Coffee heat rising

funny

This post may be a paid guest contribution.

Why there is no cross-over point

by

For most of us, the goal in building wealth is to reach the “crossover point,” where passive income from investments equals the amount you need to live on. The sooner the better: early crossover point = early retirement.

It’s times like these, though, that give me pause about that idea. To retire with little risk of a gigantic cut in living standards, you would need to have so much money invested that, unless you’re an entrepreneurial wizard, it would take an entire lifetime to accumulate it. Most of us will never manage to do so. The amount needed to support you reliably through an extended retirement would have to far exceed the actual crossover point.

Why? Two reasons:

  1. Inflation
  2. The vagaries of the stock market

Either of these can destroy the purchasing power of your investments; since high inflation and unstable market conditions often occur together, you can expect that sometime during your retirement, you’ll watch both of them sit down side by side to the dinner table that is your life savings.

That’s the case right now. At the end of March, my total investments came to about $583,000. Today, with the belated 403b statements from TIAA-CREF and Fidelity finally in hand, the total comes to $551,700, a loss of $31,300. Meanwhile, costs for food and gasoline are pushing my daily expenses past my budget.

What Dependence on Passive Income Would Mean to Me

If I tried to live on 4% of savings (the amount recommended as a safe drawdown) plus Social Security, I would experience a 35% pay cut. Not that it would matter, because I couldn’t live on 4% of what I have in savings anyway. Four percent of $583,000, the pre-stock fall amount, is a grand $23,320. Add my projected Social Security payments of $16,608 to that, and you get a munificent income of $39,928: a $22,072 cut in pay at retirement.

I can’t live on that. I’m barely living on what I earn.

In fact, as we speak my week-to-week budget is again in the red and about to go deeper therein: this afternoon the pool repair guy will clip me for $105, leaving me $4 in the hole against a budget supposed to last until the sixth. Today is the first. Thursday I have to go to the doctor; that will be a $20 copay, putting me $24 in the hole. If I have to buy prescription meds, add another $20 to that: $44 in the red. That means that even if I buy no food, no dog food, no gasoline, no toiletries, no cleaning goods-if I buy absolutely nothing-I will start next week $44 short. And this month I’ve had no extraordinary expenses, unless you call this afternoon’s overdue routine pool maintenance extraordinary.

I can’t let the pool ride until next week, because the pump and filter have slowed to the point where they’re not driving the system efficiently enough to keep the pool clean in an Arizona summer’s extreme weather conditions. Letting your pool go green is a violation of the law; the county flies over the city in helicopters, checking pools from the air. The fine for neglecting the pool would demolish my budget permanently.

The costs of gasoline and food are now so high that my budget will not cover all my routine needs. That’s while I’m earning $22,000 more than I will see during retirement, when about two-thirds of my income will be based on an optimistic projection of investment income.

These needs will never change: I always will have to eat, I always will have to maintain the dwelling I occupy, I always will have to transport myself around the city to purchase necessities.

You might say I simply haven’t reached my crossover point. I would reply that for most people, there is no crossover point.

What This Means for All of Us

The longer you work, the more you appear to earn: inflation alone pushes your salary higher through cost of living increases, and if you have a decent employer, you get occasional merit increases. But the more you earn, the more it takes to live. Even though my salary is high in absolute terms (the median income for a four-person family), the truth is that relative to the cost of living, it is the same or even lower than it was a year ago. So, probably, is yours.

Lower, indeed: since May 2007, when I started the weekly budget plan, I was consistently in the black until the March/April 2008 cycle. Every budget cycle ended in the black overall…until inflation ticked up and income stayed static. Since April, I’ve been in the red almost every week. Because state employees received neither COLAs nor merit increases this year, costs have risen but my income has stayed static. Remember, if you retire when you reach the crossover point, income always stays static.

Let’s imagine, for example, if I were retired and would never see another merit pay increase; if the only increase I would see would be an occasional cost of living increase in Social Security, not necessarily granted every year; if every time the stock market dropped, I saw a cut in pay. Add to that the ever-increasing cost of Medicare.

If I work until I’m 66 and we grant that I need about as much as I’m earning now to stay where I’m living and not be forced to move someplace cheaper, then the crossover point that would allow me to remain in my paid-off home would require income-generating savings of $1,134,800, and that amount would have to increase annually to keep up with inflation! In other words, the recommended 4% drawdown from life savings of over a million dollars combined with Social Security would not suffice to provide a person with enough income to live in my current modest (some would say “ascetic”), debt-free style.

