling with my 9 year old car.

Back to the topic, retirement,

I think the key is to quickly establish yourself in whatever field you might be in, upgrade yourself if necessary and quickily(but of course cautiously) divert funds for investment to create passive income. And while all these is happening, try to reduce unnecessary expenses. Personally, I find that this works for me.

(23-07-2013, 07:46 AM)paullow Wrote: Let me relate my true experience recently.

As I was looking for a s class or a ls460 , a used one, one which is at least 5 years old (the thinking is that the first owner has already lost a good 200k over the past 6years), I called a few dealers and owners. MOST of the vehicles are in some form of hire purchase(ie loans) and some of them, the previous owner even need to top up money to release the car.

Whether the owners are able to pay off the loans and make use of the loans to leverage on some higher earning investments I do not know. But in my recent enquiries, most of the vehicles up to 300k plus could be in loans. What kopikat said is true.

But for an owner who has a fleet of supercars, I think he is truly a man of immense wealth. No way he can take loans to cover the cars and no way a person of right mind would do so just to show off.

For me, till I can convince myself that the first owner has lost a bomb already and there's actually not much more for me to lose apart from the higher repair fees and petrol fees etc, I am still struggling with my 9 year old car.

Back to the topic, retirement,

I think the key is to quickly establish yourself in whatever field you might be in, upgrade yourself if necessary and quickily(but of course cautiously) divert funds for investment to create passive income. And while all these is happening, try to reduce unnecessary expenses. Personally, I find that this works for me.

Couldnt have said it better. Once you reach a certain net wealth lvl (imo 10-15m onwards) you will have a lot more choices open to you.

I was high income for almost a decade (average 1m/annum) but those years i didnt spend much as i was a trader in a highly volatile industry where job security could literally be one or two disaster trades ahead of me. I know of my peers who went into serious difficulties in 2008/2009 simply because they were massively overleveraged and both the banks and themselves projected that income in a straightline.

(23-07-2013, 07:46 AM)paullow Wrote: Let me relate my true experience recently.

As I was looking for a s class or a ls460 , a used one, one which is at least 5 years old (the thinking is that the first owner has already lost a good 200k over the past 6years), I called a few dealers and owners. MOST of the vehicles are in some form of hire purchase(ie loans) and some of them, the previous owner even need to top up money to release the car.

Whether the owners are able to pay off the loans and make use of the loans to leverage on some higher earning investments I do not know. But in my recent enquiries, most of the vehicles up to 300k plus could be in loans. What kopikat said is true.

But for an owner who has a fleet of supercars, I think he is truly a man of immense wealth. No way he can take loans to cover the cars and no way a person of right mind would do so just to show off.

For me, till I can convince myself that the first owner has lost a bomb already and there's actually not much more for me to lose apart from the higher repair fees and petrol fees etc, I am still struggling with my 9 year old car.

Back to the topic, retirement,

I think the key is to quickly establish yourself in whatever field you might be in, upgrade yourself if necessary and quickily(but of course cautiously) divert funds for investment to create passive income. And while all these is happening, try to reduce unnecessary expenses. Personally, I find that this works for me.

Paul and godjira are two examples of the save more than earn group. And they build strong earning too. My experience is the similar and I am lucky to have sold a business too. Since crossing about 200k in family income, we have always managed to save about 30%, right up to when we did 1m income when we saved 70%. Now with bond coupons and stock dividends and a little salary, I find myself earning about 1m and saving 60%. Lifestyle went up a little more due to travel in bus class and top hotels and gifts for mrs. Also started making 15-20k donations annually.

Godjira is also totally right about options. I am financially free but it does not mean the choice is any easier to make. So I am at crossroads in terms of salaried job. Can start another business, find a real good paying job etc. can up income to minister level but I think I will still spend the same, so save even more??? Or keep spending the same, quit all jobs and just loaf around for a while? How will be body and soul, brain react?

After reading all postings up to this point, suddenly i am reminded by the wordings of a song:- "You have your problems, i have mine" Success also has its own problems, isn't it?

