How much money is too much?

$3K? Three thousand dollars? Wow, maybe my tastes are different from yours. Between my mortgage, living expenses, car payment, and health insurance, I come to almost $3K.

All the experts say to have a couple of months of “emergency money” in the bank in case of injury or layoff.

$3K ONLY would be slicing it way too close for my comfort.

You really should be able to ride out 6 months of no income.

My granny always told me, ” Alan, if you ever start wiping your arse with £50 notes, then you know for sure you have too much money.”
Gawd bless ya gran, I never forgot her wise advice…I only use £10 notes :D

When it becomes more profitable to donate millions of dollars to political campaigns (supporting candidates who lobby for low taxes) than to simply invest the money in the market.

@elbanditoroso You have to remember our cost of living is very low here in my area of Missouri.

I just can’t imagine sitting on thousands while people are needy two blocks away. I have a friend who is waiting on disability and she is older with medical issues, and very broke until her money comes through. While I don’t feel a responsiblity to help her, I want to, and tomorrow’s her birthday. What do you feel is appropriate?

@KNOWITALL – it comes down to a personal level of comfort. My personal decision is to have a couple of months salary in the bank in case of emergencies, because, in all honesty, I come first, BEFORE the lady down the street.

But I am always buying books for my grandkids, because that’s what my personal values are.

If $3K is your comfort level, then go for it.

Wait, why are you excluding IRA’s and 401K’s doesn’t all money count? Some people don’t utilize those funds and all their savings is liquid, or maybe they also have some investments.

I don’t even know if I can answer the question if you exclude certain accounts, but my standard answer is I would need $3 million not including the value of my house, to feel like I don’t have to work anymore. I think I would need to have $5 million to feel like I have too much. And, even then too much is kind of an odd thing to say. Too much to me means I feel seriously uncomfortable having that much money. I already do feel uncomfortable with the imbalance in earnings in America, and I don’t have close to $3 million dollars in the bank. But, those numbers are total total again, not just liquid money.

$3k is way way too low. You put yourself at too much risk. I think everyone should have at least 6 months worth of expenses in the bank (or stashed somewhere) liquid. Meaning you can pay your bills for six months if you lose your income.

If you lose your job, and don’t have enough savings to cover the gap, then YOU become the next charity case. You certainly shouldn’t have Scrooge McDuck money vault to swim around in, but 3–6 mos salary sounds like a good compromise.

I have no idea. I just know I am not there yet. Send more, and I’ll let you know when to stop.

Take your monthly expenses and multiply it by 6. Have this amount in a money-market account. Treat this as your new zero baseline. If you feel guilty, use the monthly interest to donate to charity if you’d like.

You should also be saving a large portion of your paycheck for retirement. If your employer has matching, you should max that out. Invest in a diverse blend of securities and let the magic of compound interest work in your favor. You should really meet with a financial planner. This isn’t being greedy, it really is a fairly modest retirement strategy.

@elbanditoroso I don’t buy anything for myself ever, I’m the biggest tightwad ever born I’m sure, besides my gramps of course, who taught me how to save every penny- lol

This week I gave myself $20, and I take my lunch every day, and get gas on weekend, I cook each night. So after picking up pics for my mom for $12, I still had cash in my pocket last night. I’m tellin’ ya, this is no joke hahaha!

To piggy back on what @gorillapaws just said, you taking a risk financially risks all of us. It isn’t greedy to have a reasonable amount of money as a safety net. Without it, you will wind up having to accept someone else’s money possibly. I would assume that would feel uncomfortable to you.

@JLeslie That just won’t happen unless things go horribly wrong. I’d cash out my 401k and sell my house before it got to that point.
My mom and just discussed that last week, when she was talking about her funeral expenses, asking if I’d need help from my aunt and uncles, and I said I can’t foresee needing their financial help at any point in regards to her death.
There are a few inheritances coming our way in the next decade, too.

I have to admit I’m surprised that not one person said I should help her out at all. Did I go to a different website?!

