Infographic: Income for Maximum Happiness For All 50 States

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You may have read that a Princeton University study by Deaton and Kahneman found that people were more satisfied with their life as their income rose, but only until about $75,000 a year. After that, higher income did not result in greater happiness. Doug Short of DShort.com extended this $75,000 number and adjusted it by the cost-of-living for all 50 states. The Huffington Post in turn converted that table into a nice pretty infographic map. I’ve mentioned this finding before and readers pointed out that $75k goes farther in some places compared to others, so it is shared below.

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Money can only buy happiness up to a point. But just how much you need to get to that threshold really depends on where you live, according to a new analysis by Doug Short, vice president of research at investment group Advisor Perspectives.

Short’s analysis found that if you live in a place like Hawaii, where the cost of living is relatively high, a household needs to make $122,175 per year before some extra cash doesn’t really translate into more happiness. In Mississippi, by comparison, the threshold at which more money stops making you happier is a lot lower: $65,850 per year.

Of course, the next link on HuffPo was… More Money Always Leads To More Happiness: Study

Money is Independence.

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flagAs we celebrate the anniversary of our nation’s Declaration of Independence, I wanted to quickly share this excerpt from an article The Millennial Definition of Success by Adam Nash, CEO of Wealthfront:

Increasingly, as I talk to Millennials, some of whom who have found early success in their careers, and others who are just starting out, I hear the same things. This generation overwhelmingly associates success with control over who they work with, and what they work on. [...]

Wealthfront now has over 12,000 clients, and most of them are under 35. What I find striking is that, overwhelmingly, with every success in their financial lives, these young people seem to immediately focus on using their success to gain control over their careers. They don’t seek to optimize for title, or financial reward. Instead, they increasingly use their success to effectively fund the ability to work on a product they believe in, an organization they want to be part of, and a leader they want to follow.

I’m not even a Millenial and these attributes are not restricted to those born after 1980, but I think it is a good observation. Wealthfront is one of many automated portfolio management sites competing with each other, but I think their relative success is mostly due to the fact that they “get” young, smart, tech-savvy workers. (Not by accident they are often the ones with lots of money to invest.)

Perhaps money is better viewed as a tool than can help you now rather than a way to avoid being broke at some point far off in the future. Being wise with money gives you options. Money is freedom. Money is control. Money is independence.

Lessons from the First Jobs of Financial Gurus

Help Wanted SignChris Taylor of Reuters has been writing some mini-interviews about the first jobs of well-known finance gurus like Warren Buffett and Jack Bogle. They include newspaper delivery boys, retail stockboy, gofer, shoeshine boy, USPS mail sorter, bowling alley pinsetter, and soda pop vendor at baseball games.

The initial takeaway is that these are humble beginnings for people who ended up as rich and powerful. It made me think of my own first jobs as a restaurant worker and parking lot attendant. Does this mean we all have hope?

However, while working my minimum-wage jobs I also remember a lot of teenagers and adults being really bad at those entry-level jobs. Based on the short descriptions given in the Reuters articles, the people interviewed all displayed certain successful traits at their first job. Perhaps doing well at your first job requires most of the same basic skills that you need to succeed at future high-level jobs. I think these critical skills would include:

  • Reliability. I remember many people not showing up on time repeatedly, or even at all for their shifts. Charlie Munger lists reliability as one of the most essential traits for success. He explains that while something like quantum mechanics may be unlearnable by many, reliability can be learned by anyone. If you can master the ability to always be reliable, that alone can overcome many other disadvantages.
  • Persistence at trying to do your job well. You may not be very good at first, but if you keep trying and learning chances are you’ll get there. I recently heard an interview about chef Geoffrey Zakarian landed his first job with limited skills at the famous restaurant Le Cirque. How? He walked, asked, got denied, offered to work for free (!), got the job, and learned his way up starting with peeling potatoes.
  • Good (basic?) social skills. The other way that I’ve seen people mess up minimum-wage jobs is that they just can’t get along with people or control their emotions. They get into heated arguments with customers and/or coworkers, and either get fired or are just never seen again (disturbingly common). The current chairman and vice-chairman of Ariel Investments both started out working together as baseball stadium food vendors. Look at Warren Buffett and Charlie Munger, who met through common friends. Take advantage of any opportunities to partner with good people when you come across them.

How Spending Changes Throughout Working Life and Retirement

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Common retirement planning advice tells you to plan on replacing 70-80% of your pre-retirement income. However, this Financial Post article argues that number may be closer to 35%. Article found via k66 of Bogleheads.

