Should I Try To Make Less Money?
A huge topic in the online finance community is making more money. I read articles about how to make more money through side income or ways to increase your salary. For the last few years, I’ve been slurping those up like cold drinks on a hot day. When trying to get out of debt, you really can’t make enough money or make it fast enough. What about once those goals are met? Are there any negatives to earning more income? Is there ever a situation where I should try to make less money?
Health Insurance
My family would never qualify for Obamacare subsidies because Jim’s work has a group plan that we could join for $800 a month, but let’s assume he did not. For our family of three, if we made under $79,000, we could qualify for a subsidy. Our insurance policy might actually cover something, unlike our current $10,000 deductible plan.
Luckily, we don’t have many health care expenses, as we’ve been pretty healthy up to this point. This isn’t really a huge issue at the moment. My daughter and I are still on a grandfathered Blue Cross plan that costs only $265 per month, so even with the huge deductible, we are still coming out ahead. If they ever cancel our policy, we’d be looking at double that cost or more. That would make a subsidy much more appealing.
Taxes And Fees
The past two years have been our highest earning ones ever because I sold both my practices over the course of 2013 and 2014. We had to pay more income taxes, plus 2013 triggered an increased Medicare tax. Don’t misunderstand. I am not complaining about the money I received from the sale of my practice, but it is sad when the first thing that pops into your head is how much tax this is going to cost.
Also, being self employed means paying more in FICA. With my profession, it also costs roughly $2000 a year to maintain my ability to practice due to insurance, things like state and DEA license fees, and continuing education. If I were to work less, I could apply for part time licensure, which would cut some of those expenses.
College Education
I would be lying if I said I don’t worry about how much it might cost to send our daughter to college. I have no idea at this point if she will even want to go, but I’m assuming she will because both her parents did, and we place a high value on education. We do save every month for college expenses, and I don’t believe student loans are the end of the world, but it’s disheartening to think about our kiddo coming out of school tens of thousands of dollars in student loan debt.
I read an article last week that Stanford raised it’s free tuition program to families whose incomes are $125,000 per year or less. There are several other ivy league schools who offer free tuition to students who fall under certain income levels that most would consider solidly middle class. Even if you look at state schools, students from lower income families receive tons more grants than those with family incomes like ours. I don’t want to be poor, but if making less money means upwards of $100,000 in education costs for our child, it’s tempting to make less money.
What is the Best Income Level?
It obviously depends on where you live. In cities on both coasts, our current income would make us poor. In Southwest Colorado, we are high earners. In reality, we could comfortably live on $3000 a month if we didn’t have emergencies or rental vacancies. In reality, we will have both, so it’s important at this stage to continue making enough income that we could pay the mortgages on all our rental properties, without tenants, and still pay our normal monthly expenses. We also like to save for retirement, so I’d hate to give that up as well.
We are high enough earners that the government considers us wealthy, but we would still have a hard time with a huge medical expense or paying for college in full. I think lots of people are in the same boat.
How Would a Lower Income Impact Us?
I have considered quitting optometry altogether. I’m not thrilled with all the new health care requirements for providers, and I think patient care has suffered, not improved, with all the new regulations. It’s not the career it was a decade ago, but we probably would have a tough time with only Jim’s salary unless we sold our house, which could be good or bad depending on a number of things. I doubt I could quit altogether, but……
What if we lowered our income to the Obamacare subsidy limit?
- We would probably have between $2,000-$3,000 less per year in out of pocket health care costs.
- We could potentially save over $100,000 in college expenses.
- We would pay thousands less in income taxes, maybe even zero if we did it the right way.
- We also might lose out on thousands in retirement dollars if those contributions were cut due to less income.
Do We Need To Save So Much Money?
Right now we do. As I said, for me to sleep well at night, we have to have enough income to cover all the expenses on our rental properties. However, those will be paid off in about eight years, along with our home. At that point, our expenses are minimal and I think it will be time to toss in the towel and live off the fruits or our efforts with potential help from Uncle Sam. I am not a big fan of government assistance in any way, but it might be better than continually subsidizing everyone else.
I don’t write this post to taunt anyone who is stuggling to get by or fighting to pay off debt. I’ve been there and I want all those people to make as much money as they can. I do write for those of us with good incomes, little debt, and the desire to slow down. Maybe making less money is the key.
What do you think about lowering income to take advantage of tax incentives and subsidy programs?
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Good thought provoking post, and something I think about frequently. When my nest egg grows large enough, I’d certainly consider quitting everything and trying to get on subsidies. It’s frustrating to continue paying more each year in taxes…
Though I couldn’t do it because I enjoy working, in Canada there is a new tax incentive called income splitting where the higher earner can split income with (much) lower income spouse opening all kinds of various tax benefits (and disadvantages too don’t get me wrong) and a few people are looking into it- wives now opting to stay home with kids sort of thing. Though I’m not a huge money chaser I do want my debt paid off ASAP and will cool my jets a little when I get there- i’ll always work 🙂
I think a talk with a tax planning professional is needed in order to plan the right path. There’s many ways to pay less in taxes by funding retirement accounts, and at the same time lower taxable income. IT might not be enough to qualify today, but one day you will have the answers you need to find the right income and tax balance.
The healthcare thing is what kills us. It’s $400 a month for just myself (my husband has healthcare through work) and I’m healthy and in my twenties. We don’t qualify for subsidies and we make less than 80k. Sometimes I think it would be better to figure out how to qualify, but I cringe at the thought of being beholden to the government. It feels like I would be admitting to failing at life, even though they stack the odds in their favor.
I wouldn’t want to decrease our income just to get health care subsidies. Though, I’d be okay with being eligible to deduct contributions to a traditional IRA. As for right now, we are in a position to try to maximize our earnings so that we can accelerate our ability to leave the traditional workforce. I want to work less. But debate with myself over what I’m willing to sacrifice for that too. Certainly no easy answer…
That is the million dollar question, what am I willing to give up to be able to work less? Hopefully in a few years we won’t have to give up anything and still be able to leave work.
You bring up some very interesting point given the “progressive” nature of our current government leaders. As you point out, we now have three disincentives to earn and save: income taxes, college expenses, and now health care costs. The disincentives on healthcare may only grow, as the percentage of income consumers must pay is fixed, but premium costs will probably increase over time.
You either have to stay below some incalculable income and asset limit, or jump well above it. Anyone stuck in the middle gets screwed.
I do feel stuck in the middle sometimes, but here’s to hoping it won’t matter at some point.
I think being just above income thresholds puts you in a tight spot. While I think the new Stanford program is great, A $200,000 education isn’t really feasible for a family with 4 kids bringing home $125k a year.
I have no idea how a family could put 4 kids through college without loans in this day and age. I guess you’d have to choose schools very carefully and hope for scholarships.
I think it really depends on your career and life situation. If you are in a career where you are making, say, $50k but could realistically make closer to $100k if you move up over the next 10-15 years, I say keep pushing for higher income. If you are in a job where you will likely only make $25k-$40k a year indefinitely it can make sense to be strategic so that you can take advantage of subsidies. After all, working a side hustle may just result in lost benefits. I think it also depends how much subsidies and tax benefits there are. If there are huge benefits for people who don’t make much (or anything), there is way less incentive to work hard and make more money.
I see that all the time. It really is a penalty for some people to work more or try to make a little more money, especially those who rely solely on government assistance for just about everything. Why work for a low wage when you can do nothing and get by about the same?