Tag Archives: inheritance

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Millionaire Next Door: Jack Gsantner

I came across this article from Omaha.com about a maned named Jack Gsantner, who was a small-town billing clerk who managed to build an economic engine and keep it a secret from everyone in town. This case is interesting to me as it is a great example of so-called “stealth wealth”, as Jack Gsantner always drove around in an old car, drank cheap beer, and stocked up on toilet paper in bulk.

In total he had $5.28 million of assets. He could have had $17,600 (pre-tax) deposited into his checking account per month and not run out of money, even under a depression-like scenario. He was, apparently, very frugal and did not spend much of it, drawing criticism from some of the comments.

Craig Smith: “‘How to be rich and not enjoy it’ – By Jack Gsantner”

Nancy Jacobs: “This is sad. His wife deserved better than her remains in a jar and probably rarely having a new dress in 55 years.”

If they were able to afford everything they wanted (they were), then who are you to judge that they aren’t living life enough (a.k.a. spending enough) or that they are deprived. Perhaps they were using their surplus making anonymous donations around the community as an investment in the future. The gem of the article, which really prompted me to cover it, was this:

But Kyes, a retired airline sales representative, said he’ll never forget his cousin. He spent $120,000 of the roughly $325,000 he inherited to buy a speedy new luxury car: a glacier-white Audi A8.

Wowza. Briefly viewing some estimates of salaries for airline sales reps, it appears a generous estimate for what this guy pulls down is they earn around $40k a year. His portion of the inheritance could have provided him with around $13k a year of income.

Instead he spent over 2/3 of it on a shiny brand new car. Using a low rate of depreciation from money-zine, over 8 years he will pay  $76k in depreciation. His car would cost me $150/month more than my current car in insurance, or $1.8k a year x 8 years = ~$15k insurance. He also lost out on over $71,000 of gains he could have made on the invested money. That’s about $20,000 per year of expenses over 8 years.

For a holistic estimate, MotorTrend estimates the following cumulative expenses over 5 years:

$4.5 – maintenance
$1.8 – repairs
$16.3 – fuel
$82.8 – depreciation
$19 – insurance
$25k a year total

Presumably he invests the other $200k making 4% withdrawals of $8k a year. Of the 8k, 25% is going to increased insurance for the car.  15% goes to maintenance and repairs. 20% goes to taxes. That leaves him with a pitiful $200 a month net allowance from his inheritance.

Plus his perceived enjoyment of the car.

If he is already set for retirement, fine. If he had saved $4k/year (10% of his salary) for 45 years and made 6% annually after-tax, he could have around $850k, which produces maybe $34k of income. (I’m going to go out on a limb and say I doubt it). He could have increased his monthly income by 38% or more.

Instead he bought a depreciating asset (a car that does the same damn thing every other car does) that will cost him much of the inheritance.

Maybe its worth it to him. You have to decide for yourself, but you should know the true costs.

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The “Basic Income” Trust Fund

I’ve been toying around with the idea of setting up small trust funds for my potential future grandchildren. My objective is to provide them with a base-level amount of support, not to make them filthy rich. The trust would require a university degree and a part-time job for anyone receiving money. I would target about half the median income, roughly $2,000 per month.

Running an analysis on cFireSim we find that we would need $560,000 invested in at least 75% equities to have a 90% chance of success over a 30 year period. This drops to around 75% chance of not exhausting the trust over a 50 year period.

So, we need a little more than half a million for each beneficiary of the trust. Assuming that you have 3 kids who have 3 grand-kids, you would need to support 9 people or so. 9 x $560k = $5,040,000. Not exactly chump change. The good news is that we have the power of compounding and plenty of time.

Assume that you are 20 years old and have kids at age 30. They have kids at age 30, and your grandchildren must be 20 before they receive distributions. That’s a waiting/accumulation period of 60 years.

If you earned the market average 6% after inflation (9.7% growth – 3.5% inflation ~= 6%), you would need a lump sum of $152,784 today to meet your target. Not exactly chump change, but much more reasonable. Again using cFireSim, we can estimate that at an 80/20 allocation, we would need to put away $1,000 per month for 60 years . In the best case historically you end up with $9.5 million in the trust while the worst case is around $3 million.

While saving $1,000 a month isn’t easy to do, especially on top of saving for your self, it can be incorporated into your other retirement plans. Your assets at retirement, life insurance payout, any future inheritance, or your Roth IRA could all be combined together to make this a very workable plan.

Go run some numbers for yourself. Perhaps this scenario is too aggressive. Nonetheless, the idea is an interesting one.