How to Mitigate the Black Tax

Instead of six-figure inheritances, Black families typically pay the Black Tax.

While the term Black Tax has gone through a transformation over the last five years, to me, I still favor the original definition. Black Tax is generally the cost to support direct and extended family.

For the (semi-) professional Black millennials or Gen-Zers, this means you are likely the one and only successful person in your family. At first, it’s cause for celebration. First to graduate high school or College. Next, it’s the first to get a “good job” making north of $50,000 per year. All while keeping up with the appearance of being successful i.e. the new luxury car, the big/bigger home, or the trendier wardrobe. All of which while the student loans and credit card debts stack up.

And then, the calls come in.

Maybe it’s $100 here or $500 there, but over time, the sum balloons. Soon it’s a family loan of $2,000 or maybe a call to fix the roof or the AC. In the end, it’s just the Black Tax. Sandwiched somewhere between the time you should be preparing for your financial future, you are stuck taking care of the past.

How much does this Black Tax cost?

This financial obligation will run you at least $2,000 per month for every living adult.

As Black Boomers retire, the financial depth of the family’s issue will be revealed. In truth, Black Boomers are retiring exclusively on social security. Many are pocketing less than $20,000 annually in SS benefits to cover over $50,000+ in growing expenses.

The worst part is that Black Boomers are steadily going into “struggle retirement” with less than $100,000 in savings (if at all). To top this problem, most Black Boomers are behind on their mortgages while owing a balance of more than $100,000+.

On top of this, there is a critical failure to engage with retirement and/or estate planning.

Most don’t have a will which creates an expensive mess during Probate. Many more are relegated to go-fund me or church support to pay for expensive funeral costs.

In the end, it only builds resentment within the survivors.

To Sell or Not Sell the Family Home

It wasn’t until tax time in 2023 that I was fully aware of what my mom when through in 2022. By retiring early and without a plan, she took her Social Security Benefits early. In 2022, she yield less than $15,000 for over 40 years of labor. That’s about $1,250 per month. By financial terms, she is destitute.

My in-laws are in the same boat. With no savings, they are struggling to keep the mortgage afloat. It’s not likely that they will be able to financially survive the next ten years without turmoil.

The dream of the silver retirement on a resort is effectively dead for my family. Even if vacations are out of the picture, it’s going to cost my wife and I, at least $2,000 to $3,500 per month through the next 25 years.

We will have to come up with a strategy. In the end, we might even need to sell the family home. At least, that would buy us time and maybe $350,000 tax-free.

Until that last resort, there is always Plan B.

Wait what about Plan A?

Well, plan A was perfect and then my mom abruptly quit her job during the pandemic. The plan was simple. I needed her to work through 2025 so we could reach full retirement. This would have netted her an extra $375 per month.

While it’s not a ton of money; the extra $4,500 would have covered additional food.

Staying on the job would have to pay for her health care (which is about $10,000 per year now) while adding to her savings. After that, we would have been able to supplement her income with the rental unit. All for a grand total of $31,500 per year or $2,625 per month. That’s an increase of 110%.

Told you it was a good plan but life happens.

So on to plan B…

This is where I have to scramble for a viable alternative. While my wife and I are still pursuing Financial Freedom, it’s likely that a Baby will come around to add to the cost.

Personally, I’m all for a bundle of joy however I’m acutely aware that it will cost us. On top of this, student loan repayments are coming back up in September 2023 and our new EV car payment of nearly $1,000 will start in May 2023.

That’s an extra $2,000 per month and it’s all pre-baby. And now we have to contest with supplementing our parents with at least $2,000 per month with the understanding that this could balloon to over $5,000 per month. The nature of the Black Tax is damn near predatory.

However, I have another bright financial strategy idea:

1. Bolster the Dividend Income portfolio that’s currently at $60,000 to $75,000 by year-end (YE) 2023.
2. Make a subtle shift toward $JEPI which pays out more than 10% in dividends. This will give us $750 monthly that the parents can split in 2024 ($500/$250 respectively).
3. Contribute an extra $25,000 by YE 2024 for a new dividend payout of $1,000 per month in 2025.
4. Jumpstart the amount to $250,000 by YE 2025 to pull out $2,000/month in 2026 and beyond.
5. Finally, by YE 2030, we should have the account up to $360,000 to yield $36,000 annually or $3,000 per month. The amount that we would split to $1,500 per month.

I guess we won’t have to sell the home?

There are multiple ways to view adversity. You can think of the Black Tax as debilitating and curl into a ball. Some even start to rage about the system, about what is owed or not. Personally, I take another approach.

God knows that I don’t mind a challenge. Especially if it’s a puzzle. And this is definitely a challenging puzzle. If this is going to cost me, I rather know right now versus waiting until later. Sweeping this Black retirement crisis under the rug won’t do much to it. Consequently, the problem and the stress will just pile up.

Unfortunately, this isn’t an insurance issue, it’s an intro-vivo issue. When you don’t have an inheritance, you pay the Black Tax. The best way to pay up is to add it to your long-term financial strategy. To do so, I’m going to use dividends to help our total (net) cash flow while steering us toward Financial Independence.

It would have been so much easier to get an inheritance instead. This is going to be very difficult for other Black Americans once they realize the extent of the problem.

About Author