Thus I would argue that unless you are part of a married couple, both of you are earning in the six figures, and you live frugally, stay out of debt, and save exuberantly, you are unlikely ever to see a real crossover point at which your passive income will cover your expenses for the rest of your life. This applies to most people who think of themselves as members of the middle class: teachers, midlevel administrators, shopkeepers, sales staff, police officers, fire fighters, most people in the trades, most government employees, just about anyone who inhabits a cube…virtually all of us.

What Can Be Done

If you are a young person, get out of debt, stay out of debt, and save every penny you can. Max out your employment-related savings plan, fully fund a Roth IRA every year, and put everything else you can into non-tax-deferred savings.

Angle to get yourself into a decently paid job that’s not too obnoxious, so that you can contemplate working until death do you part from your employer without wincing at the very thought of it.

Why not simply plan to work until you drop dead and just spend everything you earn? Because few of us will stay healthy long enough to work until we die. Because we live in a culture that abhors age and discriminates against the elderly, and so few of us are likely to be able to hold a decent job until we die. Even though you probably will need to work well into old age, you had better have enough savings to live on between the time you can no longer land and hold a job and the time you shuffle off this mortal coil.

If you are my age (born during the Cretaceous Period): do not even think about retiring unless you have well over a million dollars per person to generate passive income.

I’m now planning to work until I’m 70 and to bank after-tax Social Security income starting at 66 1/2, when I’m eligible for the full amount. If I can hold my job that long, I can maintain my lifestyle for a while longer. If I die before then, at least I won’t have had to choose between going hungry or moving to cheaper housing in a ghetto for the elderly. If I live that long, the number of years remaining to me will be few enough that a larger draw-down probably won’t consume my entire savings before I die-and maybe I can even stay in my home.

2 Comments left on iWeb site:

frugalscholar

The crossover point from YMYL is based on absolute certainty of income: the book recommended Treasury Bonds, which at the time paid a guaranteed 8-10%.Those days are long gone.

YMYL also said not to be afraid of inflation: I am tracking this right now.

Tuesday, July 1, 2008 – 10:31 A

vh

IMHO not to fear inflation is to wear blinders.

My father thought he had plenty to carry him and my mother through a long and comfortable retirement. Then came the 1970s and double-digit inflation. His formerly generous savings, which indeed were invested conservatively, bought him a poverty-level lifestyle.

Tuesday, July 1, 2008 – 12:51 P

Buying futures at the gas pump

by

One of the local television Play-Nooz programs reports on MyGallons.com, an online membership plan wherein you can buy gasoline in bulk at today’s rates and pump the fuel later, when everyone else is paying more per gallon. You buy a virtual stockpile of gasoline; then you draw it down at the pump with a debit card the company issues to you. Almost any gas station that takes a credit card is participating-there are more than 50 within five miles of my zip code.

On its face, it sounds like a good deal. Except of course you’re betting on the come: with your purchase you subscribe to the theory that gas prices will keep rising and never come down or even stabilize. And you pay $30 (or, if you don’t want a “refill” automatically charged to your credit card, $40) for the privilege. So just to make this pay for itself, you would have to save $30 or $40 on future gas purchases. That’s before you start actually saving money on gasoline itself.

Let’s say a week after you buy in, 10 gallons worth of gasoline rises from $4.05 (current price at Costco) to $4.55 a gallon. At that rate, your saving on the next 10-gallon fill-up is $5. You would have to buy six times that much to pay for the base $30 membership fee: 60 gallons. How long it would take you to break even, before you started to make a “profit,” would depend on how much driving you do in what kind of vehicle.

I drove 266 miles last week and bought 9.9 gallons of gas. So earning back the membership fee would take me six weeks…assuming the cost of gas jumps 50 cents a gallon and stays there. Only after the first six weeks, after I had consumed $60 worth of gas, would I start to see a real savings at the pump.

But…will that savings still be there in six weeks? Some observers think the gas price inflation is driven by yet another economic bubble, one of these days to burst. Others scoff at the very idea. So whether you buy in to buying futures with MyGallons.com depends on who you believe.

You pays yer money and you takes yer chances.

A Gourmet Cooking Party: Fun, frugal, and delicious

by

Pasta! Make Pasta!

Yesterday we spent the afternoon at La Maya’s house experimenting with a friend’s pasta machine. We had the idea that we wanted to actually make our own pasta (having been told that it’s much better than the dried stuff you get at the supermarket) and decorate it up with made-from-scratch sauce.

