SUNDAY, DECEMBER 12, 2010 How a $250,000 household fares
By any measure, $250,000 is a substantial sum. Even so, to make ends meet a family of four in these high-cost communities with this budget would have to cut back on discretionary spending at the expense of retirement plans, college funds or possibly even savings. local area
EARNED INCOME:
HOUSING Mortgage
interest and principal payments Property insurance Maintenance Cleaning
TWO CARS* Insurance
Car loan payments Gas
Car maintenance Parking fees
TAXES Federal income
Alternative minimum tax Social Security/Medicare State income Property Sales Gas
Phone service OTHER TOTAL SPENT
Amount over or under budget with earned income only
with $3,000 investment income SOURCES: Te Fiscal Times, BDO USA
PLANO, TEX. NAPERVILLE, ILL. PINECREST, FLA. $250,000
$250,000
34,993 24,036
957
5,000 5,000
18,146 2,926
7,596 5,844 1,000 780
65,096 34,317
-
15,473 -
11,140 2,160 1,656 350
129,802 248,037
1,963 4,963
35,330 24,683
647
5,000 5,000
22,166 3,358
7,536 6,804 1,000 3,468
68,340 33,071
377
15,325 5,215
10,508 1,898 1,596 350
129,802 255,638
(5,638) (2,638)
47,071 36,055
1,016 5,000 5,000
19,566 2,906
7,536 6,804 1,000 1,320
61,621 31,768
-
15,400 -
10,946 1,833 1,324 350
129,802 258,060
(8,060) (5,060)
$250,000
ALEXANDRIA $250,000
46,608 36,055
553
5,000 5,000
20,000 2,466
7,332 6,022 1,000 3,180
63,870 30,197
-
15,324 8,881 6,264 1,309 1,545 350
129,802 260,280
(10,280) (7,280)
BETHESDA $250,000
46,694 36,055
639
5,000 5,000
20,851 3,100
7,404 6,167 1,000 3,180
64,059 30,694
-
15,398 7,628 6,714 1,571 1,704 350
129,802 261,406
(11,406) (8,406)
THE DISTRICT GLENDALE, CALIF. HUNTINGTON, N.Y. $250,000
$250,000
46,894 36,055
839
5,000 5,000
21,429 3,506
7,356 6,387 1,000 3,180
65,452 29,909
177
15,299 10,717 5,752 1,571 1,677 350
129,802 263,577
(13,577) (10,577)
46,731 36,055
676
5,000 5,000
21,617 3,548
7,764 7,085 1,000 2,220
71,683 30,233
1,384
15,374 11,670 8,957 2,160 1,555 350
129,802 269,833
(19,833) (16,833)
46,731 36,055
676
5,000 5,000
22,571 2,926
7,596 5,721 1,000 5,328
78,276 29,344
2,710
15,156 10,557 15,222 2,258 2,679 350
129,802 277,380
(27,380) (24,380)
$250,000
OTHER (national average costs for income level) HEALTH CARE
Medical insurance premiums
(30% of total cost) Out of pocket medical* Dental costs
CHILD CARE
Day care and babysitting * Aſter school activities/Camp
UTILITIES Gas and electricity
Phone, cable and internet Water
FOOD AND STAPLES
Food and household supplies Takeout meals @ $25 per week Lunches at work @ $10 each
CLOTHES Clothes
Dry cleaning
STUDENT LOANS LEISURE
Travel (1 family trip) Eating out
Giſts, holidays, family celebrations
13,282 4,213
5,000 4,069
19,000 15,000 4,000
8,292 5,280 2,400 612
19,909 13,659 1,250 5,000
4,155 2,955 1,200
6,000 15,164
4,000 2,400 3,000
Entertainment (movies, sports, etc.) 2,693 Entertaining at home Dog
1,500 1,571
OUT-OF-POCKET EXPENSES SAVINGS
College fund Retirement funds 3,000
41,000 8,000
33,000
*Tese items were partially paid out of flex accounts THE WASHINGTON POST
How far does the money really go? Here’s the breakdown. rich from G1
acarloanononeof twocars,anda mortgage for 80 percent of the value of a typical home in their communities for a family of four, which includes a toddler and one school-age child. The bottom line: Living in
high-tax areas on either coast can leave our $250,000-a-year family with little margin. Even with an additional $3,000 in investment income, they end up in the red— after taxes, saving for retirement and their children’s education and a middle-of-the-road cost of living — in seven of the eight communities in the analysis. The worst: Huntington, N.Y.,
and Glendale, Calif., followed by the District, Bethesda, Alexan- dria, Naperville, Ill. and Pine- crest, Fla. In Plano, Tex., the cou- ple’s balance sheet would end up positive, but only by $4,963. Taxes take a hefty toll. Every-
thing from property taxes and the alternative minimum tax to the taxes tacked on to cellphone bills and the cost of gas, when com- bined, takes a large bite out of earnings — in some cases even more than the federal income tax
toll.Andit’snotlikely togetbetter anytime soon. States and munici- palities have been steadily raising income tax rates to close gaping holes in their budgets. Property taxes are also increas-
