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Running around COBRA’s barn again

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Just realized I didn’t write a post this morning and then, whilst frolicking with bureaucrats, didn’t get to it this afternoon, either.

Another fine exercise in jumping through hoops and tearing around the Maypole today.

Not having heard anything more from the COBRA administrators over the past 15 days, despite having been told that a notice and a statement would be sent out, I called again to inquire.

Today’s bureaucrat harked back to the original claim that I needed to have sent them money a month BEFORE I was laid off my job. I explained that Arizona State University’s Human Resources people said that I was not supposed to send money while I was still employed there. She said well, then I wasn’t covered.

So I’ve now spent the last month without any health coverage at all, if you believe this one’s version.

She wants me to present myself in person on Monday—when I’ll be teaching until 2:00 in the afternoon about 25 miles from their office—with a check for $334 in hand. This, she says, will cover me through February.

Of course, that doesn’t make any sense, because the one who told me I’d been approved for the ARRAS discount said my premiums would be $185. Two times $185 is $370. So… who knows what this is about.

Entertaining, isn’t it?

First ASU’s HR people told me I would be not qualified for the ARRAS discount because my last day of work was December 31. Then the Arizona Department of Administration, which administers COBRA, told me I would be qualified for the ARRAS discount because my last day of work was December 31. I sent an application and was told I was approved.

Next, ADOA said I should send a chunk of money to the state no later than the first week in December. Then ASU’s HR department told me this demand was incomprehensible, that I most certainly did not need to send money for COBRA while I was still employed by ASU, and that COBRA would send me a statement after I was terminated, saying how much and when to pay.

In mid-January, ADOA informed me that I was not terminated and as far as they could tell I was still employed by ASU. Then ASU told me I most certainly was terminated and ADOA did not know what they were talking about. Then ADOA told me I was not terminated and was still a state employee.

After I spoke with my ex-husband’s former law partner, who is now Arizona State University’s general counsel, I was told the mess was cleaned up. At that point, I was informed that I had actually been canned not on December 31 but on January 10, but nevertheless because the Obama Administration had extended the ARRAS discount into February, I still would be able to get  coverage I could sort of pay for.

On January 14, I spoke to one Connie at ADOA, who said I did not have to send a check but that I would receive a letter telling me of my eligibility and letting me know where and when to send a premium payment. And by the way, no, I did not need to make a COBRA payment a month before my job ended. That was 15 days ago. No such communication has appeared.

Now I am told I need to pony up $334.04, which is supposed to cover me “through February.” Three hundred and thirty-four dollars is slightly more than twice the earned income I have received this month.

So, this afternoon I called the Feds.

There I learned that while COBRA is indeed a federal law, the federal government’s regulatory oversight is limited to private employers. If you work for a state university or government office, you’re on your own! I asked the woman who shared this gem with me if she thought I should call a lawyer. She said not yet…it’ll be another week or so before they’re actually in violation of the law. She recommended going back to HR (hah! words from a lady who’s never had to deal with ASU’s HR department!) and nagging some more.

I am nagged out. On Monday I will trudge down to ADOA in person, hand over $334, and demand a receipt that states exactly what the money is for, and not only that, ask that they produce a policy or a contract describing what I get and when. After that, I give up. If I get in a car wreck or have a heart attack before Medicare kicks in, I guess I’ll just have to drain my savings to pay the bills and then declare bankruptcy.

Ain’t workin’ for the State of Arizona grand?

Should you pay off your mortgage?

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Preparing to write the next installment in a series on achieving financial freedom, I ran some figures to compare the result of paying down a mortgage with extra monthly payments toward principal with investing the same amount monthly in a mutual fund. What I discovered runs against my theory that you’re well served to pay off a mortgage as fast as you can.

I still think that’s true if you’re getting close to retirement. In retirement, every debt should be wiped off your books, because you will need all your cash flow to live on. However, if you’re younger—say, anywhere between 20 and 45—and your mortgage rate is low compared to returns on equity investments, it would be to your advantage to invest extra dollars in a mutual fund earning around 8 percent. At today’s rates, this strategy allow you to accrue enough to pay off the principal faster than will throwing a monthly amount at the loan principal. Here’s how this shakes down:

M’hijito and I have a 30/15 mortgage at 4.3 percent. This means that for the first 15 years, we make payments at the 30-year amortization rate, but after the 15 years have passed, we either have to pay off the loan or we have to refinance it. The loan’s principal is $211,000.

We chose this mortgage because, at the time we bought the house, we believed the real estate market was nearing the bottom. We believed the house would drop in value another $4,000 or $5,000 and then begin to rise, probably at around 3 percent p/a. We figured that in five to ten years we could sell or rent the house and either break even or make a small profit. As everyone now knows, this was dead wrong: in fact, real estate was in free-fall, and the house is now worth at best $170,000, but more realistically around $150,000. This turns the loan into a real albatross. One strategy we are considering is to try to pay down principal with whatever extra monthly payment we can make (which ain’t much!), so that in 15 years, the amount to refinance might at least be no more than the house is actually worth, possibly allowing us to sell the house at that time.

