Times have certainly changed since then. Many online retirement calculators today will tell you that for a couple with a joint income of $75,000, a million in today's dollars isn't even enough to retire on. I happen to think these figures are bogus, since the amount you need in retirement should be based on how much you spend, not how much you make, but it still goes to show that one million dollars is no longer a sum that most people would consider fabulous wealth. You hardly ever hear anyone pronounce the word with all those extra l's anymore.
So how much money really is immense wealth—more than anyone could ever need? Well, the banner ad I just saw for the Publishers' Clearinghouse Sweepstakes suggests that the new figure is not a lump sum, but rather an income of "$5,000 a week for life." At first blush, $5,000 a week sounds like a much easier number to wrap your brain around than $1 million. After all, $5,000 is a number that most of us have at least seen; it might be a month's salary, or the amount in a checking account, or the amount left to pay on a student loan. It's a number we can relate to. But $5,000 a week? How on earth could you ever spend that kind of money? If we won that sweepstakes, we'd burn through our entire month's expenses in the first week with room to spare, and then the checks would just keep coming. I mean, with that kind of money, you could pay for a Caribbean vacation every week. You could buy a new Mercedes every fifteen weeks. You could put four kids through Harvard at the same time and still have $20,000 left over.
I know, however, that there are people who do make $5,000 a week—or $260,000 a year—and manage to spend it all, and I assume they're not actually doing any of these things. So I did a quick search and found an article on MSN money about how people live on $250,000 a year. And apparently, it's not nearly as easy to do as I would have thought. Some people, in fact, are actually struggling to get by on this income. The article discusses how a hypothetical family, the Joneses, would fare on $250,000 of combined income in eight different cities, and it found that in seven of the eight, the couple would actually be unable to make ends meet. The author insists that while this "may seem surprising," it's actually perfectly reasonable: between taxes, "maximizing contributions to two 401k's," and "squirreling away $8,000 a year for their kids' college educations," the family can't even afford such little luxuries as "monthly sessions at the hair colorist, or membership at a gym." Even their grocery expenditures fall into the "moderate-cost" monthly food plan, as calculated by the USDA, rather than the pricey "liberal" plan.
Unfortunately, this article doesn't actually break down the Joneses' budget, so it's hard to tell exactly where all the money is going. So I dug a little deeper and eventually found the original article from the Fiscal Times, which provides more details. It notes, for example, that only in some of the eight cities on the list would this couple actually be in the red after paying their taxes and "essential expenses for housing, groceries, child care, clothing, transportation—and their dog." But it goes on to claim that the couple would probably have to spend an additional $20,000 or so on "common additional expenses for a working couple with two children —music lessons, day camp costs...after-school sports, entertainment, cleaning services, gifts, and an annual week-long vacation." It notes somewhat defensively that while their estimates of $5,000 a year for house cleaning, $4,000 for after-school activities, and $1,200 a year for dry cleaning "may seem lavish," it's "impossible" for a family with two working parents to "maintain the home, care for the kids and dress for their professional jobs" on less.
All this completely baffled me, because I know plenty of two-earner couples who manage to do all of those things on incomes less than half the size of the Joneses'—in some cases, less than one-third or even one-fifth the size. Clearly, it is in fact possible. So what is it the Joneses are doing wrong? My first thought was that maybe their biggest problem was the places where they were choosing to live (or rather, where the researchers were choosing to locate them). After all, most cities are expensive to live in, but that's why people move to the suburbs—and there are always some suburbs that are pricier than others. For instance, a family home in Alexandria, VA, is going to cost considerably more than a similar home in a town outside the Beltway, like Franconia or Springfield. But surely a family that's actually getting deeper into debt every year would consider the longer commute a reasonable tradeoff, wouldn't you think?
So I selected the priciest town on the list—Huntington, NY—and started looking at real estate prices there to see how they'd compare to those in neighboring towns. But when I did a search on Zillow to find suitable homes for a family of four, with three or four bedrooms and two baths, I discovered that there were several houses this size priced between $400,000 and $600,000—expensive compared to many other parts of the country, but for Long Island, really not bad at all. I selected one house that looked nice for a family of four and found that the mortgage payments on it were around $21,000 and the property taxes were around $8,000. Yet the Fiscal Times article showed that the Joneses were spending $36,000 a year on mortgage payments in Huntington, and $15,000 a year in property taxes. So on housing alone, the authors have overestimated the Joneses' expenses by $22,000.
That wasn't quite enough to account for their budget shortfall of $27,000, but it made me wonder how many of the other numbers on the list were off-base as well. For instance, they've allowed a certain amount in the tax section for gas taxes, sales taxes, and phone service taxes—but aren't those costs already included in the family's budget under gas, food and clothing, etc? Have they deducted the taxes from their estimates for these expenses, or are they double-counting them? And then there's the figures for health insurance: why are they the same across the board? Shouldn't they differ from state to state? After all, the papers have had a lot to say lately about how Obamacare will most likely lower insurance premiums in some states and raise them in others; that can't be true if they're the same everywhere, can it? And looking further down, I see that the authors have also used the same numbers across the board for child care costs, after-school activities, utilities, food, clothing, travel, and entertainment. If those numbers don't vary from state to state, then it means the authors didn't base them on any kind of real-world data from the eight towns in question. So where did they come up with them? Well, funny thing, they don't say. Or rather, they have a list of sources at the bottom of the chart, but they don't say which number came from which source or provide any links to the sources cited—so there's really no way to check their facts.
So basically, I think these figures are highly suspect. However, even if they're completely made up, they do at least serve to provide an idea of what a $250,000-a-year budget would look like. So I guess the answer to my question is, if you need to come up with a way to spend $5,000 a week, just move to one of the eight cities on this list (and then have two kids, if you don't have them already).
Of course, none of this really answers the question of what we would do with $5,000 a week, since we don't have two kids and don't have any interest in moving to a pricier city (or even upgrading to a fancier house in the same town). But we do happen to have nine nieces and nephews, all of whom will most likely need to go to college in anywhere from eight to seventeen years. So most likely, the best use of our $5,000 a week would be:
- First deduct the taxes, which come to around $60,000, depending on how much we deduct for heath care and charitable contributions and so on;
- Give a tenth of the remainder, or $20,000, to charity, since that's a nice round figure;
- Take out around $50,000 to pay for our living expenses (that's enough for all our current expenses, plus a generous sum each month to pay for private health insurance);
- Split the remaining $130,000 nine ways, which gives us $14,444 to set aside in a college fund for each of the kids. Or maybe pro-rate it somehow to set aside more for the older kids, who will need it sooner. After all, that $14,444 times eight years is only $115,552, and even at today's rates, that would only pay for two years of Harvard at most.