On how people get rich...

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Re: On how people get rich...

Postposted on Tue Aug 21, 2012 1:45 pm

kvndoom wrote:
grantmeaname wrote:The median household income in the very wealthiest census tract in the city is $188k/year. $300k is rich, even for NYC.

Not when shoebox apartments rent for $10,000 a month! :P


I'm renting a ROOM (thought pretty nice sized) for 1350 a month a block from Columbus Circle!I got a bonus and literally 45% at least was taken from me by the government!
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Re: On how people get rich...

Postposted on Tue Aug 21, 2012 7:07 pm

mph_Ragnarok wrote:
kvndoom wrote:
grantmeaname wrote:The median household income in the very wealthiest census tract in the city is $188k/year. $300k is rich, even for NYC.

Not when shoebox apartments rent for $10,000 a month! :P


I'm renting a ROOM (thought pretty nice sized) for 1350 a month a block from Columbus Circle!I got a bonus and literally 45% at least was taken from me by the government!


1350 a month sounds nice given your location. As for taxes, time to cross the Hudson and live in Hoboken.
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Re: On how people get rich...

Postposted on Thu Aug 23, 2012 7:05 am

The top new york city and state tax rates are 3.648% and 6.85%, so the only way you could be getting taxed 'literally 45% at least' is if you make more than $388k after deductions before you receive your bonus for the year.
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Re: On how people get rich...

Postposted on Thu Aug 23, 2012 8:00 am

grantmeaname wrote:The top new york city and state tax rates are 3.648% and 6.85%, so the only way you could be getting taxed 'literally 45% at least' is if you make more than $388k after deductions before you receive your bonus for the year.



I don't think you know how it works here man.... there's also federal tax. And they withhold at the marginal rate. You're talking about the final rate that should be true at the end of the year after the refund.
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Re: On how people get rich...

Postposted on Thu Aug 23, 2012 8:04 am

I do know how it works there. It's the same as the rest of the country. Like where I live, for example.

You add your federal tax rate, your state tax rate, and your local tax rate. It's not that tough. Since state and local add up to 10.5%, you would have to be in the 35% bracket for your total tax rate to be over 45%. To be in the 35% bracket, your income, after deductions, would have to be over $388k before you got the bonus.
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Re: On how people get rich...

Postposted on Thu Aug 23, 2012 8:09 am

grantmeaname wrote:I do know how it works there. It's the same as the rest of the country. Like where I live, for example.

You add your federal tax rate, your state tax rate, and your local tax rate. It's not that tough. Since state and local add up to 10.5%, you would have to be in the 35% bracket for your total tax rate to be over 45%. To be in the 35% bracket, your income, after deductions, would have to be over $388k before you got the bonus.



I don't know what to tell you man, they withhold at the full marginal rate... I mean me and my coworkers all get withheld like crazy and then we get it back at the end of the year to our true tax rate. Why would I be lying :roll:

EDIT: okay mister-you-know-how-much-i-pay-more-than-i-do of my bonus, ~44.5% was withheld tax or social security or other social programs.
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Re: On how people get rich...

Postposted on Thu Aug 23, 2012 8:14 am

mph_Ragnarok wrote:EDIT: okay mister-you-know-how-much-i-pay-more-than-i-do of my bonus, ~44.5% was withheld tax or social security or other social programs.

Yeah, bonuses get smacked hard by the withholding tax tables as they assume that that is your regular level of compensation.

EDIT: The takeaway here is simple. There is no universally-applicable definition of rich. Since the age groups posting in these forums ranges from teenagers to mid-50s, there will never be a definition with which all agree.
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Re: On how people get rich...

Postposted on Thu Aug 23, 2012 9:00 am

I agree. I wasn't trying to say you don't pay a horrendous amount of taxes.
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Re: On how people get rich...

Postposted on Thu Aug 23, 2012 9:49 am

grantmeaname wrote:The top new york city and state tax rates are 3.648% and 6.85%, so the only way you could be getting taxed 'literally 45% at least' is if you make more than $388k after deductions before you receive your bonus for the year.

