It has been a week of observations. Five months of my billing to one of my main clients came in the mail. It was around $20,000 after tax, money I do not need but still enjoy earning for some perverse reason. And that led to my first observation. I received the check on Monday, January 3rd and deposited it on Tuesday, January 4th, the same day my wife and I got a $1,200 direct deposit from the IRS as part of the phase two stimulus package. So that’s good, right? A one day increase of over $20K in our net worth, outstanding!
Except when I checked our net worth the very next day it had actually dropped by $15,000. Because my portfolio fell more in one day than I made working for that client for six months! That’s sobering, to say the least. And it just points out what all long time investors know, making income in retirement doesn’t impact your net worth very much compared to the normal swings in the stock market. Then, when I checked the market value of my investments today, my net worth is back up $25,000 higher than it was earlier in the week without my depositing any more money. It actually makes earning money at my stage of life seem like a waste of time.
The second observation has to do with the $1,200 stimulus money. I never disclose my exact net worth but I have gone on the record as having already been a self made multimillionaire prior to inheriting another million a few years ago. I don’t say self made to discount the number of random advantages I had in a capitalist marketplace, I had a boat load of help and advantages that got me where I am. I just mean I didn’t inherit most of my money, just a slice of it.
I didn’t FIRE because I enjoyed my work and consequently I stored up too much money, or at least more than I’ll ever spend. So the idea that the government should be sending me and my wife money to help us survive these tough times seems, well, I don’t have the right word for it. Maybe ludicrous, absurd or misguided? And that’s on top of the $2,400 we got with the first round. The reason we did qualify is that our adjusted gross income (AGI) on our 2019 income tax filing was less than $150,000. Not much less, but still we qualified for the full amount of stimulus relief. And that is because passive income, like growth in our investments, for the most part, isn’t counted as income unless you withdraw the money from a IRA/401K or are paid dividends in a taxable account.
So my millions can make tens of thousands more and it won’t show up as a penny of income. But the fact is its there, its ours and we can spend it any time we want to. It is as real as any other form of money even if the IRS doesn’t “see” it. Its very similar to the way some FIRE millionaires get subsidized health care under the Affordable Care Act. The test to qualify is based on AGI and ignores most of their assets and all of their tax deferred growth. Do I like the system? Sure I do. Is it fair? I think so, because I paid hundreds of thousands of dollars in taxes in the higher tax brackets already and I’ll also eventually pay taxes on my tax sheltered investments when I draw out required minimum distributions (RMD’s). Should the way the stimulus money is qualified for be revised? Maybe.
The third observation this week was that Covid is getting real. So far I had known only a handful of people who had tested positive. And while a couple of my friends did have to seek medical care nobody had any lasting known impacts from the virus. But that changed this week when one of our friends’ grown kids died of Covid. He was not a senior citizen, he was someone relatively young and healthy. Someone much younger and lower risk than me. I think we all relate to the risk based on what we have seen in our own circle of friends and acquaintances. It has changed my perception of the risk of the virus.
Do the swings in the market sometimes make your paycheck look anemic in comparison, or is that just me?
What about the stimulus money, is it obscene to give it to multimillionaires who qualify based on the way people are screened only on adjusted gross income? Are ACA healthcare subsidies any different?
Do you view the risk of the Covid virus based on your personal experiences and those of your friends and family or do you judge risk based on the science that is available?
As always, if you can’t see the comment box just click on the title at the top of this post.
sorry to hear about your friend’s kid, steve. we still don’t have any close connections with covid related problems. we’re pretty careful mostly just going to the store and work in a mask and walking/running the dog in lots of space.
we got both of those stimulus checks too even though we’ve been working the whole time. i think they could have done it a better way. i also though the extra 600/week unemployment was a little silly back in spring. they could have just scaled it up by a percentage so people like students living at home but unemployed from their 200/week jobs weren’t getting 10 grand for free.
it’s a great feeling when the market overwhelms your paycheck. last year our gains in our stock account alone were more than 3x our best year working combined. that’s just crazy but i guess that’s why we save and invest. we all know the math but it still really hits home for me when it happens. stay well.
Always great to hear from you Freddy. I hope we can can have a beer together some day! I’m glad you are staying healthy, it would truly suck to get sick when a vaccine is almost here.
I don’t think it is ludicrous that they sent you the money. The rules are the rules. You played by the rules and paid into the system all this time. Why not just cash the check and enjoy the gift? Or you can donate it to charity.