@KNOWITALL I must have missed that. I’m not sure I understood your sentence. Jellies told you not to help your mom?

@JLeslie “I have a friend who is waiting on disability and she is older with medical issues, and very broke until her money comes through. While I don’t feel a responsiblity to help her, I want to, and tomorrow’s her birthday. What do you feel is appropriate?”

Everyone seems to be saying I should just worry about myself, which I would expect from ‘publicans, but not ya’ll.

not a sin to cover yourself for the basics. If you also want to get your friend a birthday gift, I don’t see what the connection between her financial issues and a birthday gift are.

I’d like to think that if I won the lottery, not much would change. The only difference would be building out on the land. We could to it all right now. We’d have a much more personally designed house and we’d have gardens that other people would take care of, and waterfalls and….lots of cool stuff that we’ll probably never really have.

And I’d buy each of my kids a nice house.

@drhat77 Monetary gift, not just a present. She needs money.

then you give it to her not as a birthday present, but because you are a big hearted person. But also give her a birthday present. You know, for dignity.

@drhat77 Okay, like cash in her card, plus the gift? I can do that.

It’s so difficult, she’s extremely proud and a single mom, some of us are not as good at receiving as we are at giving here, at least not the people I hang out with. I’m kind of afraid it would piss her off.

@KNOWITALL My answer to that is if you would like to give her some cash for her birthday do it. It is a “one time” thing, but has little to do with your overall ideas on savings and money, unless you are constantly giving away money at your own expense. I think it is a very nice thing to do for her if she is very strapped.

I don’t see it as political at all, but I understand why you made the comment. For whatever reason a lot of Republicans think all democrats want a socialized welfare state and it absolutely is not true. Pretty much most people want fiscal responsibility from individuals and the government.

I don’t think there has to be a gift with the cash. She needs the cash, you don’t have a lot of extra money yourself. If there is a very practical useful gift you know she needs than fine, but otherwise I would just give the cash.

As far as helping the lady….go sceretly pay some bills for her, like her utility bill. And give her a nice monetary gift for her birthday.

@Dutchess_III I like that very much. I’ll ask her daughter what needs paid the most. Good idea!

She also is a recovering alcoholic so I don’t like handing her cash, but saying that makes me feel bad about myself.

@JLeslie A lot of Republicans think Democrats are not so into Personal Responsibility based on social programs.

You shouldn’t feel bad about saying that! I mean, it is what it is. Only a foolish person would look ignore that fact.

@KNOWITALL Do you mean you are basing your opinion on democrats supporting social programs? Democrats do understand the social programs need to be paid for. How do Republicans explain Bush going to war and cutting taxes at the same time? It is not a question about whether we should have gone to war, nor about taxation in general, but about committing to spending money and having zero plan to pay for it. That is totally irresponsible fiscally. I only bring up Bush because now we are discussing political parties, certainly Democrats have made crappy fiscal decisions also for the country.

I’m a Democrat but I want people to not need to rely on social programs for daily life (I am not talking about extreme cases of disability or mental illness, just normal daily life) which means people need to be fiscally responsible for themselves. If you ask me about healthcare and social security my answers go off into the liberal abyss. LOL.

Also, I would much rather have people paid better than have to give them food stamps in addition to their wages. I’m not happy my tax money goes to the working poor. They are working. My tax money is just indirectly subsidizing the corporation employing them.

I would never feel comfortable without savings of at least one year’s worth of my current annual income. This does not include emergency medical funds which are impossible to calculate.

I guarantee you it is not comfortable @Pachyderm_In_The_Room, but some times you have no choice.

@Pachyderm_In_The_Room When you say savings, are you talking your 401k or IRA, or do you mean savings account instantly accessible?

@KNOWITALL I’m going to add that I would bet in the red states many of the democrats are close to the poverty line if not below (not all, I am not even saying most, just enough that you notice). I remember seeing some statistics that red states have much more welfare and people trot out the stistics like republicans are huge hypocrits, but it isn’t that Republicans actually collect more welfare/food stamps but that red states have more democrats in them who need the services. That raises all sorts of questions.