Bonuses are taxed higher. It evens out when you file next year, but for some reason they ream you on your paycheck.
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Re: On how people get rich...

Postposted on Thu Aug 23, 2012 10:53 am

grantmeaname wrote:I want to retire at 30 with no debt and a ~$700k portfolio. I'm on track. Ish.


Probably going to be hard to live for another 60 years on just the returns from $700k.
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Re: On how people get rich...

Postposted on Thu Aug 23, 2012 11:03 am

kumori wrote:
grantmeaname wrote:I want to retire at 30 with no debt and a ~$700k portfolio. I'm on track. Ish.


Probably going to be hard to live for another 60 years on just the returns from $700k.



Haha yea...

Assuming monthly payments and you use it as an annuity for 60 years...

if the interest rate annual is

1% : you get $1293 per month
2%: $1670
3%: $2097
4%: $2567
5%: $3070
7.5%: $4424
10%: $5848

Sure interest rates are deadly low now, but in a decade or so that could change. 700K is too small to live off of for 60 years.
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Re: On how people get rich...

Postposted on Fri Aug 24, 2012 7:46 am

At a 4% withdrawal rate, which is likely to preserve principal forever, it's $28k per year. It's a tight budget, but it's doable.
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Re: On how people get rich...

Postposted on Fri Aug 24, 2012 8:23 am

grantmeaname wrote:At a 4% withdrawal rate, which is likely to preserve principal forever, it's $28k per year. It's a tight budget, but it's doable.


But who is gonna sell you a perpetuity for 4% annual rate in this interest rate environment?? You could put it in equity markets, but then you never know how much you're getting every year.
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Re: On how people get rich...

Postposted on Fri Aug 24, 2012 9:09 am

mph_Ragnarok wrote:But who is gonna sell you a perpetuity for 4% annual rate in this interest rate environment?

Nobody. That's why if you want to live on a stack of cash for 60 years you don't buy a perpetuity.

You could put it in equity markets, but then you never know how much you're getting every year.

No, but 120 years of historical evidence tells me it'll likely be around a 4% real return each year. I won't be spending more in the years that the equity markets outperform that estimation; take that, combined with the fact that I can spend less in years with lower returns, or pick up a side hustle to maintain the good years' spending, and it's a pretty safe plan.
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Re: On how people get rich...

Postposted on Fri Aug 24, 2012 9:11 am

grantmeaname wrote:At a 4% withdrawal rate, which is likely to preserve principal forever, it's $28k per year. It's a tight budget, but it's doable.


That ignores the fact that $28k/year in 40 or 50 years will probably be below the poverty line once you account for inflation between now and then.
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Re: On how people get rich...

Postposted on Fri Aug 24, 2012 9:23 am

It's a 4% real return: that is, 4% + inflation. By preserving principal, I mean preserving the buying power of the principal, not preserving the nominal value. You're right, if that weren't accounted for it would be an untenable plan.

Edited to not be a jerk.
Last edited by grantmeaname on Fri Aug 24, 2012 9:26 am, edited 1 time in total.
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Re: On how people get rich...

Postposted on Fri Aug 24, 2012 9:23 am

The answer to the thread title is:

Capital gains
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Re: On how people get rich...

Postposted on Fri Aug 24, 2012 9:24 am

Don't forget that medical will probably eat up that paltry $28K, especially as you age. Better get more like 1.5M or more.

My 401Ks/IRA have been under-performing so bad the past three years :-< The investment groups have made more money from fees than I have on interest. HOPEFULLY things will start moving up, but with our current leadership or any future leadership I cannot see that happening.

Glad the guys farting with my money get $300K a year, and I cannot even get MY money to gain a friggin dime.
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Re: On how people get rich...

Postposted on Fri Aug 24, 2012 9:44 am

grantmeaname wrote:
You could put it in equity markets, but then you never know how much you're getting every year.