Essentially, the author segregates your income to “regular” spending and temporary “investment” spending that won’t continue into retirement. Regular consumption includes food, transportation, home and car maintenance, and insurance. Temporary spending include a mortgage, child-related costs, work-related costs, and retirement savings. The idea is that in retirement your house will be paid off and your kids will be financially self-sufficient, so those “investment” expenses will go away and you’ll need less money than you may think.

Here’s an illustration of how this would break down for a theoretical couple that bought a house at 30, had kids at 35, and retires at 65.


(click to enlarge)

Now, it’s easy to get hung up on how this chart doesn’t accurately reflect your life. It’s not supposed to! Instead, imagine for yourself what this chart might look like for your situation. For example, my parents definitely kicked up their savings rate post-kids and pre-retirement. For us, we had our highest savings rate pre-kids. You may need 20% of your current income, or you may need 80%. This is one place where a rule-of-thumb just isn’t useful.

I would note that the article doesn’t really mention health insurance or other health-related costs, possibly because it is a Canadian newspaper. Also, young people in the US probably spend at least a few years paying down college loans. Finally, some folks will need to account for new post-retirement spending that might pop up like travel and other costly recreational activities.

Part-Time Track Jobs For Mainstream Professionals?

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bwfatherBusinessweek’s cover story this week is about how fathers do the work/family balancing act. The article talks about how men want to be more involved in family life as well as women but face their own unique obstacles yada yada, but this part caught my eye:

When Trombley [research engineer at Ford Motors] was expecting his first child, he and his wife, who also works at Ford, weren’t thrilled with the child-care options available, and she wasn’t eager to become a stay-at-home mother. Trombley remembered that a colleague from several years back had worked out a novel solution with her husband, with both taking part-time schedules to allow them to split the week up and each be home with their kids for half of it. Ford didn’t offer paternity leave, but it did offer a part-time track so long as an employee’s manager approved it. When baby Dylan arrived, Trombley went to his bosses and told them he wanted to drop down to 70 percent and work from home two days a week. [...] There are now three other men in his department with similar part-time setups; there were none when Trombley started.

Is there a list of large, Fortune 500 employers that offer such a “part-time track” option? I only found some job board sites like 10til2 and FlexJobs. I did find this 2004 research paper Beyond the Mommy Track: The Influence of New-Concept Part-Time Work for Professional Women on Work and Family [pdf]. From the abstract:

Compared to their counterparts who worked full time, mothers who worked in these part-time positions reported significantly greater work/family balance and did not report significantly less career opportunity. The part-time group reported 47% fewer work hours and 41% lower income than the full-time group. These data support the notion that new-concept part-time work is a viable option to assist women in professional careers to successfully integrate their family career.

I’m selfishly fascinated by the idea of part-time work for salaried jobs (as opposed to hourly workers). I’ve met part-time doctors, engineers, professors, lawyers, even judges. For most of them it’s been a figure-it-out-yourself exercise, but hopefully the idea of breaking down the traditional “full-time” job into smaller pieces is gaining momentum in the corporate world. It would not only be great for mothers and fathers, but anyone who wants more control over their life.

Don’t Squander The Power of Adaptation

Over the weekend I read all 73 posts of Arctic Dream, a blog written by the family who took a DIY sabbatical from their comfortable American life and spent a year living on a small Norwegian island in the Arctic Circle with only 180 residents. Besides quaint stories of smoking fish, there were some life lessons:

And that’s probably our biggest lesson from this year: people adapt very fast — much faster than they think. The new normal sets in and new routines established quickly.

They had no car. No cell phone. No TV. The village had no cafe, no Wal-mart/Target, not even fresh beef. But they were very happy. From the post Learning To Live With Less:

Humans have an amazing skill: the ability to adapt to a new environment without affecting our mental well being. Our ancestors honed this skill for millions of years before we emerged and became the most adaptable species ever to roam the earth. But too often, we forget that we have this skill, this genetic gift, and we squander it and make decisions in life as if we’d fall apart under adversity. And many of us sacrifice gravely in order to “maintain standard of living.”

My feeling is that humans can adapt very quickly, but they usually only find this out if they are forced to. Studies have found that those with permanent disabilities like being confined to a wheelchair are often quite happy. Conjoined twins tend to be happy the way they are. Adaptation also works both ways. People who earn more than $60,000 don’t get any happier.

