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Personal Finance

Retirement When You’re Raising Your Grandchildren

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2.5 million seniors nationwide are raising their grandchildren. A fifth of them do so with incomes that fall below the poverty line. Whether your grandkids live with you on a permanent basis, accompanied by their parents, or as a stop-gap measure while their parents get back on their feet, raising young children can affect your retirement plans. Because children are not disposable, you should assume that your grandkids will be with you until they are 18. If you’re wrong, you’ll have extra money. If you’re right, you’ll have the funds you need to help your grandchildren make it to adulthood.

Brush Up on Parenting

It’s been a long time since you’ve parented children, and things have changed. From recommendations about safe sleep positions for babies to expectations about discipline and extracurricular activities, it’s time to brush up on your parenting skills. Consider taking a parenting class, and recognize that no one can know it all—even if they’ve raised children before.

 Balance Work and Childcare

One of the first considerations when you’re raising a grandchild is whether to return to work. Childcare is costly, so look into alternatives, such as a state-funded preschool program or aftercare at the local public school. You may also want to consider alternatives to full-time work, particularly if you’re committed to remaining retired. Consulting, selling items on Ebay, or working part-time for a former employer may work well. If you are married, it might be ideal for one partner to return to work while the other raises the grandkids.

 Look Into State and Federal Funding

A number of state programs assist grandparents raising grandchildren, particularly if they are low income. Your grandchild may be eligible for Medicaid or for Temporary Assistance for Needy Families (TANF). There may be other programs available in your state, such as grants for families whose grandparents keep children out of foster care. Consider contacting your state’s department of child and family services to explore state funding options.

There is also a variety of federal assistance programs that may help grandparents fostering their grandchildren.

 Find Additional Income Streams

In addition to returning to work, working part-time, and exploring state funding, explore other options. A home equity line of credit can give you significant wiggle room. You might also consider selling your home, downsizing to a cheaper car, or renting out a room in your basement.

Another option is a reverse mortgage. If you’re over 62 and own your home, you can tap into your home’s equity to fund expenses, renovate, open a college fund for your grandchild, or pay down debt. You don’t have to repay the loan until you sell your home, offering you significant flexibility for financially assisting your grandchildren.

 Scale Back on Expenses

Balancing the financial demands of raising your grandkids is ultimately a simple equation of money in and money out. Some simple strategies for reducing expenses include:

  • Getting rid of cable and watching videos online instead.
  • Cutting down to one car. Services like Uber can take you just about anywhere you need to go.
  • Eating out less, and pre-preparing meals.
  • Finding free entertainment—classes at the community center, walks in the park, free outdoor concerts—instead of costly after-school activities.
  • Buying online whenever possible. Many seniors are reluctant to lean too heavily on technology, but programs such as Amazon’s Subscribe and Save can greatly reduce the money you spend on everyday purchases.

Consult a Lawyer and an Accountant

Taking in your grandchildren may affect your tax bill – sometimes for the better, because you may be eligible for certain tax breaks. As usual with income taxes, it’s complex; you should not fail to talk with an accountant.

Additionally, there are legal issues that you should hash out before certain occasions arise. For example, in my state a child’s parent or legal guardian must sign before the child can get a learner’s permit to drive , for some kinds of medical care, and even to transfer a child to a new school. It’s important to be aware that simply being a child’s grandparent does not give you legal rights. At the very least, you will need a power of attorney. If the parents are putting up their kids with you because of drug problems, alcoholism, imprisonment, or illness, you should be sure you have the authority to OK surgery and dental work, to approve a learner’s permit, and to make decisions about the kids’ education, healthcare, and support. This may entail obtaining legal guardianship or adopting.

PF Notecard #5: Save Early and Often

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advice-on-a-card-1My first job paid $300 a month. Out of that I paid rent, food, clothing, parking, and everything else. Luckily, I didn’t have a car payment — my father had given me a Ford Fairlane for graduation. The thing proved the old jibe about Ford: F-O-R-D stands for Fix Or Repair Daily. But at least it was paid for.