ing even though real estate values have cratered. And sales taxes are hitting record levels, in some ar- eas nearing 10 percent. Gas taxes, alcohol taxes and surcharges on things such as flights, ferry rides, soda, vehicle registrations and rental cars have also climbed. Additional tax increases for
couples with salaries of $250,000 or more (and singles earning $200,000 or more) are scheduled to go into effect in 2013 under the health-care bill passed inMarch.
Meet the Joneses Being in the red on a $250,000
annual salary might still seem surprising. But taking responsi- bility for their retirement and their children’s future is costly. They are maximizing contribu- tions to two 401(k)s and all flexi- ble spending accounts available to them, and they are squirreling away $8,000 a year into college funds. Their spending is conservative,
based on national averages for professional couples with two children. Not included are those run-of-the-mill payouts for chari- table deductions, life insurance premiums, disability insurance, legal fees — or monthly sessions at the salon or gymmembership. As educated professionals,
they buy books, newspapers, magazines; they own computers and pay for Internet access. But the Joneses don’t take lav-
RICH.AAA PROOF1
Topic: sunday biz
Run Date: 12 / 12 / 2010 Size: 71p10 x 6.4”
ish vacations. They don’t belong to a country club, play golf or drive luxury cars. They don’t have a swimming pool or buy designer clothes. They don’t own or rent a secondhomeand don’t send their children to private school. And they don’t shop for groceries at high-end markets (they spend what the Department of Agricul- ture defines as a “moderate” amount on food for the average family of four). In reality, to make ends meet,
Artist: alicia parlapiano
thiscouplewouldhaveto cutback on discretionary expenses—take a pass on a new suit, skip an annual vacation and drop some activities for the children. Unfor- tunately, the family would also probably save less, at the expense of retirement or college funds. “A family earning $250,000
should be saving more, not less,” says Rocky Cummings, BDO’s na- tional director of state and local taxes. “Saving less isn’t going to cut it for their retirement.” Consider the tax profile of the
Joneses when based in Hunting- ton, a suburb of New York City. Thanks to all of their smart pre- tax contributions and a fat deduc- tion for mortgage interest and state and local taxes, the couple’s federal income tax is only $29,344. But what often goes overlooked is the toll taken by state and local taxes. In this case, it exceeds the federal income tax bill: $29,864. State income taxes, taken
alone, are $10,557. But factor in the gas tax ($1,545), property ($15,222),phoneservice taxesand surcharges ($350) and sales ($848), and the picture changes. Their total tax bill, including the AMTand payroll taxes: $77,074. “When most people think
about taxes, they think first about federal income taxes, then maybe about sales taxes, but there are a lot of taxes out there,” says Mark Robyn, an economist with theTax Foundation a nonprofit tax re- search group inWashington. “It’s eye-opening to step back and take a look at the whole picture.” The Joneses would fare some-
what better in the Washington area. If they lived in the city, they would pay $29,909 in federal in- come taxes, $177 in alternative minimum tax and $15,299 in pay- roll taxes. Add to that the $20,067 in state and local taxes and you get a total of $65,452. Moving to a state with no in-
cometaxes or low taxes in general would do more to help the Jone- ses’ bottom line. In Pinecrest, Fla., a suburb of
Miami, they would owe zero state income tax, and pay an annual $10,976 in property taxes, $1,833 in sales taxes and $350 in phone service taxes, for a total state and local tax burden of $14,453. Be- cause they would have no deduc- tion for state and local taxes on
FPO
their federal tax return, they would have to pay Uncle Sam more than they did in Hunting- ton: $31,768. Still, the total tax burden would be significantly less: $61,621, vs. $78,276 in Hun- tingtonand$71,683 in Glendale,a suburb of Los Angeles. But formany people,movingto
a low-tax state in mid-career is difficult if not impossible. People are generally bound to their high- tax states by their jobs. And often it’s tough to find high salaries in low-tax states such as Florida.