About the savings, if you take money out of your retirement fund you pay a penalty, it’s like throwing money on the street. So, having a cushion that is liquid is more fiscally prudent.

From what you’re describing, you’re simply not in a very strong financial position to be throwing money at other people. You can certainly do it, and it would be incredibly nice of you, but I think you really don’t have a good mental frame-of-reference for your own financial situation. Cashing out your 401k isn’t a healthy approach to preparing for an unexpected financial setback. It’s reckless financially. It’s great that you’re able to live frugally (that’s a really wonderful skill that most people really should learn) but living frugally is no substitute for smart financial planning!

We did an exercise in high school that has stuck with me to this day. There are two brothers: brother A and brother B. Brother A starts saving $2,500/year from the day he turns 20 to the day he turns 30 years old. He invests his savings in an account that yields 10% per year return. From the time he’s thirty until he retires at 65 he stops saving and uses the $2,500 to throw a big christmas party for his friends and family.

Brother B, doesn’t start saving until he’s thirty, and puts away $2,500 every year from the time he’s 30 to the time he retires at 65 earning 10% interest.

Brother A has invested $25,000 of out of pocked money, and Brother B has invested $87,500 in out of pocket money. When they both hit 65, Brother A will have $1,231,671.29 in his retirement account, and Brother B will have $747,817.01.

I’m not saying anyone should stop saving at 30, it’s simply there to help illustrate the point of how powerful compound interest is over a long period of time. Just to compare, if Brother A didn’t stop saving at 30 he would retire at 65 with just shy of $2 million dollars.

@JLeslie Great explanation of fiscal responsibility. I completely agree with your position.

@Dutchess_III I think the concern is when people have the choice. Someone who feels uncomfortable with money in the bank will never have money. Many people live from check to check no matter how much money is coming in. They just don’t save. They don’t know to, or weren’t taught to, or see no point in it. All sorts of reasons. Many more reasons than what I just named.

@gorillapaws I understand what you’re saying, but my religion specifically calls for sacrifice, living frugally and putting your faith in God to provide. It would be very difficult for me to focus on my wants and desires in the face of need. it’s not even necessarily ‘nice’ of me, it’s what we’re directed to do, does that make sense?

I could sell my house and rent a place, which would save me several hundred a month.
I could sell one vehicle and hubs & I could share, there’s a couple grand.
401k could be cashed out, I probably won’t live to use it anyway, so I don’t mind that as a last resort (no kids remember!)

But okay, I’ll think about it some more. Sounds like you all think I need to save for myself for awhile longer. I kind of agree I guess, and grudgingly.

My take; when you have enough that you can’t do anything except invest to make more money after already having enough to retire in comfort while still having a “rainy day” fund in case, say, you get cancer and rack up massive medical bills, or otherwise suffer the sort of catastrophe that bankrupts most people.

@KNOWITALL I made the points I did not to be judgmental, but to try to be helpful. I really think it makes sense to talk with a financial planner about planning for your long-term future. It’s easy to say “I’ll work until the day I die” but shit can happen, and you don’t strike me as the type that would ever want to be dependent on others.

I don’t see having a reasonable retirement fund + rainy day emergency savings as being fundamentally incompatible with the teachings of Christ. It’s the ones who have way more than they will ever need and turn their back on those less fortunate that are the ones who would be considered greedy. Just think about how many more people Brother A could help when he dies than Brother B if they had no children and left their life savings to charity.

Look at Bill gates. The man is using his wealth to try to wipe out entire diseases! Think about how many lives he’s helping. If he had given away his wealth as he went along, he would never have been in a position to do as much good as he can now!

I don’t think any money is too much to have stored away. Not that I have that problem. I think it’s nice you give @KNOWITALL when I was really battling I remember everyone who helped me.