Even with everyone helping in the kitchen (or maybe especially with everyone helping!), we expected this to be a huge honking project. But it turns out that pasta is extremely easy to make, and you don’t actually need a machine to make simple shapes-a rolling pin and a sharp knife or pizza cutter will do the job. However, pasta machines are pretty inexpensive. Amazon.com has one for as little as $19. We think our friend’s cost around $150-it appears to be the $95 Atlas shown at Amazon-but on that same site the Imperia looks similar (except it doesn’t clamp to the countertop) looks very similar and sells for $64. If you like pasta and love to play with your food, one of these could be worth the investment.

La Maya found semolina flour in bulk at Sprouts. I scored some fresh tomatoes from M’Hijito’s backyard garden, and SDXB brought a creditable bottle of cheap red from Trader Joe’s.

Plain, unembellished pasta consists of nothing more than eggs and flour with (sometimes) a little water added. Following instructions that came with the machine, we made ours by mounding up about a cup of flour, making a little well in the middle, and breaking a couple of whole eggs into the crater. Mix it together with a fork until it holds together and then gently knead it between the palms of your hands until it’s no longer sticky. If it sticks to your hands, add a little more flour and massage the stuff until it holds together like good Play-Doh.

If you’re going to run it through a pasta machine, you don’t want it to be gooey, ’cause it’ll stick to the machine’s little blades just as it sticks to your fingers. It should be fairly firm.

The machine has a roller that flattens the dough out. You can adjust a setting to make it come out quite thin or fairly thick. Not having a clue what we were doing, we went for a medium setting, so we had pieces of dough about 1/16 of an inch thick. These we put through a blade that disgorged fettucini-shaped strips. Once we figured out how to do it, the process was incredibly easy.

After we saw how this worked, we realized that you could just roll out the pasta on your countertop or breadboard to whatever thickness you like and then slice it into long, thin pieces with a sharp knife.

Tomatoes cook down into a wonderful, light sauce in a matter of minutes. La Maya had basil growing in the backyard; we could have used some Italian parsley instead of or in addition to fresh basil. We diced several tomatoes, cut up a small fistful of basil, and minced some garlic.

I started the sauce by stirring the minced garlic around in a little hot olive oil, briefly-don’t let it brown. Then added the tomato and basil and let them cook gently until they simmered into a nice sauce. While the tomatoes were cooking down, I added a splash of wine, and at the last minute we poured in a small amount of heavy cream. If you wanted, you could use orange juice, or you could combine a little grated orange or lemon zest with the tomatoes.

On the side, I sauteed some excellent prawns that I found at Costco, adding a little cumin for extra flavor.

Meanwhile, SDXB made a very fine tossed green salad.

While the sauce was cooking, we brought a large kettle of water to a rolling boil. To cook the pasta, all you have to do is drop the fresh noodles into boiling water and let’em cook for just a few minutes. As soon as they seemed to be getting just al dente (which is very fast), we lifted them out of the water and into the pan of hot sauce. Tossed them into the pan of sauce to finish cooking and to coat them with the delicious tomato mixture and then served them up.

The result was incredibly delicious! Also, to our surprise, even though we ate ourselves stupid none of us felt uncomfortably stuffed. The noodles expand while cooking and kind of “puff up” in a way that dried store-bought pasta does not. The result is an unexpectedly light dish, compared to what we normally expect of pasta.

The whole adventure was a lot of fun-good company, good eats-for not a lot of expense. This is a great way to enjoy yourself and stay frugal: have a cooking party with good friends.

Good ole boys

by

Yesterday The New York Times ran a front-page feature highlighting one of Our Beloved City’s most intractable foibles: raw sexism. The Phoenix Country Club, we are told, persists in its immemorial custom of barring women from the part of the institution where business is conducted.

A Little History

The Phoenix Country Club was for many years the only golf course in the city and the only exclusive club for the elite. The city was run by this elite, which for some time called itself the Phoenix Forty. Any business that got done was done by or through the Phoenix Forty. Over time, of course, the Forty expanded; it established Valley Forward, an ancillary group designed to mentor and bring up a new generation of city fathers, and COMPAS, an arts group founded to irrigate a very arid cultural desert. Anyone who was anyone-that is, anyone who wanted to make money in business or the professions-had to do business with these men.

And a Little Today

Such business generally took place in an informal setting, often on the golf course and often at a small watering hole inside the Phoenix Country Club called the Men’s Grill. If you had the right connections and the right anatomical equipment, you, too, could do business in one the most wildly booming cities in the nation. But only if you had the key to the executive washroom.

These facts still hold true, even though the city now has more than one stupidly expensive private club and more golf courses per capita than anyplace in the world. The real business of this city takes place at the Phoenix Country Club. And no girls are allowed.

