Layoff: Getting by in unwilling retirement

There just may be a way to survive post-layoff with little risk and not too much fear and loathing. A drawdown of 4 percent from retirement savings plus early Social Security plus a modest hand-to-mouth income would support my current lifestyle. Here’s how:

If I move my plan to create a large cash-flow pool from savings in 2010 forward to, say, today, I could pay for the Investment House mortgage out of cash flow + non-tax-deferred savings (thereby preserving tax-deferred savings, if the market improves over the rest of 2009). Assuming I pick up two junior-college classes in the fall and thereafter engineer three a semester, I could continue to carry the mortgage with no problem whatsoever. In fact, not only can I continue to pay the mortgage and live in my wonted style, at the end of 2010 I could be some $3,200 ahead of the game.

And that’s not counting revenues from freelancing and not counting whatever little bit Funny about Money might generate once it’s monetized. It also is figuring the highest monthly expenses year-round: utility costs represent summer expenses, twice the winter rates.

This is a function of longstanding frugality. Because I put about $400 a month into casual savings, plus all the after-tax revenues from freelancing, a fair amount of cash has gathered in the credit union’s money market account. So…next time someone tells you frugality is bad for your psyche and bad for the economy, tell them to think again.

Now, I allow as to how I have indeed said I’d rather eat worms than teach one more section of freshman comp. However, when you come right down to it, we’re talking about a grand total of eight months’ labor a year. Around here, you get about a month off over winter break and three months over the summer.

To make a long spreadsheet short, if I gather all the savings now in the credit union and add the coming federal tax refund, I could “grubstake” a “pool” account with $11,448. By December 31, after paying my $800/month share of the mortgage bill, that base amount will have grown to $14,788, assuming I take on two community college courses in the fall.

The point of this “grubstake” or “cushion” would be to keep from overdrawing my checking account in months when expenses outrun revenues.

So, in January, when I have to start drawing Social Security and 4 percent of what little remains of my retirement savings, I would start with $14,788 plus $1,162 of Social Security and $1,333 of investment proceeds, plus net monthly pay from the community colleges, which is about $500 per course.

If I teach two sections, at the end of 2010 I end up $1,276 in the hole.

But three sections produce $3201 worth of black ink.

The fly in the proverbial ointment, however, is income taxes. While the $500/community college course represents net pay, the amounts for Social Security and investment income are gross figures. Assuming just 18 percent (an optimistic guess if ever there was one), taxes on investments and Social Security combined would come to around $5,400. So the truth is, the reward for teaching three courses could be a $2,190 annual deficit. I’d probably have to make around $4,000 in freelance income to pay for that. Impossible to tell, though: taxation in this country is so frigging complicated there’s no way an ordinary taxpayer can make any such projection without professional help.

Well, the taxes come under the heading of “tomorrow’s another day.” Money happens: I’ll find a way to cover it.

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frugalscholar April 3, 2009 at 1:05 pm

That’s the blessing of teaching! When I suffered 15 years under a department head who disliked me (and had the power to make me feel it every single day), I had this mantra: I only go in 3 days a week; after 3 1/2 months, I get a month off; after the next 3 1/2 months I get 3 months off. For me, the blessing of frugality was that I didn’t have to work in the summer, as many of my colleagues do.

Happy ending: wonderful department head.

I also think your taxes will be less than you think, given the great tax advantages of self-employment (for your other editing money or blog income).

funnyaboutmoney1 April 3, 2009 at 1:24 pm

Since the community colleges don’t provide office space — and since my specialty is teaching online & I hope to get at least one online course — I should be able to deduct my office space against the teaching income. That and what little advantage we’re getting from mortgage interest deduction may save in the tax department.

Revanche April 3, 2009 at 3:35 pm

I like the way that things seem to be looking up. But it’s stirring me back off my rump to re-evaluate post-layoff income possibilities. (I’ve taken a break from the hustle.)

funnyaboutmoney1 April 3, 2009 at 6:08 pm

If you have a master’s degree, you should be able to teach your subject at most community colleges. Some require that you have a course or two in teaching in the community college; in AZ it’s one three-credit thing that (last I heard) you could take online.

People are swarming into the community colleges, and so despite suffering their own budget cuts, many schools are looking for adjunct instructors. Pay’s abysmal, but it’s better than nothing.

Another possibility is substitute teaching. But you have to be a strong person to tolerate that job. ;-)

Chance April 4, 2009 at 2:39 am

Your detailed planning is inspiring me. All I can add to others comments is a heartfelt thank you for your posts.

Abigail April 7, 2009 at 5:04 pm

Depending on your other income — ie, whether your IRA money is traditional or Roth and how much investment income you bring in — you shouldn’t be taxed on Social Security.

If you look at the 1040 booklet, there is a spot where you figure out how much of your social security income is taxable. I would use those raw numbers you have and see.

And if it’s not, then that helps keep your overall income low, which ensures lower taxes on investments etc.

funnyaboutmoney1 April 7, 2009 at 5:29 pm

@ Abigail: Thanks! It’s hard for me to figure all this stuff out, because I have money in traditional & Roth IRAs, a 403(b) (which will be rolled over to the traditional IRA), and non-tax-deferred funds. Plus money comes from several directions: limited partnerships, my little business, the job, a drawdown from the IRA to pay the Investment House mortgage…arrghhh! Impossible to figure out.

What I would like to know, though, is whether the $14,100 you’re allowed to earn while on “early” Social Security is gross or net. If you itemize your returns, does SS penalize you if you make more than 14 grand overall, or do they go by your net earnings?

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