You can have money but still live frugally @KNOWITALL. Having money helps everyone around you, not just you. It allows you to help others in a substantial way. And when you’re too old to work, it allows you to keep supporting yourselves, instead of relying on others or the government to do it.

My mom was the master of frugality. She fussed over spending $20 on a gift for one of my kids on their birthday, and decided against it. She got him a crazy straw or something. This woman had $100,000 in the bank!

I also remember those that screwed me over. I still fume at the guy I dated for 5 years. When times were tough he ‘loaned?’ me 5 000 and when I paid him back he demanded 15 000. He was quite wealthy too..sigh

I feel uncomfortable with a lot of money in a simple savings account because it is a waste of money. It is not a good idea to keep much money in a bank/savings account due to very low interest rates. I keep only about $10K in savings accounts and as the amount grows I then transfer money into my Money Market Account and from there I buy individual stocks, buy S&P 500 stocks, gold, contribute to charities and my I.R.A. accounts.

@gorillapaws It’s all good, I get it. I don’t want to put myself in danger and with hubs medical issues, it’s a smart thing to build up better savings. Helping others gets addictive, it feels so good, so after tomorrow night, I’ll take a sabbatical for a while.

@gondwanalon One of my friends told me about his secret stash of gold and diamonds, I keep repeating that to myself, Gold & Diamonds…haha

The cost of living on the west coast is quite expensive so $3,000 is almost nothing (my monthly tuition was almost that much—thank goodness for financial aid.) As others have mentioned, I would feel comfortable having half a year’s worth of rent in my savings, but I wouldn’t start feeling guilty about how much I was resting on unless it was well over one full year’s salary. At that point I would start looking more at charities to donate annual money toward.

In my field, it can be difficult to find a steady job. I might get employed for one quarter or one year, and then be between jobs for a while. So savings are important.

As much as I intend to be frugal and generous, I have to help myself out too.

To address the sub-question, if someone you know is in dire straits and you have something to spare, then help them out. We don’t have a lot of savings or an emergency fund, but we live comfortably. So when friends lost their home to flooding and we were unable to accommodate them, we sent them some cash to help them make ends meet until they got back on their feet. I never would think, “Oh, I can’t touch my emergency fund (if I had one) when a friend needs help.

@hearkat Exactly, that’s all I’m saying. It would only be temporary, according to her lawyer 30 days. Thanks for being a generous soul.

@muppetish Many refuse to believe that and think that a decent apartment runs only $450/month. I think that colors perceptions of how much money one needs. Personally, $3000 would last me two months tops, assuming my wife and I stopped eating. Such is life on the West coast or in the Northeast.

@jerv Yeah, a lot of people are moving to areas like mine because your little house or apartment on the coast is a mansion here.

@KNOWITALL I’m quite confused. You asked a question about savings. Then you have a separate question about a friend in need. Which is fine, I often go all over the place in Q’s myself, but I see them as two different things. One is about a philosphy regarding savings, and one is about giving to someone who needs immediate help. The friend is completely different than say giving to charity in general in my mind and/or how much I feel comfortable with in savings. Are they separate issues for you? You talk about your beliefs guiding you to basically not save a lot, but rather to use your discretionary income to help others. Or, am I misunderstanding?

@jerv Exactly. You can’t find an apartment for $450/month in Southern California, even if you have roommates splitting the costs. Then there’s utilities, groceries, gas, loans… oy!

@KNOWITALL I don’t mess with diamonds because the value is too can be vague. There is no question as to how much the value of gold bullion is at any given time and it is quick and easy to sell/buy.When the price dips I buy gold bullion to be used as a hedge against inflation. If there is ever hyper inflation, then it will take a huge pile of weak (near worthless) dollars to buy just an ounce of gold bullion. If that doesn’t happen then I just use our saved gold to pay for travel vacations, medical expenses etc. I never buy any other metals including junk metals like silver.

Also another good aspect of buying gold is that the government has no idea of how much gold that you have, how much you paid for it or how much capital gains that you have achieved on the gold. Therefore no capital gains tax. Of course the gold price could also go into free fall at any time. Que sera sera. HA!