(22-07-2013, 10:34 PM)greypiggi Wrote:

(22-07-2013, 10:17 PM)yeokiwi Wrote: Pardon me.. I have a hard time empathizing a couple that earned more than half a million annually and paying a high tax.

Oh, I don't mean they need any help or that we should pity them. All I was doing is stating a matter of fact on what is happening in sg. In fact, when I meet such corporate types I wonder why they do not do the math and internal examination and just realize they should not keep aiming higher beyond what they can really afford. I mean a family who earns 800k has no business driving cars worth anything above 300k, watches/bags/jewellery above 10k, and living in housing worth more than 5m and flying business class, staying in $1k hotels etc. that is a lifestyle of someone with a networth of about 10m usd and up and who still earns some salary. If net worth alone need to be about 15m usd min.

And if they really want to play that all consuming game, either aim to go beyond 1.5m in earnings or start own business. Contentment and some plain math is the key.

Keeping up with the Joneses and hedonic adaptation is the biggest killer for these people. The best case studies are the NBA and NFL stars in the US.

Nonetheless tax policy making cannot and should not cater to them. As Buffett remarked, the society has blessed them greatly, they have their duty to pay it forward back to the society. As Buffett aptly described this ideology: let's discuss taxes on the shores of Normandy. Each class in the society does its part... IMHO I don't think the old lady cleaning the toilet contribute less than the guy paying $1m in taxes.

The rich stands on the shoulders of the poor and need the poor to provide the food, goods and services as much as the other way round. This self-enlightenment is usually obvious on the first generation wealth creators, but in my experience their children and 3rd or subsequent generations do not understand that at all, and that poses a problem with the fabric of the society as a whole

(22-07-2013, 02:12 AM)d.o.g. Wrote:

(21-07-2013, 07:31 PM)greengiraffe Wrote: Not too long ago, dividends are taxable and subject to franking (everyone included - rich and poor investors). The doing away for sec 44 and the phasing in of 1 tier tax on dividends - effectively meaning that the rich who received the bulk of dividends in personal capacity don't pay taxes.

This is an incorrect analysis. Previously, the companies paid corporate tax, accruing tax credits, and then passed these credits on when they paid dividends. Thus rich people paid more taxes because they received dividends, got the tax credits, and then paid taxes based on their (high) marginal rate. Poor people got the same pro-rata dividends and tax credits, but then paid taxes based on their (lower) marginal rate.

Suppose the corporate tax rate was 22%. If a company earned $1 per share before tax, it would pay 22 cents per share in tax. It could declare a $0.78 per share dividend, and this would come with 22 cents per share of tax credit.

A high-income person in (let's say) the 20% tax bracket would receive $0.78, grossed up to $1, then pay 20 cents in tax, leaving him with $0.80.

A low-income person in (let's say) the 5% bracket would also get $1 when grossed up, but pay 5 cents in tax, leaving him with $0.95.

With the one-tier system, the companies pay corporate tax, and then pay dividends which are tax-free. Effectively, it means that EVERY shareholder is paying the corporate tax rate on his/her dividend. This is essentially a tax increase on the low-income, rather than a tax relief on the high-income.

Under the same conditions as above, the company would declare a one-tier dividend of $0.78, tax-exempt. The 2 people above would receive the same amount, $0.78. Both have seen an increase in tax, but it is much more drastic for the low-income person.

It is actually more complicated in real life because the corporate tax rate is now 17%, which means that both people being studied would get $0.83 in dividends. Compared with the old days of S44 credits, the low-income person still gets less. But the high-income person now gets MORE.

So the one-tier system combined with the lower corporate tax rate has simplified our tax system, but at the cost of increasing income inequality.

Here's my thought.

On paper, the poor may pay more however stock market means little to them as they are on day-to-day expenses. The rich has way to bypass high income taxes. One tier system effectively level this playing field. The worst group i feel is the middle income who are wealthy enough to buy Stocks but got hit with the tax increase.

Cory

(21-07-2013, 11:18 PM)sgd Wrote: I think the best optimum age to go is at 70. Why anybody "wish" for a life longer than that is beyond me.

Just wait to be 69 and you will get it