Tuesday, July 10, 2007

Unusual Financial Planning

I have a friend (no, this is not a "Doctor, my friend has an itch" situation), a smart, ambitious, beautiful, Ivy-educated friend, who is going about her retirement planning in a highly unusual manner. My friend has a solid job, at which she makes somewhere in the low 40s. She plans to pursue graduate study. She likes living well, but has no illusions that her preferred field will provide for her lavishly--it should provide for her well, especially since she's good at it, but it's not hedge funds.

Also, she is having an affair with an extremely wealthy older executive. From whom she receives money on a monthly basis. A large amount of money. She doesn't use this money to buy designer clothes, or eat out daily, or get regular facials. She invests it. We haven't talked about the details of her investment, but her expectation is that this money will provide for her in retirement and perhaps contribute to the endowment of a not-for-profit she hopes to start. If she continues to receive this amount of money on a monthly basis for, say, two years, invests it, and sits on it until her mid-60s, she'll have something in the neighborhood of 7.5 million dollars, less taxes (her investments are in taxable accounts). And that, indeed, seems to be her plan. This means that she'll never have to save for retirement out of her salary, and she'll still end up with quite a lavish savings.

Aside from the tax consequences--Is someone paying gift tax? I would think investing money of indeterminate provenance would be a big fat red AUDIT! flag--I kind of think this is brilliant. I'm jealous of the incredible speed with which her investments grow. That sounds way better than my slow and methodical plodding.

I know that there are emotional consequences to these kinds of arrangements, and that some people (including some of my friends) find the whole situation sketchy, and not without reason, but I think it's hard to deny that my friend is being extremely smart here.

Madame X recently did a post on personal finance for mobsters. I'm intrigued by the way these unusual situations lead to unusual financial planning--I think it's another case in which talking about money is a way of talking about people. Any other tales of "extenuating circumstances" finance?


Alex said...

Does your friend appreciate that she is basically a prostitute?

I just ask because it sounds like she doesn't think what she is doing is morally objectionable at all.

Ashley said...

Wow Alex. Jude not lest you be judged.

You have no insight into the details of the relationship. I love my boyfriend very much and he happens to give me nice gifts, I don't think it qualifies as prostitution. Maybe the money is the kind of gifts this man gives. It is not that unusual.

Jump off that misplaced morality train and focus on the investing part of the post.

English Major said...

Alex, I do think my friend understands that she's in a grey area there. I do not think she minds. I can't say I mind, either, but I've always appreciated the mystique of the courtesan. You seem to feel differently.

Alex said...

Ashley, I have plenty of flaws, but I try to never deceive myself when I'm doing something morally suspect.

I just think people should be honest with themselves. If you are taking thousands of dollars from an older man who is cheating on his wife with you, you are very close to being, or are, a prostitute.

Maybe being a prostitute is not morally wrong (thats a subject for another post), but you can't deny that her behavior is analagous.

English Major said...

I should also note, Alex, that I do not know whether or not this man is married. I used "affair" in the old-fashioned sense, not the sense in which it means "adultery."

Alex said...

Oh, I didn't realize. That kind of changes things as we can't really jump to any conclusions about the woman's motivation.

plonkee said...

Your friend is being extremely smart and after all, what is she supposed to do with the money anyway, spend it on clothes?

And I'm so jealous.

MissGoldBug said...

I am conflicted when it comes to this...

Would the situation be so very different if the older gentleman was her father and not a romantic interest? My Dad has given me money, which I promptly put into a retirement account.

I would like to say "wrong!" and walk away with a better sense of self... but deep down, I am jealous. A Retirement Sugar Daddy, I wonder if he knows... I wonder what he'd say???

Your friend is smart, very smart. I just hope it doesn't blow up in her face somehow...

For What Its Worth,

Him said...

<beating dead horse>

(assuming that is was adultery of the cheating on the wife sense)

Alex, why would it be all of the woman's fault for the adultery? And when did prostitution become morally worse than adultery? The man definately actively got himself into that situation.

Also, your words of her "taking" money from him could be totally wrong. What if she didn't say a peep and just found a few benjamins in her purse?

</beating dead horse>

Anywhoo, I wonder how many men have sugar mama's, and why that relationship is less publicized.

Alex said...

I definitely don't think the man (lets call him Sen. Vitter) if its a married man giving a young woman money to sleep with him is in any way innocent.

I was never saying adultery was worse than prostitution, I was merely saying that if Sen. Vitter was married, then it increases the chances he was just interested in the physical relationship, and she in the financial relationship, thus making it more analogous to a money for sex trade.

S/100/30 said...

Would the situation be so very different if the older gentleman was her father and not a romantic interest?

That was exactly my reaction -- how is taking money from a lover any different than taking it from a parent? They both bring their own sorts of weird dynamics and power issues. In a way, I think taking money from a lover is "better" than taking it from a parent, in the sense that it's a better approximation to what I think of as "proper" adult financial behavior.

