The Santa Claus Syndrome: Where Things Come From

Poor Millionaires?

    Nobody knows what rich and poor mean anymore. Of course the majority of us are neither, just part of the vast unheard majority in between. 

    The only way you can measure the value of an amount of money it to relate it to something else. You can’t say whether $500 is a lot of money without some reference point. It is a lot of money to pay for a hamburger but not much to pay for a new car. 

    So how can we decide if the millionaires are rich or poor? One way is to look at what sort of income they might earn on this and relate that to average income. Remember, having a million dollars is a lot different from spending a million dollars. When people describe what they would do if they had a million dollars, they often describe how they would spend it. Usually they would spend it immediately and several times over. This should be a clue as to why they will never be in that position. 

    Let’s describe someone who could be a typical millionaire. I’m using total net worth to define “millionaire.” Some like to use a definition that only includes investable assets so excludes the value of their home. This is important to investment advisors looking for clients because they are looking for what they could earn a commission on. For the rest of us, the total is fine. 

    Let’s assume a case of someone who accumulated a net worth of a million dollars over 30 or 40 years of running a small business, say a couple of dry cleaning stores or maybe a couple of drugstores. Let’s say our millionaire is 70 years old and no longer working. So how are things going in this situation? 

    Many investment advisors say that it is safe to spend 4% annually of your savings in retirement. Of course with the low investment incomes now, you might have to cut back. And say our millionaire has $200,000 of his net worth invested in a home. You can’t spend that as you go along and you aren’t going to be getting any income from it unless you are renting out a room so we should take that amount out of consideration. If you spent 4% of the remaining $800,000 it would only amount to $32,000. 

    Then let’s assume a Social security payment of $20,000, fairly typical. You would have a total income of $52,000 a year, very close to the actual median income. Our millionaire is not poor but is a long way from rich. Depending on the cost of living in your location, he could be on the lower end of middle class. You could just plunge in and spend more of your capital but those who think like that aren’t likely to accumulate much anyway. So it’s good to remember this example when you hear the media discussing millionaires.

Democrats Against Obamacare

Roy Barnes, former Georgia governor and the Democrats’ nominee for this year, is campaigning against his party’s health care bill that so many of them are so proud of.  An AJC/AP story published yesterday points out that while Democrats favor the plan, he will need votes of Independents and moderate Republicans to get elected and they are highly suspicious.

            Barnes criticized the plan as “financially devastating” to the state without a plan to get Medicaid costs under control.  He is concerned that in 2014 when the federal government cuts back to their normal Medicaid contribution, it will impose staggering new costs on the state.  He sees the current Medicaid tab for the state going from the current $2 billion a year to as much as $5 billion a year.  This is while the state is going through a big reduction in every program because of lowering tax revenues.  (No, the state isn’t likely to raise taxes either.)

            One of the biggest shortcomings in Obamacare is that it focuses on health INSURANCE costs instead of healthCARE costs.  In many cases it will increase costs. Just the Medicaid issue will probably bankrupt a few states.  (Maybe that’s why many of them are suing the federal government to stop the plan.)  It imposes increased employment costs on small businesses that are already having a hard time paying their employees.  

Many small businesses have dropped health insurance not because they thought people didn’t need it but because of the cost.  So what is the Obamacare solution?  Force them to pay! 

So even some Democrats see the problems with this plan. As the features go into effect over the next few years, and the bills start to arrive, they will become more obvious.  But can we stop the monster before it sinks us?  The November election results will give a sign.