Down and out in NYC on $500,000 a year

Hilary Potkewitz

When President Barack Obama last week announced a $500,000 salary cap on pay for top brass at institutions receiving federal bailout funds, a collective shudder went through the corner offices of Manhattan. And the private clubs. And the trading floors.

You see, an estimated 75,000 New Yorkers earn more than $500,000 a year, according to 2007 data compiled by the Manhattan Institute, an economic think tank. Few of them carry the august C-suite titles targeted by the anti-exec crowd in the government bailout debate. Most are simply managing directors, partners and senior vice presidents of something or other.

The Big O vows to change the "culture of excess." In light of the crusade against seven-figure incomes, Crain's conducted a highly unscientific survey of the typical expenses of a Manhattan banking Brahmin to see how far $500,000 would take him or her. While half a million won't punt anyone to skid row, the results were not pretty.

Federal, state and city taxes cut that $500K nearly in half. The remainder is all but gone before groceries touch the granite countertop in the Park Avenue apartment or back-to-school clothes arrive for the two kids attending Brearley and Harvard. Never mind medical bills, holiday presents or the therapy sessions needed to adjust to the new regime.

"No doubt: If you were the guy who was making $20 million, and starting a month from now you'll only be making $500,000 for the rest of the year, that is a huge, huge adjustment," says Nicole Gelinas, a senior fellow at the Manhattan Institute.

It's an adjustment some top brass may be unwilling to make. Within a day of the president's announcement, Goldman Sachs announced intentions to opt out of the government's Troubled Asset Relief Program and repay its $10 billion federal loan in short order. The salary caps are not retroactive, but Goldman nonetheless cited a desire to limit government "scrutiny and pressure."

Plenty of other executives may have reason to be wary. "If the person has no capital to withstand this financial 'limitation,' then he's in deep trouble," says Neil Berkow, a CPA whose New York area practice mostly serves high-net-worth individuals. "He's going to have to move out, sell things, especially someone who works in the $1 million range. He's using that money just to live."

Some may wonder what part of their lives must change. Will the weekend home in Connecticut get the ax? (Good luck dumping it in today's market.) Perhaps the membership at the Westchester Country Club? A recent survey of the Metropolitan Golf Association's 200 clubs showed that 75% of respondents expect a big spike in leave-of-absence requests from members this year. Birdies and eagles won't be the only endangered species in New York.

LIFE ON A FERRAGAMO SHOESTRING BUDGET

INCOME: $500,000

TAXES: $201,070
You’re the top—tax bracket, that is. Washington, Albany and City Hall together
gobble up about 40% of your paycheck.

REMAINING: $298,930

HOUSING: $75,000
Figure $4,000 a month maintenance fees for the Park Avenue co-op and $15,000 a year in property taxes for the second home. Garage: $12,000.

REMAINING: $223,930

CHILDREN: $106,275
Includes tuition at Brearley ($33,025) and a year at Harvard ($52,650). Music lessons, sports teams and tutors quickly add up to another $8,000.

REMAINING: $117,655

CHARITIES: $25,000
Civic involvement is typically part of a top executive’s job description. A common charitable benchmark is 5% of your gross income.

REMAINING: $92,655

SOCIAL: $33,000
Harvard Club dues are $2,000 a year per couple, and Westchester County golf clubs typically charge $16,000; food and entertaining tabs are another $15,000.

REMAINING: $59,655

VACATIONS: $36,000
Three weeks at $12K a week for a family of four.

REMAINING: $23,655

FOOD: $15,000
Groceries for four ($10,000 a year), plus meals out (fancy and kidfriendly) two to three times a week.

REMAINING AMOUNT: $8,655

CLOTHING: $16,700
Total includes two new men’s suits per year at $3,000 a pop.

FINAL: $-8,045

Figures are rounded and assume that tax deductions have offset any investment income.

Sources: NYS Dept. of Tax and Finance, school Web sites, Manhattan Institute, National Retail Federation, U.S. Census Bureau, Zagat, Metropolitan Golf Association

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