As we celebrate Presidents Day 2015, we still live in a country marred by the financial crisis and subsequent Great Recession. As the national economy finally recovers, how has the president fared in managing his personal wealth?
Opinion is mixed; some view President Obama as relatable in terms of his financial background — arguably, it’s this relatability that won over the hearts and votes of the American public in 2008 and 2012. Others, however, have accused him of being a snob and elitist.
As the leader of the free world — and one of the most influential men on the globe — domestic and international issues of varying scales weigh on the president’s shoulders daily. How, then, has he managed to take care of his family’s financial future?
According to Kathy Kristof of Kiplinger, not well: “A review of the financial disclosures [the Obamas] filed in May [of 2012] uncovered what many of us see in our own financial lives — neglect, inertia, poor diversification and spotty investment choices.”
President Obama’s Best Financial Moves
1. Writing His Memoirs
The Obamas’ tax liability was larger than the president’s salary in 2010, and that’s because of significant royalties from his books — much of the $1.7 million he made that year. In 2012 alone, “Dreams From My Father” generated $100,001 to $1 million, as did “Of Thee I Sing: A Letter to My Daughters,” from which the after-tax proceeds were donated to scholarship funds for children of fallen and disabled soldiers. “Audacity of Hope” earned the president $50,001 to $100,000 that same year. (The wide ranges in earnings are a product of reporting rules for public figures).
Additionally, the writing of a children’s version of “Dreams From My Father” earned the president a $225,000 advance; he also got to collect between $1,000 and $2,500 in royalties for “Surviving Against the Odds: Village Industry in Indonesia,” his late mother’s book.
The president’s earnings from his day job are greatly dwarfed by what he’s collected from book deals, at just $395,188 in 2010. Obama’s income placed him in the 26.3 percent federal tax rate in 2010, although the Obamas qualified for a refund of $12,334, due to $373,289 in itemized deductions, having given $245,075 to charity that year — 14.2 percent of their income.
2. Sasha and Malia’s 529 Savings Plans
Kiplinger estimates that Sasha and Malia’s 529 college savings plans have between $100,000 and $200,000 each, whereas MyBankTracker estimates they’re worth between $200,004 and $400,000. The president might be doing a lot to help American students deal with their college debt, and he clearly doesn’t want his daughters to be in a position where they need to borrow.
The president opted for the state of Illinois’ Bright Directions 529 plan for his daughters, with the deposited funds divided equally between two investment options: one based in stocks and the other in bonds.
3. $250 to $500K Emergency Fund Saved
If the rule of thumb is to have six months of income saved for an emergency fund, then the Obamas are set.
With an estimated 28 percent of Americans having no emergency savings to speak of, the Obamas are being responsible with their money should an unexpected event occur. The president declared $50,001 to $100,000 in a JPMorgan Chase Private Client Asset Management checking account, between $1,000 and $15,000 in a JPMorgan Chase Private Client savings account, as well as an additional $100,001 to $250,000 in a Northern Trust checking account, according to his 2013 executive branch personnel public financial disclosure report.
With a six-month salary of roughly $200,000, the president’s savings are far above what’s necessary.
4. No Reported Debts or Liabilities
The Obamas weren’t always debt-free, and struggled early on with financial burdens. The president spoke of this in April of 2012, stating:
“I went to law school and college with the help of scholarships; so did my wife. We were still paying off student loans nine years after we graduated. I bought my first car for about $900. It had a big hole in the floor that allowed you to see the road, so I knew my wife wasn’t marrying me for my money. We had credit card debt we hadn’t paid off. [In fact] our personal finances … weren’t stable until fairly recently.”
The president has no liabilities listed on his 2013 executive branch personnel public financial disclosure report, save for his 30-year mortgage, taken out in 2005, with a value of between $500,001 and $1 million. Liabilities of $10,000 or less are not required in the report.
President Obama’s Worst Financial Decisions
1. Taking Too Long to Pay Off Student Debt
The president took a reported 13 years to pay off his Harvard Law School debt. According to US News & World Report, Obama paid off his law school debt in 2004; however, he could have put at least $100,000 away in savings each year by living frugally, with Chicago-area housing costs factored in along with inflation rates.
With income over $200,000 annually in the years between 2000 and 2004, frugal living habits could have saved the president significant loan interest if he’d paid down more each year and had limited his annual budget to $75,000.
2. Weak Retirement Savings
Fidelity Investments suggests that people save eight times their ending salary for retirement, with one year’s salary saved by the age of 35, three year’s salary by 45 and five year’s salary 55. At 53 years old, the president should have almost eight years’ salary saved up; and yet, the president only has between $600,004 and $1.35 million saved, according to his 2013 financial disclosure report.
The president cataloged three Vanguard 500 index retirement funds, each with $100,001 to $250,000 deposited. Additionally, the president denoted a pension plan for the State of Illinois General Assembly, valued between $50,001 and $100,000, as well as a former 403(b) retirement plan with the University of Chicago.
If Obama ends up anything like former President Clinton, he’s likely to make even more money after leaving the White House — but he’s not off to a great start.
Keep reading: 5 Ways to Test Your Retirement Readiness
3. Neglected to Refinance His Home
Obama’s mortgage is held with Northern Trust in Chicago. It’s a 30-year loan at an interest rate of 5.625% — and the president never capitalized on still-low mortgage rates to refinance the loan.
With the prime rate still at 3.25%, the Obamas could save tens of thousands of dollars in interest paid on their nine-year-old loan, especially since the loan amount itself is estimated between $500,001 and $1 million in value. According to MortgageCalculator.com, the president spent over $1.5 million for his home in 2005.
What’s more, Illinois has the second highest property taxes in the nation, meaning the Chicago home is blowing through even more money.
4. Too Conservative of an Investment Strategy
The Obamas are incredibly conservative about their money in the market, with 92 percent of their portfolios held in cash. The couple’s $4.7 million in cash investments is divided between Treasury bills and notes, as well as checking and savings accounts, according to Kiplinger.
The couple held only $325,000 in stocks as of 2012. By keeping a whopping $1 to $5 million in Treasuries, the Obamas are missing out on more impressive investment returns, both due to the amount they place in the market, as well as how aggressive their investments are. Those millions in Treasuries only generated a return of between $5,001 and $15,000 for the Obama family that year.
Photo credit: GlynLowe.com
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