However, if we are given the option, usually we’ll stay with the status quo. But think of how much more flexible your life would be if you were more confident of your ability to adapt. You could live in a smaller house, live in a new state, live in a new country! You could drive a used car, drive one less car, or have no car at all. It’d feel weird at first, but you’d adapt and still be happy. By spending less, you could build some F-you money. Instead of constantly fretting about losing the steady paycheck of your current so-so job, you can spend your time reaching for that next, better job.

I need to remind myself not to be afraid of positive change. I can adapt.

6-Month Baby Costs Update: Formula, Diapers, and Daycare

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A few readers asked for a baby update, and the 6-month-old mark felt like a good time. At this point, she is kinda-sorta sleeping through the night, kinda-sorta eating solid food, kinda-sorta becoming mobile, and 100% awesome! When people ask me how I’m doing these days, I paraphrase a quote attributed to Tina Fey:

I’ve never been so tired. I’ve never been so happy.

Before I go any further, let me say that parenting is a guilt-ridden minefield of books and experts saying “you should ALWAYS do THIS and not THAT”. But really, I feel like the longer I am a parent the less I judge others. What works for me may not work for you. What works for you may not work for me. Most of us are sleep-deprived and just trying to get through the day.

Baby gifts as risk-pooling. I haven’t really written about frugality and parenthood, and I blame it all on my generous and fantastic set of family, friends, and co-workers. I have never received such a large quantity of gifts in a such a short period of time. This gifting custom turns out to be a very clever form of “baby cost risk-pooling”. When a friend has a baby, you get them a gift, spaced out over decades. When you have a baby, 100 people give you a gift. We really didn’t have to buy very many things on our own, and still have a huge pile of unopened clothing and toys to this day. (Also see baby registry review and follow-up.)

Formula & Breastfeeding. Mrs. MMB was very determined and motivated to exclusively breastfeed our child, and she succeeded. I emphasis her, because if it were up to me, we’d probably at least supplement with formula since waking up every 3 hours for months in a row would have broken me. Both of us were primarily formula babies. The hospital was helpful in giving us lactation consultations.

Recent healthcare law changes now require insurance plans to provide a free breast pump for every new child. I don’t know about now, but this led to shortages in our area. We had to wait in line at a Target before it opened as if it was Black Friday, but half an hour later we walked out with a nearly $300 Medela pump for free. Pumping at work has been difficult at times, but with some effort she has obtained a private pumping area.
[Read more...]

The 10 Most Reliable Jobs, Lowest Unemployment Rates

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If you’re a parent, student, or just someone looking to switch jobs, here’s a list of the professions where you’ll be least likely to become unemployed. Think of it as a career guide for the risk-averse or those who want the best odds.

The WSJ recently compiled a list of jobs and their 2011/2012 unemployment rates based on government labor data. In turn, Derek Thompson of The Atlantic used that data to screen for the jobs with the lowest, steady unemployment rates over that time period. The results:


Source: The Atlantic, WSJ, BLS

The professional-school medical positions – physicians, dentists, veterinarians, do well as expected. Engineers are also well-represented (yes!). Some would say this supports the idea that an STEM (science, technology, engineering, and mathematics) skill set brings the best value. The medical positions also carefully manage how many graduates they produce each year (unlike law schools). But I’d also note that people should consider why septic tank repairers and animal breeders are also reliable professions (hard to be outsourced, can’t be replaced by machines, etc).

COBRA and Retroactive Health Insurance Coverage

Health insurance can be a complicated subject. This article is about the specific situation where you recently ended a job and haven’t yet started either a new job with benefits or alternative health coverage. Should you take the COBRA coverage, or not?

COBRA Quick Summary
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1986, which requires the option to extend health insurance coverage for up to 18 months (more in some cases) after a “qualifying event” under a “qualifying employer”. In general, a qualifying employer is one with 20+ full-time employees. A common qualifying event is when you lose your job due to either voluntary or involuntary reasons (things like gross misconduct are excluded). So it applies both if you’re laid off and if you quit on your own. You are required by law to receive a notice about your COBRA options within 14 days after the plan administrator receives notice of a qualifying event.

However, the employee must pay the paying the full cost of the premium (both employer and employee portions), plus up to a 2% administrative charge. This means that it can be expensive. I believe that the last time I quit, my single-person coverage cost over $800 a month. The bill for a family with kids could easily be over $2,000 month.