I have a bad habit on checking daily into my portfolio and it seems absurd that it goes up and down by 5 digits at times. However, knowing that I still check it daily. I think I need one of those rapid neurological tests!
Your are totally sane Denver. I check it all the time too. Or maybe you are as equally unhinged as me?
Steve, I remember the first year my investment returns exceeded my salary. A real example of the power of compounding.
I do wonder if “means testing” will be modified at some point in the future to include Net Worth (eg “Wealth Tax”). Many countries do that, and I suspect the chance is high that we’ll see it in the USA during our lifetime.
Fritz, I think you are right. Taxes are like the stock market, they might drop for a period, but overall they typically keep increasing.
Thanks Steve. Yeah, I made more in the market last year than I made through my actual job, which was a bit sobering. It actually went up around 4x what I spend every year. Crazy. Definitely makes me wonder why I’m sacrificing 60+ hours a week when I don’t need to do so.
On the stimulus check, yeah – I think it is insane to watch our bankrupt government shower people with money when there is clearly no need to do so. I’m sure that some people will use it for necessities, but from what I can tell on my Facebook feed WalMart is going to get most of those checks. Definitely seems like there should be a better way to target that money to those that truly need it – especially when we’re borrowing it and / or printing it out of thin air to begin with.
Funny, I’ve been looking at my net worth tracker with the same sad/happy faces and amazement in recent months, too. As for money from the government, I’d just as soon it go to the people who are really hurting and wasn’t given strictly based on AGI thresholds. We gave away a lot of the first payment to nonproifits/charitable organizations and will do the same with this latest round.
No stimulus checks here, but the federal student loan forbearance saved us close to $10k, even though we’re both still fully employed. All absurd, poorly-targeted policies, but hey, I don’t make the rules, I just take advantage of them. As for income versus wealth, California keeps trying to implement some insane wealth taxes. Of course, the very prospect of that, along with other tax policies, is driving Elon Musk and the like out of here. I try to tell myself they’re unlikely to ever get crazy with lower-end millionaires because there are countless sweet, sympathetic grannies who are only millionaires because of how much their decades-old homes have appreciated. And presumably nobody wants to screw them over by driving them out of their homes to pay insane tax bills. I assume the same would be true at the federal level? There’s also some constitutional concerns at the federal level. That’s not to say they won’t try, but it’s probably a ways off. And I won’t feel bad when I’m living like you, because the income taxes I’m paying right now are staggering.
Hey, Mrs. FCB. Yes you are paying massive taxes, I remember those days. I have more disposable money now than I did then but it just doesn’t hit the AGI column. That’s a good point, it would be hard to target guys like me without collateral damage to people whose net worth is tied up in a house. And if they tried to separate the house and not count it then guys like me would just buy a McMansion with cash and spend the equity. I can see CPA’s making a fortune in helping people circumvent wealth taxes.
Hey Steve, always a thought-provoking post as usual. I love that you ask the hard hitting questions that’s on most people’s minds. Would love to pick your brain over a beer. But this blogging communication is the next best thing we got! Very sorry to hear about your friend’s kid. COVID is very real and has affected the entire world. Just a reminder to live every day like it could be your last.
Thanks Tyler, It is getting real for lots of people now. It’s hard not to think about how bad it would be to catch Covid right now, right before the vaccine was available.
I mean you should be happy that you received money from the government because you followed every rule in the and there is nothing wrong with checking your portfolio or your net worth regularly and yes the COVID threat is very real we should all take precautions
Thanks for commenting, I think you are right on all counts.
Cool blog just found you through A Purple Life which has become one of my faves recently. I think the government just doesn’t have the resources to further distinguish who really needs money and who doesn’t. I got it and do not need it (well I suppose that is subjective, I’m not retired yet) – but did not feel I deserved it, so gave it away to responsible friends who could truly benefit from a little extra money.
Covid has been scary AF to me from the beginning when some good friends caught it in March before everything was shut down. Young and healthy, had a hard time with it, many lingering symptoms. We have been very cautious (and mostly enjoying life anyway!) but due to a blended household situation my 9 yr. old brought it home from her Dad’s mid Dec. We had what would be considered a mild case but it’s still the most sick I have ever been (38 and very healthy) – the effects are lingering after a month. Just not quite 100%. Can’t exercise hard. Worst symptom of all is the brain fog. Hard to describe but like you can’t focus well, head hurts if you think too hard. Like mild brain damage. Terrifying. Especially for my husband who actually uses his brain a lot for work! But, it could always be worse. Some good news today, my mom who is 67 got a lottery vaccination appointment for Friday!!