Is the Upper Middle Class Feeling “Squeezed” Too?

This week’s issue of Businessweek has an intriguing article called “Taxing the ‘Not-So-Rich’ Rich“. It’s all about how those earning $200,000 to $300,000 are also feeling squeezed by the rising gas prices, higher health care costs and higher college costs.

Take this family in Philadelphia:

By any measure, Dr. Howard Hammer and his wife, Hope, have a comfortable life. Hammer, 40, has built a thriving practice as an ear, nose, and throat specialist, while Hope, 39, has switched to part-time work as a real estate lawyer after years at a big firm in order to spend more time with Arielle, 7, and Matthew, 9. Home is a four-bedroom house in the Philadelphia suburbs, and between them, they bring in over $300,000 a year. “We can’t complain,” he says. “We’re certainly not struggling.”

According to the article, they are paying:

1. $3,000 a month for their mortgage
2. $2,000 a month to pay down his $160,000 medical school loans

Yet- things are tight for them.

A six-year residency gave Hammer a delayed start saving for retirement, so he worries if he’s stashing enough in his 401(k). By the time the couple contributes to the children’s college fund, there’s little extra at the end of the month.

How can that be?

Even after taxes, they are taking home at least $150,000 (and that’s on the low side.) Let’s just say $12,000 a month.

We know $5,000 a month goes towards the mortgage and the medical school loans.

Let’s say another $2000 goes into their kids college fund ($1,000 each a month).

That still leaves $5,000 for cable tv, telephone, food, entertainment, car payments, gasoline etc.

Seems to me that they should have PLENTY of money left over to, say, stash at least $1,000 a month into a stock fund.

So why do they say there is “little left over”?

We aren’t getting the full story here. Some expenses are missing from this tale.

What the Upper Middle Class Truly Earn

Only 3% of all Americans report income in the $200,000 to $500,000 range. Only 1% report over $500,000 a year.

And these people are feeling the squeeze too?

The article argues that it may seem like a lot of money, in, say, Iowa, but in the New York or San Francisco metropolitan areas, you’re barely getting by.

And that’s partially true- because of the incredible cost of housing in those two areas. But there are teachers, nurses and librarians all living in those areas as well- and somehow they manage to get by.

Here’s another example from the article:

Yet for many close to that $250,000 cusp, what sounds like a lot of money often doesn’t feel like it. “Depending on where you live, $250,000 is middle class, at best,” says Michael Ginn, 49, a longtime media executive who lives with his wife, Dafne, 34, and 3-year-old daughter, Erin, in the New York suburb of Pelham; their second daughter is due in July.

Though his income has topped $300,000 for more than a decade, Ginn says he’s never felt so stretched. With the cost of everything from health insurance to upkeep on his 90-year-old home surging, even as he takes on new expenses for his growing family, Ginn can’t stash away anything near what he once did for retirement, let alone save for college.

“We’re just dog paddling now,” he says. He argues that if Washington is going to raise high-end taxes, then the local cost of living should be taken into account.

So- he’s made $3 million in just the last decade. Did he save even 10% of that? Let’s say he had. He’d be VERY well-off right now. He’d a juicy amount of money in a stock fund if he did some basic investing in a diversified portfolio of blue chip stocks.

Again- the article doesn’t tell us the REAL story. Where did all the money go? Why was nothing saved? He has a 3-year old, not a teenager, which costs more money. Maybe the house is simply too expensive?

If these richer people can’t save for retirement or college, how are the rest of us supposed to do it on incomes that are half or a third less than this?

I shudder to think.

Many of you will be better off than both of these families if you simply save a few hundred dollars a month in the stock market and let it grow.

Just because you make a lot of money, doesn’t mean you’re WORTH a lot of money.