Is The American Dream Still Alive?
Is The American Dream Still Alive?
In yesterday’s post, I link to my podcast appearance on The White Coat Investor. I was perusing through the comments this morning and was taken by one in particular. During the interview, at some point, I made a statement that there is a simple path to wealth, and that most people could become financially independent. The commenter took exception, and felt that I was being too generous. He felt that financial freedom, in fact, may not be an option for a large part of the United states. This made me think. In my estimation, reaching FI is the quintessential American Dream. So is the American Dream still alive?
I believe it is. I believe that the grand majority of people can reach a solid financial standing if not complete independence. Jim Dahle, in his reply to the commenter, noted that if a couple can build in a savings rate of 15%, they should be able to make it to the finish line by retirement.
The math has been demonstrated repeatedly. But math is just numbers. Many of us want to see actual proof of concept.
In response, I present the family of one of my best friends growing up.
Proof of Concept
He was the youngest of three siblings. His parents immigrated to the US under duress in the early eighties with a few thousand dollars, and the clothes on their backs. Their skill sets were minimal. His father had some sales experience, and his mother was a house wife.
Is the American dream alive? Let’s take a look.
At the suggestion of a friend, his mother enrolled in a certified nursing assistant class and twelve weeks later landed herself a job at the local hospital. Although over the next few decades her salary never topped 40K a year, it was enough.
His father was able to obtain a series of sales jobs in the beginning, but given his heavy accent and the prejudice of the time, he never managed to make even fifty percent of what he was earning in his home country. The majority of the time he produced no income.
My friends parents are now approaching their eighth decade and have a net worth of well over a million dollars.
How do they do it?
Save
They saved assiduously and never spent a penny more than they needed to. They shopped at multiple different grocery stores and always bought the cheapest produce. Then they recycled cartons and containers from food products after they were done eating the contents. Grocery bags were never thrown away.
They bought clothes and household items used, and showed up to every local garage sale. They accepted hand me downs from friends and neighbors. Broken items were often repaired and rarely thrown out.
The back yard always housed a large garden. Fresh produce was on the menu throughout the summer. Projects around the house were done during weekends and evenings. Bathrooms were remodeled with blood, sweat, and sometimes tears. If the human know how was available, nothing was hired out.
Is the American dream still alive? For those who save it is.
Utilize
It was not only saving, but being aware of all the governmental programs available to help. Given their abysmally low-income, they qualified for Medicaid. Their children were able to receive free lunches for a number of years through the public school systems.
When the teenagers were ready for college, there was a host of student loans and grants that paved the way for all three to receive professional degrees.
We ask if the American dream is still alive for the poor and the downtrodden today, but there are still programs designed to help. Whether that remains with this current administration is unknown, but traditionally this country helps its poorer members.
Innovate
Once the finances had stabilized and there was a little money in the bank, my friend’s father utilized leverage to buy a large multiunit building during a real estate recession. He scrounged up enough money to put twenty percent down on a two hundred thousand dollar building.
For decades he has managed that building by himself. Not only has it appreciated to over a million dollars, but also provides forty thousand dollars of cash flow every year.
They are now financially independent, live in one of the most expensive suburbs in the country (to be close to family), and have children who are now well ensconced in the upper/middle class socioeconomically.
Final Thoughts
Can anyone reach financial independence? Is the American dream still alive? I believe that for the majority of Americans it is. I think the math proves it. And I push forward my friend’s family as proof of concept. it may not be easy. it may require sacrifice and struggle. But if you are willing to save, utilize what the government offers, and innovate a little, I think a viable path lies ahead.
It’s not just about high wages.
Honestly whether everyone can from an outcome perspective I believe everyone must believe they can. Belief is the starting point of success. In some ways what made the US the Economic powerhouse it is was the simple culture of the belief.
I do believe that 99 percent of people can change their situation with the right knowledge, choices early on, and initiative. So yes I believe the dream is alive.
I like the idea that belief is the key ingredient. Why is it so hard to believe?
It all boils down to sacrifice. If you are willing to do it, there are many opportunities available. Unlike some other countries where you are relegated to a caste system/fixed station in life, in the US you can be rewarded and rise up the ranks if you apply yourself and get desirable skills. Is it an easy path? Of course not. That’s why most don’t achieve FI. But FI can be in the reach of pretty much any able bodied person.
Some believe that no matter how much you sacrifice, there is a ceiling.
Well said, one of my friends, a millennial who crossed the Rio Grande at the age of 16 speaking no English, alone and starving is now a PhD, Nurse Practitioner making double six figures and paying a slew of taxes. She worked first as a maid, overcame a bad abusive marriage and divorce, then obtained a GED, a LPN degree, an RN degree, a BS RN degree and finally the doctorate APN degree. Along the way she obtained her legal citizenship, learned to speak English and ultimately married an exceptional man, also an immigrant medical professional. If you ask Maria if the American dream is still alive she’ll stare a couple of holes through you and then say, “Of course it is!”