In 15 years, with no extra payment toward principal, the loan balance will be $138,338. Monthly principal and interest payments are $1044; PITI comes to something over $1200.

Note that the projected loan balance is less than the most pessimistic present-day valuation. If the market finally has bottomed out and housing increases in value at 3% a year (a figure that is now being bandied about), in 15 years the house will be worth $233,695. That is less than we paid for it, but at least if we sold the house at that time we would walk away with a little cash in our pockets.

With me out of work, about the most we can afford to pay extra toward loan principal is about $100 a month.

Using Excel’s full value (=FV…) formula, I calculated the the return on a $100/month investment in a mutual fund earning 8% per annum. (Over at Vanguard, a number of stock funds and even a few bond funds are returning at this rate; one of them is Windsor II, in which I happen to already have a little cash.) I then used Quicken to run an amortization schedule, and compared the amount a $100/month investment would be worth in 15 years with the amount an extra $100/month principal payment would reduce the loan balance.

Assuming that our mutual fund investment averaged an 8 percent return, if we sent Vanguard $100 a month, in 15 years we would accrue $34,604 (full value =(.08/12,15*12,-100). If we paid an extra $100 a month toward the loan principal, in 15 years we would have paid the balance down by an extra $18,000 ($100 x 180 pay periods). According to Quicken, we would still owe $113,116.

With no extra payments, remember, we would still owe $138,338.

$138,338 – 113,116 = $25,220

Compare that with the $34,604 we would have earned in the mutual fund. Clearly, we would be ahead—by over $9,000!—by investing the money in a mutual fund with low overhead, such as Vanguard and Fidelity offer.

Well, now. Suppose you were not out of work, and so had plenty of cash to throw at the principal. Let’s suppose you really have plenty of cash and you decide to pay the equivalent of an entire P&I payment toward principal. Then what?

If you put $1,044 into a mutual fund every month, in 15 years you would have $361,264. If you paid $1044/month toward principal (in addition to your regular payment) on a $211,000 loan, you would pay off the loan in 10 years.

But by putting the cash into a mutual fund returning 8 percent, in 10 years you’d earn $190,995. Since in 10 years, with no extra payments, your loan balance would have dropped to $167,901, you’d still come out ahead:

$190,995 – $167,901 = $23,094

In other words, if you put the amount of an extra loan payment in an 8% investment, in ten years you would have enough to pay off the mortgage and still leave $23,000 in your pocket. If you used the same amount to pay toward the loan once a month, you would pay off the debt but would have no cash left over.

The conclusion is obvious: If your goal is to pay off your mortgage, you’re better off investing a regular payment in a decent mutual fund than paying the same amount toward principal.

This assumes your mortgage interest rate is lower than the rate of return from an equity fund. Note also that my figures do not take into consideration the small tax advantage gained by paying mortgage interest; this factor also would tend to improve the picture if you invested in the market.

Risky? Sure. But we now know that investing in real estate is wildly risky, too: more so, it develops, than the stock  market. My stock investments are rapidly regaining their pre-crash value, but there’s no credible sign of any recovery in the real estate market here. Even if the value of the house starts to increase at 3% p.a. today, in 15 years it won’t be worth anything like what we paid for it. If property values remain flat for any length of time (as it appears they will), we will lose not only our shirt but our pants, socks, and underwear.

I used to think my father was crazy because he refused to buy a  house until after he had saved enough to pay for it in cash. All the time I was growing up, we lived either in company housing or in rentals. His reasoning indeed was crazy—he bought into The Protocols of Zion, an irrational tract that led him to believe all mortgage lenders were part of a hallucinatory international Jewish conspiracy. However, the effect was that when he retired at the age of 53, he had enough cash to buy a house and a car and to support himself and my mother in a middle-class lifestyle without having to work.

Crazy like a fox, that old boy was.

A rabid fox, but still…

Recovery? Will even part-time work be there in 2011?

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The county community college district continues to brace for further budget cuts. Enrollment is up 11 percent, since people tend to go back to school when they’re out of work. But that notwithstanding, the state and the counties don’t have enough money to fund basic services. Like education.

By way of enlightenment, we are told by the college’s interim president:

Since FY07 sales tax collections have declined 22%, and personal income tax collections have declined 38%. And since 2004, 144,000 new students have entered the K – 12 system and 475,000 new members have joined AHCCS. On top of this, since 2007, the State has lost 280,000 jobs.

AHCSS is Arizona’s answer to Medicaid; you have to be destitute to qualify. Think of that: well over a quarter of a million jobs lost; almost half a million newly poor.

The state government lives largely on sales tax, which adds about 10 percent to every purchase you make, except for most foods. And except for gasoline and booze: those are even more heavily taxed. Income taxes here are relatively low, but when you add up all the small bites that come from all directions, taxation in general is fairly high. Thus when sales taxes drop by a fifth, that takes away a substantial part of the state’s operating budget, and the loss of almost three hundred thousand salaries since 2007 sure doesn’t help.