Continuous Coverage and Retroactive Clause
Due to this high cost, you may consider skipping it and taking your chances. However, if something happens and you have a gap in coverage longer than 63 days, then your next health insurance no longer has to cover any pre-existing conditions. This can be a really big deal, and may scare you into signing up for expensive COBRA benefits right away. But there’s a final wrinkle.

You have 60 days after you lose your benefits to elect to pay for COBRA coverage. However, even if you enroll on Day 60, your coverage is retroactive to Day 1. Of course, you’ll have to pay the retroactive premiums for that period. Thus, you could technically waive your COBRA coverage initially, and then wait to see if you incur any medical bills. If you manage to get on a new health plan on Day 30 or Day 55 with no medical bills, then you’ll still be guaranteed full coverage going forward and you won’t have paid anything during your gap. If you can’t find new coverage within 63 days or rack up medical bills higher than the premiums, then you can rescind your waiver and retroactively activate your COBRA benefits. Effectively, you get a do-over.

Bottom Line

Under current law, it is very important to maintain “continuous coverage” in order to guarantee that your future insurance can’t exclude pre-existing conditions. Otherwise, if for example you hurt your back during a gap, you may never be covered by insurance for back problems again. However, if you expect your gap in coverage to be under 60 days, then you can use the retroactive clause under COBRA to try and avoid paying for COBRA during that time. If you are going to use this do-over, be very careful with your dates. You can wait 60 days to elect for coverage, and then you actually have another 45 days to make the payment to cover the period from the date of election to the date of lost coverage. If you send in a premium payment, make sure it is for the correct amount and use certified mail and return receipt to document everything. Legally, payment is considered to be made on the date it is sent to the plan. Don’t cut things too close.

I have read articles that recommend using these extra 45 days on top of the initial 60 days to allow you to wait 105 days before having to commit. Their reasoning is that most insurance companies will not pursue you (sue you, ding your credit, etc.) for the insurance premium if you simply never send it in and tell them you no longer want coverage. I don’t agree with this logic and it seems rather risky, but I think it is okay to use the 45 day period if you are tight on funds and need more time to pay the premium.

Sources: Wikipedia, Department of Labor COBRA FAQ, DoL Employee Brochure (PDF), DoL HIPAA FAQ.

Career History: List of Every Job I’ve Ever Had

Help Wanted SignI’ve been thinking about all the various jobs I’ve held during my life. I remembered that even as a 10-year old child, I dreamed about being financially independent in the way that I worked for money and could live on my own – I wanted to be like the kids in the Boxcar Children books. Looking back, I suppose I shouldn’t be surprised that I would eventually dream about being financially independent in the way that I didn’t have to work for anyone. I often wonder how I turned out that way.

Here’s a list of all the paying jobs I can remember, in semi-chronological order. As you can see, I’ve always been firmly on the nerd/geek side of things. As a kid, I remember listing my future job as “scientist”.

  • Restaurant cashier/host
  • Fast food drive-thru window dude
  • Country club food server
  • SAT/ACT/math tutor (high school)
  • Undergraduate research summer intern
  • Engineering summer intern
  • Academic paper proofreader / chart maker / equation maker
  • Campus security staff
  • Parking lot attendant
  • Tennis instructor
  • University bookstore cashier
  • University psychology department test monkey
  • Math/physics/writing tutor (college)
  • Graduate student researcher
  • Graduate student instructor (physics, thermodynamics)
  • Engineering consultant
  • Freelance writer
  • Freelance web designer
  • Owner of various websites with advertising

Work has been good to me. My stints in restaurants taught me that lots of people work very hard for very little money, which made me study harder. Being an working graduate student taught me that I could eat and live quite happily on an income of less than $18k a year, something I might not have learned had I went straight into a corporate job. I met my wife while working for campus security. How many jobs have you had, and which ones changed your life?

Comfortable Retirement = Saving 11 Times Working Income?

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Via the NY Times, benefits consultant Aon Hewitt released their 2012 Real Deal study about workers at large companies and their readiness for retirement. The study assumes that an employee will work at least 30 years with some large company, not necessarily the same one, and then retire around age 65 with Social Security kicking in. It does not reflect savings or other retirement assets outside of the employer-sponsored plans (IRAs, taxable brokerage accounts, etc). The key findings of the study are summarized below:

85% replacement ratio. Using various assumptions, they find that the average worker will need about 85% of their pre-retirement income to maintain their standard of living. I suspect that most of this number comes from the finding that you need to save about 15% of your income for retirement, and it assumes you spend everything else. Thus, after retirement you have the remaining 85% to cover.

