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Saturday, July 4, 2015

Why the Middle Class Keeps Giving Itself the Shaft


Mr. Money Mustache



Why the Middle Class Keeps Giving Itself the Shaft

stash_signal


Oh man. I was halfway through writing a nice, technical, do-it-yourself article about Radiant Heat for you, when the night sky over Longmont lit up with the giant ‘Stache Symbol*. It seems that our national network of Antimustachian Media Drivel detection volunteers sounded the alert based on this incredible doozy of an article about retirement in the US version of the Guardian. We need to make fun of it before we can go on with our regular lives.

The article is crippled by a few financial errors, but much more important is the hopelessly self-defeating tone of the thing. It manages to advocate shitting your own financial pants for the entire course of a lifetime, while simultaneously being sassy and witty about it so that you think the advice is perfectly reasonable. Just take a look at this early paragraph:

Indeed, all you need to do is save 22 times the annual income you hope to have when you retire. That means if you make $150,000, and hope to retire on $100,000 a year, you only need to sock away $2.2m in a bank account to be able to retire comfortably.”
 
Yes, that is all you need to do. If you make $150,000 per year, not only is it easy to amass 2.2 million dollars, but you should soon find chunks of that size floating all around you. You might have this much just sitting in your sock drawer waiting until you next get to the ATM machine to deposit it.

But wait.. this is necessary so you can retire on $100,000 per year!?! Are we planning to retire to the president’s suite of the Hyatt Regency? Or live in a Monaco Dynasty RV which we park on a 75MPH treadmill during vacations in order to maintain maximum fuel consumption? Who the hell needs $100,000 per year to retire?

So the article bakes ridiculousness right into its opening argument. Not a good start for a publication which supposedly has a reputation as “an organ of the middle-class.” But let’s read on.


“It’s simply a math problem. Let’s say you are in your 40s, making $150,000 a year, a generous salary in almost any city in the country. The taxman cometh, does he not? That $150,000, after taxes, becomes the slightly less dazzling sum of $100,000 a year.”
 
Okay.. except let’s assume you’re not a total idiot and that you contribute to your 401(k) plan, which shields the first $17,500 from taxes, or more likely $35,000 since most people in this age and income demographic are part of a couple filing jointly and sharing the $150k income. After all, we can at least assume that the $100,000 retirement budget mentioned earlier was not for a single person, right?


“Now you have to save that money as well as living on it. How much can you save? A standard and sensible budget, advocated by LearnVest and others, is to use a simple formula called 50/20/30. This means that you spend 50% of your salary on expenses. Another 30% goes to lifestyle expenses – the things that make life liveable unless you prefer living in a hut: cable and phone plans, clothes, books, gym fees, childcare and pets, restaurants and entertainment. “
Wait a minute here. You say I am spending 50% of my salary on expenses, and I make $150,000 per year, which is much more than average. So that’s $75,000. But then how do other people who make $25,000 live while spending only $12,500 on expenses? And what about $1.5M earners – do their expenses automatically rise to $750,000? Something is fishy here.


Then the final 20% goes to saving for retirement.  This is a reasonable budget. If you save more than 20% of your salary for retirement, you’re giving up enjoying your present life: you’re dedicating yourself to living in holy denial of all worldly pleasures like a monk or a nun, in the hopes of a lavish, or at least an exceedingly comfortable, life when you’re over 60-years-old. Twenty percent for retirement is, by the way, an aggressive goal. Most people save much less. 
 
OK, this is getting ridiculous. I would define “Living like a Monk” as somewhere around $3,000 per year in the US. That is more than enough for food and a place to stay where you do some of the upkeep in exchange for a bed. And monks don’t need to budget for leather coats, dogs, children, or iPhones. At $25-30k, you are living like the Mustache family. Beyond that, it gets even crazier. What level of insanely plush luxury is required to achieve a meaningful human life? According to the Guardian and the standard “Waah, Waah, the Middle Class have it so hard!” script, the higher the better. No need for exceptions and no need to think for yourself.

The article goes on to rightfully make fun of the study from which it quotes, advocating investing your money instead of putting it into a “riskless” savings-account mattress and hey, look at that, they even mention Mr. Money Mustache in a paragraph near the end**, although I see the word “retire” is in quotes, suggesting affiliation with the Internet Retirement Police.
But here comes the conclusion:


“The other major issue: the retirement issue in this country is less due to personal failure than structural failures. Saving enough is not the primary problem with our retirement system. The primary problem is that wages have been dropping for decades, leaving people with much less to save – especially people who live on far, far less than $150,000 a year. That’s largely because corporations are hoarding profits, raising CEO salaries and skimping on what they pay employees.”
 
No! Cover your ears! 

Let’s be clear about this,: The retirement issue in this country is because people are buying way too much shit they don’t need, pampering themselves with ridiculous lattes, restaurants, shoes and massages,  and riding around constantly in huge bullshit bank-financed trucks for no reason. 

And many, many more closely related factors. Our problem is with our spending, so of course it can not be solved with additional income.

If you believe that the middle class has it even remotely hard in this country, you need to print out a picture of me, make it punch you in the face for 30 minutes and then reconsider the issue.

It’s not the CEOs and the pension plans that are giving you the shaft. If this were true, I would have had to become a CEO in order to become financially independent. (And even then, if that’s what it takes, nobody is stopping you from becoming the CEO!)

Sure, the pension system was a nice pleasant artifact of the olden days when the economy was a stable and slow-moving thing and people worked at the same company for decades. But those days are gone, and I say good riddance. Who wants to work at the same auto factory for 30 years? This is complacency.
If you put a human in a permanently comfortable situation, he will adapt to it and live a stagnant, boring life. Given enough comfort and convenience, we become huge water balloons with lazy grinning faces, expanding and becoming more delicate until the first sign of trouble, at which point we squeal and spray whiny fluids all over ourselves and our politicians. What kind of life is this?
In this much better new world, everything is in your control.

Your spending rate is not a percentage of your income. It’s whatever you want it to be, and your happiness grows right alongside the Badassity you develop every time you chop another thousand from what you thought was your “cost of living”.

Your city does not impose a cost of living upon you. You get to choose both the city in which you live, and how much you spend once you get there.
Your health and belt size are not determined by your age, being a parent, or “the terrible food they make for us these days”. For most of us, those things depend on what you choose to eat and how often you use your barbells and your bike.
Your retirement date is not “65” or “Never”. It is the day you have 25 times your spending invested, or sooner if you develop other sources of side income. For a motivated 18-year-old, this could easily mean age 25.

An unfortunate part of the standard liberal argument is that the middle class is in decline and it’s all the fault of the greedy rich people. The argument of this blog is that it’s better to adapt to the system than to complain about it. The Internet has made education and opportunity much more widely available. Knowledge about how to live efficiently and invest the proceeds productively is staring you in the face.

It is thus much easier to leave the middle class, become one of the rich, and then change the system to your liking from that position of strength, rather than to hold yourself down in that class, paying for cable TV even as it indoctrinates you to spend away your ticket out of the self-imposed prison. Or reading articles that tell you that you’ll never be able to retire. Or writing them.

*yes, just like Batman! Thanks to Mr. Frugal Toque and the others who have emailed me with this concept.

**My apologies to Guardian writer Heidi Moore who will probably see this article and not be pleased with me. But come on! Why not write an upbeat retirement article instead of just copying all the rest of the mainstream media, making money by sympathizing with people instead of telling them to shape up? People like feeling empowered, not defeated, and feeling empowered is the only way to get anything done around here.

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