It's not as if she's doing this with a different guy every month.

Caroline said...

Why is it "unusual financial planning"?

She is receiving regular monthly payments and investing them.

That seems like the most "usual" form of financial planning I can think of.

Madame X said...

Ah, but what if she was getting all this money by having an affair with her father, who was cheating on her mother? Or what if it was a young man who was having an affair with his mother and cheating on both his father, and the pool boy?
What if the young man was a prostitute who was charging his mother his usual going rate? Is it immoral for him not to give her a discount? What if his mother is a certified financial planner? Should she just invest the payments for him as a sort of barter arrangement? Is it immoral if she isn't fee-based? Let's be sure to consider all the nuances here!

rocketc said...

How will this relationship end?

Will they get married and the man stop giving the money because she is now his wife?

What if the woman wants to get married, but the man doesn't or vice versa? What are the implications?

What if the women "falls out" of love with him? Will she continue the relationship because of the cash? Is that right or wrong?

Is this arrangement morally good as long as she really loves him and then does it become something else if she doesn't really love him?

What if the relationship did not involve sex, just good companionship - would the cash flow stay the same?

I think I am with Alex on this one.

Tired of being broke said...

Your friend is smart. She is investing the money as opposed to living high on the hog and wasting it.
Who are we to judge. I get money from my boyfriend, granted it is a few dollars here and there because we are not rich, that is what people do in relationships, give and take.

GoldnSilver said...

Getting back to the personal financial aspect.

Your friend should pay gift tax depending on the amount she recieves each tax year.

The following gifts are not taxable gifts
Gifts that are not more than the annual exclusion for the calendar year.
Tuition or medical expenses you pay for someone (the educational and medical exclusions).
Gifts to your spouse.
Gifts to a political organization for its use.
Gifts to qualified charities (a deduction is available for these amounts).

Annual exclusion is $11,000 for year 2002 to 2005.

For 2006, annual exclusion is 2006.

Not sure if your friend knows if the older gentleman included in her will. If she is, I just wrote a post on Estate tax. Check it out for informational purproses.

GoldnSilver said...

I meant to say, I don't know if the older gentleman included her in his will. If you can check out my post for estate tax info.

I just read my previous post, the last few sentences are confusing. I think faster than I type, so my sentences are mangled often times :)

for this year, if she recieves gifts over 12,000 from that gentleman. She has to report anything that's over the 12,000.

GoldnSilver said...

ANNUAL exclusion for 2006 is $12,000.

I got to slow down with my typing.

Sorry for taking up so much space, but I don't want to give out incorrect info.

Anonymous said...

Let's see. It's different it the older man was my Father because...well...gee, um..I don't BONE my father! I'm sorry, but something's a little fishy here. The guy is just hemorrhaging cash and she's not expected to do anything more than keep him company and his toes warm?

Hazygrey said...

What if she got married to him and he continued with the cash payment? Does it change anything morally? This is essentially the situation for millions of couple who do not have equal wealth / income.

S/100/30 said...

What if she got married to him and he continued with the cash payment? Does it change anything morally? This is essentially the situation for millions of couple who do not have equal wealth / income.

As deliciously addressed in
this classic Onion piece

Anonymous said...

Yeah, well, I have zero moral judgment about it, seems like a good job. Not one I would do, ever, but for those who aren't forced into it by pimps, or drugs, and who conduct themselves ethically and carefully, one that could be quite enjoyable.

Let's say it *is* prostitution, and the gentlemen is paying for exclusive rights (usually the case with monthly payments). Her obligation is to deliver exclusive professional services safely with respect to disease risk, as agreed, and his obligation is to pay her promptly, comply with disease reduction methods and not be a dick to her just because he is paying.

If he is married, the moral error is entirely his, and she has nothing to do with it anymore than a bartender has anything to do with an individual's alcoholism.

There is an age-related end to provision of sexual services so smart 'hos invest.

A friend of mine had a pimp who took an extra 10 percent in addition to his cut and invested it for her. He happened to be a talented investor,and it was exactly the right time in the dot-com boom, so when she "retired" from the business at 35, she was a millionaire a couple of times over.

She is really happy still, 20 years later, doing great work in another field and having a wonderful life not having to work for money. I don't get why people have such a hard time with taking money for sex, when essentially the marriage contract, and it is a contract, calls for just that, not so bluntly.

gildedbutterfly said...

One pf question: Why is she investing it in taxable accounts? If it is truly her intent to sit on it until she's in her mid-60's, it would be financially smarter to up her retirement contributions--401(k) and IRA--as opposed to simply investing it in taxable accounts. Anything in excess of the legal limits could be put into taxable accounts.

That'd me my two cents.