Average employee needs to save 11 times pay. The amount needed at “retirement age” (~65) to cover retirement expenses through an average life expectancy (age 87 for males, age 88 for females) is 15.9 times pay. Social Security is estimated to cover 4.9 times pay. Therefore, the employer needs to save 11 times pay.

Average employee is expected to have 8.8 times pay. This is the sum of pension benefits, employer contributions to 401k/403b-type plans, and employee contributions to those plans. This leaves an average shortfall of about 2.2 times pay. 30% of people are on track or better, 20% are very far behind, and the rest are somewhere in in the middle.

I’m hoping that this study will have nothing to do with me as the idea of working full-time in a large corporation until 65 sounds quite horrendous. :) The overall takeaway is that retirement will still happen for most people as long as they work until Social Security, even if it might not be as nice as they’d like it to be. 11 times final income seems a reasonable rule-of-thumb for this traditional definition of retirement, but using income as a multiplier is annoying to me because it locks you into the assumption of a 15% savings rate.

In terms of non-traditional early retirement, I still prefer the rough rule of saving about 30 times our annual spending for early retirement. Your savings rate will have to be much higher than 15%. If you spend $50k a year, you’d need to save $1.5 million. If you own your house and otherwise spend $2,000 a month, then you’d need to save about $720,000. Using this metric, lots of people could retire on less than a million dollars even today.

Maximizing Your Maternity and Paternity Leave Options

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As new parents-to-be, we have been exploring our options for paid and unpaid family leave from work. This is not meant to be an exhaustive list, but I was pretty surprised by all the possible permutations that you could do. I would add that while knowing your legal rights is important, I also support the idea of working with your employer and co-workers to make the process easier on everyone.

Your Work Contract
Most employers offer their full-time salaried worker’s some length of paid maternity leave, and it’s usually spelled out clearly in the lawyer-ese language of your work agreement. A few employers even offer paid paternity leave. Making an appointment to discuss all your options with Human Resources can be time well spent. Keep in mind that you are subject to the laws of the state where you work, not where the company is based.

In addition, you may be eligible for a longer unpaid leave-of-absence. For example, a big company may allow you up to one full year of leave and your same job (or comparable) will still be yours when you come back.

Short-Term Disability Insurance
Depending on your insurance plan and local laws, being pregnant or taking time off to bond with a new child may be covered under short-term disability insurance. This means you may be eligible for an additional period after your paid maternity leave where you will get a disability benefit that is somewhere around 50% of your normal pay (subject to caps).

Family and Medical Leave Act (FMLA)
The FMLA entitles an eligible employee to take up to 12 workweeks of job-protected unpaid leave for the birth or placement of a child, to bond with a newborn or newly placed son or daughter, or to care for a son or daughter with a serious health condition. You may or may not be required to use up your paid vacation days first. To be eligible for FMLA benefits, an employee must:

  • work for a covered employer;
  • have worked for the employer for a total of 12 months;
  • have worked at least 1,250 hours over the previous 12 months (~24 hours per week average); and
  • work at a location in the United States or in any territory or possession of the United States where at least 50 employees are employed by the employer within 75 miles.

Under some circumstances, employees may take FMLA leave intermittently – taking leave in separate blocks of time for a single qualifying reason – or on a reduced leave schedule – reducing the employee’s usual weekly or daily work schedule. If FMLA leave is for birth and care, or placement for adoption or foster care, intermittent leave is subject to the employer’s approval. To get that permission, you should approach your employer in a way that suggests that taking the leave in chunks would disrupt the office operations less than taking all 12-weeks at once. For example, you may propose a 4-day workweek over a period of several months to a year, as opposed to leaving entirely for three.

State-Specific Family Leave Laws
Each state can have their own separate family leave and/or disability laws that may grant you more time and/or pay. Running a Google search for “[Your State] Family Leave Act” or “[Your State] Family Leave Laws” should locate the appropriate information.

Let’s take the most populous state and the California Family Rights Act (CFRA). Under federal law, any leave taken for a pregnancy-related disability is part of your FMLA 12-week limit. However, in California, an eligible employee who is disabled on account of pregnancy, childbirth, or related medical conditions is entitled to take Pregnancy Disability Leave (PDL) for up to four months. In addition to that, an eligible employee could then take 12 weeks of family leave to care for and bond with a new child under FMLA/CFRA. That adds up to a total possible leave of 7 months.

Sources: U.S. Department of Labor, CA Dept. of General Services, CA Fair Employment and Housing Commission