@JLeslie I know, I need to stop asking while I work, I am interrupted every five seconds…lol, sorry.

My question was because of my friend who needs help, hubs and I don’t have a lot (we’ve been paying off his medical bills and are approaching the end of all of them now), but I feel led to help her by my conscious, my Deity, who knows, but I feel it. But I don’t necessarily feel like I’m in the position to do that until these balances are paid completely off. Then she will be broke and miserable for another month.

I feel damned if I do and damned if I don’t. So that’s where I’m at. And my religion teaches that giving away things and money is the right thing to do, basically help others, sometimes even if it hurts. So I’m torn. Hubs will tell me $50 probably..lol

@KNOWITALL I see. Is there another option? Can you take up a collection for her if she is in such dire straights? Will neighbors chip in $5 each? Or, would that hurt her dignity if people knew who maybe don’t know how tough times are right now?

My opinion is give her something, but do not hurt your ability to pay your own bills. If it dents your savings a little this month I think it’s fine. That’s what I would do if it was important to me to help.

If you constantly give away, you won’t ever accumulate enough wealth for your own security and to help others. That was kind of the lecture above, but this is a special case. Money gets money. The interest rates have been terrible, but back in the day when they were up around 5% for my savings account, I earned a lot of money having money in the bank, and that is more money I can help others with. The extra money is free.

@JLeslie Well said.

@KNOWITALL Please don’t think I’m headless or unsympathetic to helping others in need. But as @JLeslie points out, getting to a point where you are in a stable comfortable financial situation will put you in a MUCH better position to help others later. It’s the long-term pattern of ignoring your own financial security at the expense of others that I think is the mistake. Please do anything you can to help your neighbor (maybe there are non-financial things you could to to help as well?), but don’t forget to plan for your future. Oh, and please make an appointment to speak with a financial planner (I think many offer a free initial consultation).

@gorillapaws A financial planner might seem out of reach to the OP, or over the top. I don’t know what expression to use. Plus, I worry about a planner who she really doesn’t know or isn’t a referral from someone she knows. I think just a shift in mindset is a place to start. The basics are figuring out how much she needs every month to live, how much her social security and pension (if she has one) will be, and how those match up. Then she can figure how much money she needs in the bank when she retires and start saving towards that figure. Just adjusting to long term thinking is a great first step. But, I might be wrong, she might be very interested in your financial planner suggestion.

@JLeslie I think walking through the excercise of seeing how much she would need to retire would be really healthy and eye-opening. A financial planner will help her to anticipate things like several decades of inflation, realistic planning for long-term healthcare needs, etc. People hear half-a-million dollars (or even a million dollars) and think that’s a large amount to retire on, but it’s really not that much when you factor in cost of living increases, the near certainty that gas prices will probably be astronomical as we deplete the Earth’s supply over the next few decades. We have already pumped out all of the easily accessible oil and each gallon is getting harder-and-harder to come by. Imagine what will happen to prices on everything when gas is $20/gallon or even $40?

You’re right that she doesn’t NEED to see one, but I think @KNOWITALL might have a tendency to under-estimate her future expenses, and a professional might help her plan a budget that is realistic, can accommodate for charitable giving, while planning for a financial safety net.

My dad gave away 7 cents out of every dollar. Why 7 cents? No clue. But…

So do I.

If I make a $ billion (not likely, but I am trying) I will still do the same.

to me – no amount is too much. I would have no problem having billions of dollars and doing with it what I pleased whether it be hoarding it (which I wouldn’t likely do) or helping others. The point where money becomes too much whether it’s one dollar or one billion is when the person who has that money has “earned” it off of the backs of others who are not equally or fairly compensated for their contribution.

All good points. Paying many bills for over five years & being responsible is part of my plan. Now saving will be easy.

About a million or so, once it passed the million I would start to feel like I am obligated to buy houses for my family and start setting up businesses that create jobs.

