Can You Become Rich in America?
September 15, 2011 - 7:02 AM
There are only 1.75 full-time private sector workers for each Social Security recipient, which means that Social Security is essentially insolvent. The unemployment rate remains 9.1 percent. The stock market is bouncing like a ping-pong ball because nobody knows what to expect -- and some experts estimate that it will drop another 20 percent in the long run before hitting rock bottom.
More importantly, Americans are losing hope in their ability to succeed. According to The New York Times/CBS News poll this week, 51 percent of Americans say they are pessimistic about the future, as opposed to 43 percent who say they are optimistic. Just 10 months ago, 56 percent of Americans were optimistic, versus 38 percent who were pessimistic.
According to the Pew Economic Mobility Project, just 47 percent of Americans believe that their children will have a better standard of living than they have now. Even more frighteningly, 59 percent say that it will be more difficult for their kids to better their economic status than it was for them.
And Americans are right. The simple fact of the matter is that each day, government grows larger. And each day, hope for most Americans grows dimmer. It is now almost impossible to get "rich" living in California due to regulations and taxation. Say a 30-year-old Californian wants to start a business. She has to pay $800 immediately for the corporate tax, even if her new LLC makes no money whatsoever. She has to pay approximately $200 in sundry filing fees.
But she's stubborn and decides not to quit. And her persistence is rewarded -- she begins making serious money. Let's say she even earns $250,000. She's on her way to wealth, right?
Wrong. Let's do some rough calculations. First, California takes 9.3 percent off the top. That's $23,250. Then Social Security takes 13.3 percent as part of her income and 2.9 percent on the rest. That'll cost about $17,700 more.
Then federal income tax takes 22 percent. There goes $46,000. Her annual income is down to $163,000. She's still doing well.
Now assume she has a mortgage in Los Angeles. She's probably paying somewhere in the neighborhood of $3,000 per month, if she owns a decent house; over the course of the year, she's paying $36,000. She's now at $127,000.
The average American spends approximately 13 percent of his or her budget on food. So take away another $30,000 or so. Now we're down to five digits, at $94,000.
If she's single, she's still doing really well. If she has kids, it's a different story. When she has kids, all that cash goes away in a hurry. California's public school system, just like the rest of the country's, is a disaster area. Private school is a far better option. In California, a solid private school costs approximately $15,000 per year. Health insurance, car payments and gas take her down another $10,000 or so, on the low end. Now she's down to $69,000 per year.
This is leaving out an awful lot of expenses. Assume that we've covered everything here, though. If we have, she's paying approximately $76,000 per year in living expenses, excluding private tuition. At an inflation rate of 2-percent per year, that means that in 35 years, when she retires, it will cost her approximately $104,000 per year to meet her expenses, if her mortgage remains stable. If she works for 35 years at that $250,000, in short, she will have enough money to support her for 23 years. She will then run out of money, since she will never see her Social Security check again.
Now, is she rich? She'll be able to retire at 65 and survive to 88 on her money. But this assumes no escalating costs of care, no vacations, no more children. If she has any sort of serious health issue, she's dead in the water. And government healthcare is no solution -- if it goes into practice, she'll never be able to save to this point.
She's not independently wealthy, in other words. Then, when she dies, the government will take a huge chunk of whatever is left.
And she is one of the best-earning Americans. The vast majority of Americans will never earn this income level. That means that for a huge number of Americans, independent retirement is out of the question. Becoming rich is a pipe dream.
When Americans are faced with the prospect that they can never earn their way to wealth, they have two choices: to rebel against the system, or to settle into depressed complacency.
Under the first scenario, Americans strike down the taxation, regulation and the government scheming that impoverishes them, and they restore the possibility of true wealth. Under the second, American embraces European-style corporatism. The choice is ours, but not for long.