That’s right. Women are not permitted to set a dainty little foot inside the Men’s Grill, despite years of campaigning to make ambition an equal-opportunity enterprise.

Why Does It Matter

Understand: business does not take place in the PCC’s dining room, a white-linen-tablecloth establishment that, last time I was there, remained as untouched by the concept of “cuisine” as the rest of the place was by the concept of equitable treatment. Food was plain and dreary, service was just OK, and the place still isn’t open for afternoon drinks. There was a dank little hole in the basement where girls could gather, and I have been there to meet with budding groups of would-be female movers and shakers. But no one in power ever stuck his nose in that room, and so little ever came of those groups. That is because the adage about selecting a mentor is true: you don’t want a mentor who is like you; you want a mentor who is in power. For this reason, business and professional women in my generation sought out established men as mentors, not other striving women.

Historically, women have not been the only target of discrimination at the Phoenix Country Club. To this day, it’s a rare dusky face you’ll see in those precincts. And when I was young, Jews were strictly verboten. In the mid-1960s-that’s how late this was happening-a friend whose parents had a membership used to invite our Jewish pal to spend days at the pool, as much as a gesture of rebellion as of friendship. Not until years later were the strictures against Jews and blacks lifted.

Those against women, however, have never been removed. If I wished to associate with the Phoenix Country Club set-and were I in business or politics I would have to-I could pay many thousands of dollars a year to buy and maintain a membership, but I would not be permitted to enter the locus of power. When men walked on the moon for the first time, women members were not allowed into this site or into a similar den at the Arizona Club to watch the historic event on the clubs’ television sets.

When people have objected to these policies, the elite members have shown themselves to be exactly the kind of pigs one would expect. Proving that boys will always be boys, they went after one member who challenged their habits, Logan Van Sittert, and “hooted and hollered at him and called his wife a whore.” Women who have protested the blatant discrimination have seen their names and telephone numbers listed on a Web site titled “Femi Nazis here in Phoenix.” One recalcitrant member, who owns one of the stunningly expensive historic homes on the golf course, looked up to find club members “hopping off their carts” to pee on her pecan tree.

Why, one asks, would anyone want to have anything to do with such morons? Because these morons run the city and to a large extent they run the state. You obtain Power (and the money that comes with it) by rubbing shoulders with Power: part of building a heavy-hitting career in this state is seeing and being seen by the people who are already in power.

And Why We Should Never Forget…

This “custom” is a vestige of a time when women, blacks, Latinos, and Jews were barred from full citizenship in our country. Today we tend to forget the fact that equal access to business, the professions, and the seats of power is a very recent phenomenon. And it is something that should not be forgotten.

Young women in particular need to bear in mind just how new and how precarious their rights as full, adult human beings really are. Let us remember that the the movers and shakers behind the political party currently in power desire, with all their hearts and allegedly religious souls, to limit all women’s right to decide what to do with their bodies-part and parcel of the control that until recently barred women from unfettered participation in business, the professions, and politics.

To insist that all Americans have full access to America’s opportunities and be free to enjoy them to the extent of their abilities is not “feminazism.” It’s common decency.

Estate Sales: The canary in the mine?

by

La Maya and I drove out to Scottsdale this morning, at the crack of proverbial dawn, to attend an estate sale that looked pretty enticing. Pictured on the organizer’s site was a bedroom set in the mode that M’hijito has described as desirable, plus various other interesting-looking loot.

When we got there, we found a half-renovated house in a (relatively!) downscale neighborhood of a ritzy part of town, the pool green and the pickin’s slim. The kitchen was devoid of valuable finds; the tools were old and worn; the bedstead was the wrong size and the bedroom set was cheaply made junk.

That notwithstanding, La Maya is not called the Queen of Estate Sales for nothing. Her discerning eye spotted a handsome loveseat, chair, and ottoman in butter-colored leather. After some study, we decided it probably was a quality product. She nailed all three pieces for $425, a fine 20 percent off the marked price. Not only that, but the estate sale organizer ate the tax.

Although we were numbers 24 and 25 in line to get in the door, no more than ten or twelve people were ahead of us. Evidently the ticket number they started with was higher than 1. It took two trips to haul the furniture. The second time we arrived out there, the furniture-lifting person had gone off for a break, and so we sat with the estate sale company’s owner for a while, helping to calculate tax and hand out bags to the few buyers.

And “few” was the operative word. Over the past several weeks, we’ve found ourselves at the head of the estate-sale line, even when we arrived after a sale was slated to open. This is in vast contrast to the normal experience, where you may arrive a half-hour or an hour early and still wait to get in the door through three or four rafts of people who got there first.