Until it reaches the million, I would still focus on investing it in my life.

You know you have too much money, when you can’t pay the tax on the gain.

For example, you have $3,000,000 earning 5%. At the end of one year, the gain would be $150,000. In the 28% tax bracket, you would have to pay $42,000 in tax on the money. If you earn enough to pay $42,000 in tax out of income, you do not have too much money. But, if the only way to pay the tax is to net the account, (take $42,000 from the $150,000), you will lose $4,000,000 on paying $2,790,000 in taxes.

This is because you are netting the account and reducing the balance in order to pay the tax.

@Wealthadvisor What are you talking about? If someone earns $150k they can pay $42k.

No amount is too much. You never know what could happen where you need the money or someone in your family does. Even if you don’t spend it in your lifetime, you can donate it or pass it down to your kids.

@Valerie111 I think it’s the responsiblity for people who have to help the have nots. Saving is good and taking care of yourself is good, but helping others is sublime. :)

Donald Trump has entirely too much.

I don’t begrudge him the money, but when he starts to think he’s the master of the universe, he needs a governor.

Martha Stewart apparently had about right. Notice how she weathered prison and went on with her life?

What are you talking about? If someone earns $150k they can pay $42k.

Someone asked this question. If you earn $150,000 of interest, and are in the 28% tax bracket, the tax on $150,000 is $42,000. ($150,000×28% = $42,000) In this example, this means unless you have $42,000 of additional income to pay the tax, you will need to find some other source of funds. In most cases, you net the account. You subtract the tax from either principal or earnings.

Depending on your other income, you add the $42,000 to other wages, interest, dividends and other sources to determine total income for the year. As the account grows, and you earn more interest, you will be adding a larger number over time. This will continue to push the tax bracket higher.

@Wealthadvisor if you earn $150k in interest you don’t need additional wages to pay the taxes unless you are spending more than the net. $150k-$42k=$108k. So, if you can live on $108k your all set. Not saving anything additional, but all set. I could live on that happily. Not to mention that the 28% tax bracket would be a tax of $30k more or less, not $42k if we get technical, so that is $120k left in my pocket. You did your math with taxing the entire amount at 28% and that is not how taxes are calculated in the US. Don’t worry, tons of people make that mistake. I guess they don’t do their own taxes usually or something. They obviously never took a class in accounting, and our media tends to reinforce the misunderstanding, especially the right wing, but nowhere in the media left or right is anyone putting accountants on TV to discuss such things, the news always has politicians, journalists, and economists talking about money and even taxes.

The $30k isn’t added to other wages, you said it is the tax amount. The $150k is added into other wages if there are other wages or other income. I think the next tax bracket is up around $225? So, you have a while to go.

First of all, 28% of $150,000 is $42,000. I don’t know where you are getting $30,000. Check your calculator.

It is easy to do in your head. 10% of $150,000 is $15,000. Another 10% is $15,000, that is 20% or $30,000. Another 8% is $12,000. $15,000 + $15,000 +$12,000 = $42,000.

I was using simple math. If you use the tax as a percent of income, then the number is $35,293. If married $29,466. I made no mistake. I was keeping the numbers simple because most people do not know how to figure the tax as a percent of income. And, since we don’t know what other income may be involved the tax may be higher.

The point is the loss of wealth and the lost opportunity cost of the tax. Yes you could make it work by netting the account year after year, but why throw away $3,264,364. That is the tax plus LOC. Then you take the compounding lost by netting and the total loss of wealth is $4,297,927. Now remember we are just netting the account to cover the tax. I would assume this person will also make withdrawals to buy things. If he is not careful, withdrawal and netting could deplete the account.

What if the return was 10% instead of 5%. Tax and LOC is $11,247,243 and the loss of wealth is $28,195,555. The annual tax in year 30 is $630,853. This does not take into consideration estate tax as well. If you are trying to pass this wealth on to others, you have a lot of work to do to preserve it.