About $45 million of the Maricopa County Community College District’s funding comes from the state; that’s about 8 percent. At this point, no one knows what the effect on the district will be. The interim president, who has been attending talks on this issue for the past several days, reports:

Over the last three days, I’ve learned of a range of possibilities including: the district being held harmless (in terms of any reductions) for FY10 and FY11 to the other extreme that if new revenue is not generated (through the planned special election in May), MCCD’s reduction could be as much as $22.5 million.

The “planned special election” asks voters to decide whether taxes should be temporarily increased. Well…all very nice, but if no one has an income and no one’s buying anything, there’s nothing to tax. Also, of course, Arizonans like all Americans know there’s no such thing as a “temporary” tax increase. Once a new tax is in place, it will stay in place. So it’s highly unlikely that this referendum will succeed. They’re also talking about putting a sales tax on food, which apparently does not require a vote of the citizens; that will jack up everyone’s basic survival budget, a politick move, indeed, with hundreds of thousands of people out of work.

So…IMHO, it remains to be seen whether this part-time job I’ve picked up, teaching adjunct at the community colleges, is going to last. Although something like 80 percent of the district’s faculty is part-time, most full-time faculty are tenured. It’s difficult to get rid of tenured full-timers; nothing to get rid of adjuncts. A huge budget cut will result in cuts in the number of classes, increases in class size, and elimination of part-time positions.

The stock market, if no one has noticed, has entered another slow slide. We’re headed back into the 9000s, from what I can tell. If the market doesn’t stay above 10,000 and continue to climb modestly through 2010, my chances of recovering a respectable amount of the money lost in the Bush crash are nil.

It doesn’t bode well.

More Kitchenry

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Frugal Scholar continues her discussion of kitchen renovation with tales of cabinetry discovery.

And check out Hostess of the Humble Bungalow‘s amazing remake, with pictures of the beautiful cabinetry her husband custom-built.

It’s all very  interesting. One commenter at FS remarks on her pleasure at having substituted drawers for all the lower cabinets. I have to say that sure sounds like a great idea. My kitchen has two big lower-cabinet drawers. Because Satan and Proserpine took out about half of the wall cabinets to open up the space between the kitchen and the family room, the remaining upper cabinets are not large enough to to hold my Heath dinnerware. Even though the cabinetry was fairly expensive semicustom Kraftmaid stuff, they just aren’t deep enough to hold a 1970s dinner plate.

But a single big drawer not only holds the plates, it holds two stacks of bowls, the salad plates, and the bread plates: the entire set fits inside one drawer! I’d love to have drawers for the pots and pans, too.

Gas prices edging upward

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Sunday afternoon I dropped by the Costco near M’hijito’s house. The lines at the gas pumps backed up almost to the entrance—a half-dozen waiting customers at every single pump. Sat around for 15 minutes or so (why do I always pick the guy with a megamonster truck who has to refill two extra-large tanks or the old lady who, after pumping gas and paying, has to replace every single item in her capacious purse with engineering precision before she can drive away?), I couldn’t get the damn pump to work, so left without gas.

This didn’t bother me much, because there’s a Costco on the way home from the community college. I figured to fill up on the way home yesterday.

Apparently the reason for the feeding frenzy at the downtown store was the $2.53/gallon price. At the 101 and Cave Creek, Costco was selling gas for $2.59…and that was a dime a gallon below the going price at surrounding gas stations.

Welp. In the new $800/month budget regime, gas purchases are limited to $60 a month, and we’ve seen that can be tight. So instead of filling up, I cut off the pump flow at $30.

Thirty bucks bought exactly one-half tank of gas. The gauge was at 1/4 tank when I pulled up to the pumps. Thirty dollars worth of gasoline filled it to the 3/4 mark.

So, I guess it’s back to hypermiling for moi.

I’m going to try to keep the gasoline expenditures to no more than sixty bucks, which at current prices is one, count it, (1) tankful of gas. This month it ought to be doable, since last week I spent almost all of my Costco budget in restocking my hoard and so I won’t be making any more trips to that place for the next three or four weeks. Still, teaching at Paradise Valley requires three 24-mile round trips a week—almost 75 miles!—and there are no affordable grocery stores on the direct route. To get to a Safeway or a Food City, I have to go a mile out of the way, adding two miles to the homeward trip.

Contemplated whether I could bicycle to Safeway. That would be a six-mile round trip, most of it across hectic main drags populated by homicidal drivers. And I couldn’t carry any more than I could stuff in a backpack. I certainly could walk or bicycle to the Albertson’s or Sprouts, but I don’t feel safe in those stores’ parking lots when I have a layer of steel between me and the aggressive panhandlers and the young thugs with their pants down around their crotches, their gang colors shining loud and clear. The nearest Food City is populated by families, but it also requires four miles of navigating dangerous streets through questionable neighborhoods.

{sigh} Conserving gas ain’t easy when the nearest subsistence shopping isn’t safe for old ladies.