No. of Recommendations: 0
From Ray's response:

<< And the people who qualify *can* afford to do it. It just takes some financial discipline. I doubt that
you'd tell me that a family earning $40k (the *beginning* of the nondeductible phase-out range for
1997!) can't afford $2k for an IRA.

Yes, that's exactly what I'm telling you. I think the data gathered by the US government bear me
Back-of-the-envelope estimates:
$40,000 annual income, family of four.
Fed tax= $4,500 ($10,000 std deduction)
State = $1,200 (flat 4% of AGI)
FICA = $3,000 (7.5% of $40,000)
Total taxes = $8,700

Housing $12,000 (est $1000 per month)
food $5,200 ($100 per week, $25 per person per week)
utilites $2,400 ($200 per month, gas, electic, phone)
clothing $2000 ($500 per person per year)
car $4,800 ($400 per month, payments & insurance)
Total major expenses: $26,400

Left over cash, $4,900 ($40,000 - 8,700 - 26,400)

Minor & misc expenses can easily consume that remaining $4,900--I didn't account for any credit
card payments or any other loan payments, or any other savings (such as saving for college
expenses for the kids).>>

If your add insurance to your example, your example will make it clearer that it is hard to contribute $2k with a family income of $40,000. Where I work, family health insurance will cost $250/month or $3000/year. Your could gamble and go uninsured, but I wouldn't gamble on it.

And don't forget life insurance. You need some for both of you even if your spouse doesn't work. The non-working spouse needs insurance because who will take care of the kids while you are working if he/she dies. Life insurance should set a family back $30-$50 per month.

In the end, not much left over for regular house and car maintenance, birthdays, Christmas, and other small costs.
Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.