That’s quite a story.
I saw Dahl’s response as well. I thought it didn’t show much insight. If you work hard enough, are disciplined enough, work long enough, and actually understand how to do it, and get yourself close enough to death, maybe. Retirement is a bet. You bet you can acquire a pile big enough, that you can then mead out in little dabs until you die. Here is the math,
Roth IRA $5500/yr max. Save $5500/yr for 40 years you might have as much as 900K. 15% means you have to take home $36,666/yr. That leaves $31,166 to live on, $2600/mo. You say see! see! it can be done! Sure but lets start saving 30 years out, now you’re $900K is $400K. Well the kid got sick and needed a 50K operation and you paid that off in 10 years. Now you have only 20 years to make your nut which will be 200K. At age 50 you get laid off. Nobody wants to hire a 50 year old. You live off the 100K you managed to save for a while. You loose your house and move into your car. It’s too much for your wife so she divorces you and takes half. So now you’re 50 got HTN and T2DM, 40lbs overweight (metabolic syndrome) jobless divorced and bleeding what little money you had. I hire a guy like this to do my odd jobs like painting and cleanup. He’s a good guy. He’s also quite typical. Rural America is full of this. I just finished a book called Nomadland that describes thousands of itinerant workers some in their 70’s some with disabled spouses, who travel the country looking to shovel crap in campgrounds for 10 bux an hour, or picking sugar beets in Montana or schlepping cheap Chinese plastic stuff at an Amazon fulfillment center trying to make gas money and living in your car 50 miles away in an RV park. Imagine being 75 and doing 1000 squats a day hoisting 50 lb boxes. The cardiologist on Dahl’s response said he read a book telling the story of some people with some similar experience. Denying the experience quoting some formula doesn’t make it go away. The people in my book were college teachers, corporate accountants, hospital administrators. 2008 and ageism had wiped em out. Family was not there or minimally there because family was in at least as bad straits.
When you buy a retirement you are effectively buying a Mortgage. You put money in, it grows at some rate and has some risk. You manage the risk with a W2 job. It’s payback my be a lot if you pay in long enough or it maybe smoke and mirrors. If you work 40 years you only have 30 to cover. Your risk of failure is low, and your end of life leverage is extremely low. If you work 30 years you will have 40 years to cover. You can probably appreciate your 30 year wad enough with compounding to make up the 25% you are lacking to cover 40 years. Your risk is pretty low but not zero and your end of life leverage is moderate and decreases with each passing year. You work 15 years you have 55 years to cover. You have saved 27% of your need. This means in retirement you have to triple your money to cover the years, while drawing down the account. You mitigate that by working, paying the Mortgage and letting the retirement Mortgage compound. Your risk is high and your position is very leveraged. So as you traverse your life with a plan and enough time you pay down your leverage. If that march to zero leverage is interrupted (like my 50 year old) the bill comes due. You run out of money but still have a lot of years to cover. You wind up living in your car doing 1000 squats and walking 15 miles a day at Amazon until you die. It’s all well and swell we high income earners have hit our nut, but every 40 year old still has 50 years of risk to cover. DO NOT BE ARROGANT with dumb assed formula.
One of my favorite statistics is for every business that has been in business for 10 years, 1/3 fail AFTER 10 years. Remember Block Buster? One on every corner. Blockbuster IPO’d at $15. Today it’s worth $0.005. NFLX was $1.00 in 2003. Today it’s worth $360. Both deliver video. The difference? Creative destruction. Blockbuster was brick and mortar, NFLX is digital on broadband. The creative destruction was broadband. Blockbuster had a leveraged future on a dying business model. Risk is everywhere so don’t get cocky. Do I think “it” can be done? Sure! I did it. I saved twice as much money as I spent in the 49 years I worked. I can likely live another 49 on half of what’s left. I’m not living another 49 years. My wife could live 40+ years though, so she’s covered too. My leverage at this point is virtually zero. I think doing “it” is not trivial and simple however.
It’s definitely alive. I live near DC and our population is extremely diverse. I see all the time successful businesses that were started by immigrants, and those folks are doing very well and living the American dream. It is indeed alive and well, but that doesn’t mean it’s easy or that everyone is going to succeed.
within grasp but not easy. Good to hear.
My in-laws immigrated to the US at age 28 with only $6,000 to their name. My mother in-law retired in her mid-40s and my father in-law retired in his mid-50s. They never lived above their means and saved and invested aggressively. They were part of the FIRE movement before we even knew what it meant. So yes, it is definitely possible!
That makes you second generation FI.