Gina, the estate sale proprietor, echoed other organizers in saying that business was very slow: plenty of sellers but few buyers. She was practically giving things away-name a price for a piece of loot and you could walk with it. Gina said people are not buying, and that times are tough in the estate sale biz. What she does is considered effectively wholesaling. “Retailers”-read dealers in antiques and used furniture-are really suffering. She said her biggest buyers, who indeed are dealers, are in deep trouble.

So, we might add, was her client. They evidently had purchased the house speculatively, figuring to fix it up and turn it around for a profit. Before they were done, though, they fell into bankruptcy. They had completed maybe half their renovation work on the unimpressive little tract house. In one bathroom, blue masking tape around the paint job was still in place, only half-pulled off. A sloppy plaster repair stood out on the ceiling where some defunct fixture had been removed to make way for recessed lighting. The pool water was green, slimy, and evaporated several inches below the tile line. Old dirty carpet remained on the floor.

Understand, an estate sale is a gold mine for two sets of people:

  1. those who are in the business of reselling “antiques” and used furniture (in general, one and the same thing); and
  2. frugalists, folks like you and me looking to furnish our homes and our lives with nearly new, upscale products at second-hand prices.

When neither of these are in evidence, well…it’s not a good sign. It means consumers are not buying. They’re not buying from businesses that sell second-hand goods and genuine antiques, and they’re not buying yard-sale items. When bargain-hunters quit looking for bargains, IMHO, it indicates people are either really hurting or really scared.

Well, at any rate, La Maya scored a lovely pair of luxurious leather seating pieces. They transform her family room, and she is very pleased.

Nevertheless, we worry. We worry.

Cheap Eats: Easy, yummy cabbage

by

A couple of months ago, a commenter on one of the many PF blogs I read-believe it was The Simple Dollar-asked how you make cabbage. This elicited several recipes for boiled cabbage and hot dishes. All of these are delicious. But I didn’t see any that resembled my favorite. Here it is.

To make a side dish of two to four servings, you need:
1/2 head of cabbage (I happen to like red, but green is just as good)
1 apple
1/2 onion
about a tablespoon dill weed or dill seed
about 2 teaspoons fennel seed, or more, to taste
a little cumin, about ¼ to ½ teaspoon, to taste (optional)
a dash of cinnamon or nutmeg, if desired (highly optional)
a little dried or fresh thyme, if desired (optional)
small amount beef broth or water
splash of red or white wine, if available
dash of vinegar (add to taste)
Tabasco sauce (add to taste; very optional)
|salt and pepper to taste.
olive oil or butter
frying pan

Cut a head of cabbage in half. Put one half back in the refrigerator for future use. Take the other half and slice it thinly, crosswise, to create a “shredded” effect. Chop the onion coarsely. Cut the apple in quarters; cut out and discard the core. Chop the apple coarsely (no need to peel it, but you can if desired).

Skim the bottom of the pan with olive oil or melt a pat of butter in the pan. Place the chopped onion in the pan and cook, stirring occasionally, over medium-high heat. Cook the onion until softened. Personally, I like to turn the heat down to medium and allow the onion to cook until it’s slightly caramelized — this makes the onions nice and sweet.

When the onions are cooked to your taste, add the sliced-up cabbage. Stir this around to start softening it. Add the cut-up apple and the spices of your choice. Stir to mix well. As the cabbage gets to the point where it’s softening, add a little water or beef broth; if you have it, splash in a little wine. Turn the heat to low, cover the pan, and allow the cabbage to simmer gently until it is cooked to your taste. I prefer not to overcook mine; this takes about 20 minutes, but it can sit on the stove for a fair time without harm.

I like to grind the fennel, dill, and cumin seeds in a molcajete –– a mortar & pestle — but this is not necessary. You can use ground cumin that comes in a jar or whole cumin seeds, if you choose to add cumin at all. As you can see by all the optional ingredients, this is a very forgiving dish. You can pretty much combine anything that makes you happy and still come out with a tasty product.

Last time I cooked cabbage — and took this picture right after adding the cabbage to the pan — I sliced the onions instead of chopping them. Onion rings are a little unwieldy for this dish. I think cutting the onion into chunks is better.

Just before serving, adjust the seasoning by adding a light splash of vinegar and a little salt and pepper. Taste it. Add more vinegar and, if desired, a few drops of hot sauce for zing.

Serve this with a mess of grilled sausages and some crispy French or Italian bread for a great summer meal. It’s also really good with roast, grilled, or fried chicken; awesome with roast pork or with grilled or fried pork chops; and good to eat on its own.