No, but 120 years of historical evidence tells me it'll likely be around a 4% real return each year. I won't be spending more in the years that the equity markets outperform that estimation; take that, combined with the fact that I can spend less in years with lower returns, or pick up a side hustle to maintain the good years' spending, and it's a pretty safe plan.



But why would you think that's a good indication of the future at all? The economy and the world is WAY different than it has been, and it's not just "bigger" it's different.

Also, the volatility of stocks does not mean you earn a higher rate of return with high probability in the long run with volatility in the short run - It means returns both short term AND long term are risky.

What I mean is that stocks have higher expected return in the long run than bonds of course, but expected return is just a mean, it says nothing about the volatility of long term returns, which is also high of course.
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Re: On how people get rich...

Postposted on Fri Aug 24, 2012 2:50 pm

mph_Ragnarok wrote:But why would you think that's a good indication of the future at all? The economy and the world is WAY different than it has been, and it's not just "bigger" it's different.

I'm not depending on the appearance of the economy being the same, on things like the continued importance of fossil fuels. I'm depending on the fact that companies will still produce value from capital, both here and abroad, and that it will still be profitable to provide capital to the means of production, as it always has. As long as those assumptions stay true, there's no reason to think things will change much, even if the small picture is radically different.

Also, the volatility of stocks does not mean you earn a higher rate of return with high probability in the long run with volatility in the short run

Yes, yes it does. That's exactly what that means. Why would investors purchase more volatile assets if they were not compensated by more reward?

Answer: they wouldn't. They don't.

What I mean is that stocks have higher expected return in the long run than bonds of course, but expected return is just a mean, it says nothing about the volatility of long term returns, which is also high of course.

Because of reversion to the mean, an exceptional 10-year return is much closer to the mean 10-year return than an exceptional 1-year return. While a 99th percentile 1-year return might be way, way far away from a typical 1-year return, a 99th percentile 10-year return will be much closer: it may vary from the mean by an annualized two or three percentage points, instead of thirty or forty. And I'm not talking about ten years, but sixty. There's a lot of time ripe for reversion there.
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Re: On how people get rich...

Postposted on Fri Aug 24, 2012 3:09 pm

grantmeaname wrote:
mph_Ragnarok wrote:But why would you think that's a good indication of the future at all? The economy and the world is WAY different than it has been, and it's not just "bigger" it's different.

I'm not depending on the appearance of the economy being the same, on things like the continued importance of fossil fuels. I'm depending on the fact that companies will still produce value from capital, both here and abroad, and that it will still be profitable to provide capital to the means of production, as it always has. As long as those assumptions stay true, there's no reason to think things will change much, even if the small picture is radically different.

Also, the volatility of stocks does not mean you earn a higher rate of return with high probability in the long run with volatility in the short run

Yes, yes it does. That's exactly what that means. Why would investors purchase more volatile assets if they were not compensated by more reward?

Answer: they wouldn't. They don't.

What I mean is that stocks have higher expected return in the long run than bonds of course, but expected return is just a mean, it says nothing about the volatility of long term returns, which is also high of course.

Because of reversion to the mean, an exceptional 10-year return is much closer to the mean 10-year return than an exceptional 1-year return. While a 99th percentile 1-year return might be way, way far away from a typical 1-year return, a 99th percentile 10-year return will be much closer: it may vary from the mean by an annualized two or three percentage points, instead of thirty or forty. And I'm not talking about ten years, but sixty. There's a lot of time ripe for reversion there.


That is wrong, man.

Nobody would buy lower yield things like bonds if stocks are like that.

I'm a finance major (investment banking, duh) and that is the very first thing you learn.
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Re: On how people get rich...

Postposted on Fri Aug 24, 2012 3:23 pm

Yes they would, because bonds offer lower risk, and different investors have different risk capacities. It's why pension funds don't invest heavily in small-cap stocks.
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