In financial planning, there is no left wing or right wing. There is no politics in financial planning. There is politics in the formation of the laws, but not the actual planning process.

@Wealthadvisor Here is the tax calculation for 2013 page 3 of the document. Think about it, if one dollar made an entire income be taxed at the hire rate no one would stand for it.

Let’s use simple numbers. If the tax rate went from 20% under $100k income to 23% over $100k (totally made up numbers) then someone at $100k would pay $20k and someone earning $103k would pay $23,690. In this example literally their pay increase of $3k is worth nothing, in fact they lose money paying $3,690 more when the pay is only $3,000 over the threshold for the next tax increase. How it works is money is taxed in the tax rate up to the threshold, and then everything earned over that amount is taxed at the higher rate. In my example that would mean the first $100k is taxed at 20% and the $3,000 addition is taxed at 23%.

I recommend you look at my link from the IRS and if that does not drive home what I am explaining read up about how tax brackets work. You seem to be interested in taxation.

Thank you for your explanation. You are showing me the tax as a percent of income. That is what I did in the last answer. That is where the $35,293 (25.53% single) and $29,466 (19.64% married) comes from instead of the simple $42,000.

But, it really makes no difference what the initial tax bracket is. The tax bracket will slowly go up as more interest is added to other income. Tax brackets will probably go up as Congress raises the brackets. Conceivably, the number could be $42,000 in time. This is why we show the client the process in simple numbers to help with comprehension. We know that all calculators are wrong. The result is a snapshot in time. It does not take into consideration higher tax brackets, lower tax brackets, larger withdrawals, smaller withdrawals, higher or lower interest rates.

You did not address why you would want to throw away so much wealth, how to recapture the Lost Opportunity cost of tax, and how to perhaps flat tax the account to reduce the LOC’s.

All I was saying that in certain circumstances, the account could be emptied because of the misunderstanding that compound interest generates compound tax. This tax erodes wealth.

This is why people who win large jackpots in the lottery have so much trouble managing the money. The tax will erode millions of dollars of wealth because of poor planning.

@Wealthadvisor If I have $3million and it generates $150k and I pay $42k (to use your number) I am still ahead. Now the account has $3,108,000. Unless you spend it.

Also, estate taxes now start at $5million, unless that has changed and I am unaware. Very possibly it might have changed, I don’t keep up with it.

Yes, yes. You are still ahead. But you could be further ahead. You are assuming the status quo. Principal will never be touched? Yes or No? I am throwing away wealth. Why? How can I preserve my wealth?

The ideal scenario would be to use the interest each year as a supplement to income or as an income supplement while working. I would just want to make sure the client did not find his account balance dropping as he moves through the year. This was the point of my answer originally. You know you have too much money when you can’t afford to pay the tax.

Estate tax exclusion limit for 2013 is $5,250,000. Account balance in 30 years at 5% $12,965,827. At net 3.6% $8,667,900. If the return was 10%, $24,152,652. Top estate tax rate 40%.

Very interesting discussion. Thanks for your input.

@Wealthadvisor You realize the OP is talking about having $3k in savings, so none of our discussion really helps her specific situation at present time. Also, I don’t know if you realized that $3million by coincidence was the very number I used in my first answer as mystandard for what I would like to have by the time I retire or even now to feel financially free. I doubt I will make to that number by retirement, but I buy a lottery ticket now and then. I certainly am not at that number now.

The politics is people are convinced the government is going to take their money when they die and their family won’t get what they should. The majority of America won’t pay the government a penny in estate taxes. Also, go back to you using a flat 28% for the $150k. The truth is the person is taxed 16–20% if that were their only income, because there are deductions (we didn’t adjust the income) so the people walking around saying the government takes 50% of their income, that most often is not true. A whole bunch of people have no idea what percentage they really pay in income tax. They don’t do the math, they just worry if they get a check back in April so they can take a trip. They don’t worry about holding onto their money to earn money and better financially to pay the IRS in April. They don’t understand or never had it explained to them.