What $250,000 buys The $250,000 threshold was
first mentioned in a campaign speech by Obama in 2008. “It’s an historical accident,” Williams says. “I don’t think there was any thought given towhy $250,000— it became a mantra.” Whether $250,000 represents
affluence “depends a great deal upon where you live,” he says. Consider, for example, the tab
for the same assortment of ground beef, tuna, milk, eggs, margarine, potatoes, bananas, bread, orange juice, coffee, sugar and cereal: In Twin Falls, Idaho, $23.41. In New York City, you would shell out $40.29, or 72 percent more, according to the Council for Community and Eco- nomic Research. That higher per- centage carries across all expen- ditures, from child-care costs to haircuts. Of course, housing costs are
one of the biggest variables. In Glendale, the Joneses can live reasonably well—but not extrav- agantly—in a three- or four-bed- room home valued around $750,000. In Twin Falls, they wouldneed to spend about half as much on an equivalent home. After covering taxes and only essential expenses for housing, groceries, child care, clothing, transportation — and their dog, the Joneses would still be in the red by $1,787 inHuntington. In Alexandria, the couple
would be in positive territory with $15,313; in Bethesda, they would be up by $14,187 and in Washington,by$12,036. InPlano, Tex., the best-case scenario of all the locales in the analysis, they would have $27,556 to spare. But factor in common addi-
tionalexpensesforaworkingcou- ple with two children — music lessons, day camp costs and after- school sports, entertainment, cleaning services, gifts and an annual week-long vacation—the Joneses get deeper in the red in Huntington, to the tune of $24,380. In Alexandria, they would be down by $7,280. In Bethesda, it would be $8,406, and inWashington, $10,557. In Plano, thebest-case scenario,theywould have $4,963 to spare. Some of the expenses incurred by couples like the Joneses might
Bonds, particularly municipal funds, lose luster with investors
The appeal of bonds may be dimming, as investors took more money out of bond mutual funds than they put in last month. The pullout snapped a two-year string of positive monthly flows into bonds, where investors have sought refuge after the financial crisis soured many on stocks. Fund tracker Strategic Insight
said Friday that investors pulled $1.3 billion from bond funds in
November, the first outflow since December 2008 during the credit crunch. Last month’s outflow stems
largely from a sharp increase in the amount pulled out of munici- pal bond funds. The net with- drawal of $7.4 billion came amid fears about the financial health of state and local governments. Investors appear more confi- dent in the health of corporate
America, as they added a net $6.1 billion to taxable bond funds, which don’t offer munis’ tax ad- vantages. Still, this wasn’t enough to off-
set what happened with muni funds. The overall shift out of bond fundsmarked an about-face from October, when bond funds attracted a net of more than $22 billion.
—Associated Press
seem lavish—such as $5,000 on a housecleaner, a $1,200 annual dry-cleaning tab and $4,000 on kids’ activities. But those are the sort of expenses that households with two working parents might juggle as they try to maintain the home, care for the kids and dress for their professional jobs. Andcostsassumedbythe Jone-
ses could be significantly higher if their circumstances changed. If they worked for themselves, for example, they would have to foot the bill for all of their medical insurance premium, which aver- ages $14,043. As it is, they pay 30 percent of thepremium,andtheir employers pay the rest. Bottom line: For folks like the
Joneses who live in high-tax, high-cost areas, who save for re- tirementandcollege,payfor child care to enable two incomes and spend higher prices for housing in top school districts, $250,000 goes quicker than you might think.
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