Back in the day, there was no such thing as direct deposit. So as soon as I got my paycheck, I’d walk across the street to the bank and deposit it, in the process putting $10 in a savings account. Those were the days (!) when $10 would buy a nice office dress and $20 a good pair of leather heels. So even though $10 wasn’t 10 or 15 percent of net pay, it wasn’t nothing, either. At the end of the month, there was usually something left over, and I’d move that into savings, too.

So that brings us to item #5 in the personal finance principles that can fit on a notecard.

SAVE EARLY. Start saving the minute you start drawing a paycheck. And set aside a portion of every paycheck in some kind of savings instrument. Preferably more than one of them…

Obviously, as you reach the point where start to earn a living wage, you need to begin saving toward retirement. I’d never heard of retirement when I was working as a receptionist (nor was there any such thing as a 401(k) in those days), but I did want to have something in hand for indulgences and emergencies.

SAVE EARLY also means save a portion of each paycheck before the money hits your checking account. Most employers who direct-deposit your salary can deposit some of it in a savings account and some in a checking account. If you can arrange that, do it. Otherwise, get into your online account with the bank or credit union and arrange a monthly or semi-monthly automatic transfer that will move X percent of your pay to savings every payday.

Another way to SAVE EARLY is to contribute to your employer’s 401(k) or 403(b) retirement plan. A 401(k) is highly desirable if the employer is matching your contributions. If not, you may be better off to set aside a specific amount from each paycheck to deposit in your own Roth IRA and regular brokerage account, since investment options in a company retirement plan may be limited.

Here’s the thing: A 401(k) defers taxes until after you reach retirement age (59½ if you choose of your own free will to take distributions; 70½ when the government forces you to take a required minimum distribution). The theory is that when you retire your taxes will be lower because you’re not earning anything.

R-i-i-g-h-t…

Well, in the first place, you can’t live on Social Security (well…you can, but not well), and so you’ll probably continue to work, even if at much reduced pay. Any such income can easily push you into a higher tax bracket, maybe even into the bracket you occupied before you retired.

In the second place…have you ever heard of taxes going down? Not bloody likely. You will still pay taxes on those withdrawals from the 401(k) — and because the rates may be higher, there’s a good chance you won’t pay any less than you would have, had you paid up-front and deposited the net in a Roth IRA.

And in the third place, when you croak over and your kids inherit your vast wealth, they will have to pay the taxes on the money in tax-deferred your investments. They also will face a required minimum drawdown, starting they minute the inherit the funds. Thus they will inherit only a fraction of the money you worked long and hard to accrue.

Unless your net worth is well over a million dollars, they will not have to pay taxes on non-deferred savings and assets. But they will have to pay the taxes on your deferred savings funds. So if your wish is to leave your kids an estate, they may be better off if you use some other instrument to build retirement savings.

There’s a limit to how much you can put in a Roth IRA. Max it out each year, and then start contributing to a good low-cost mutual fund, such as one at Vanguard or Fidelity. Received wisdom these days: select an index fund, whose goal is to keep pace with the market. Leave the money there and forget about it until you retire.

SAVE OFTEN. You should be setting aside some portion of every paycheck, ideally about 15 percent, and investing it in retirement funds. And then you should put a little more into a bank account for emergencies and indulgences. While I was working, I had two savings accounts: one to cover property taxes, auto and homeowner’s insurance, and emergencies, and another to diddle away on vacations or damnfool things I chose to buy.

And then if anything is left in checking at the end of a pay period, after all the bills are paid, move that amount over to savings, too.

And then do the same with every windfall: every income tax refund, every credit-card rebate, every cash gift of any kind…straight to savings.

Once you’ve accomplished Notecard Item 4, Get Out of Debt, all this is do-able. You’ll be surprised how fast savings accrue when you set things up to move money into savings instruments automatically.

Speaking of Notecard Item 4, here’s another useful SAVE OFTEN trick: once you’ve paid off your car loan, keep on paying that amount to yourself. Stash the equivalent of a car payment in a special savings account, and don’t touch it. In four or five years, you will have accrued enough to buy your next car in cash.

In summary then: First pay off debt. Then put an established amount into savings on a regular basis.

Don’t wanna work Monday

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So I should be, at the very goddamned leastest, posting links to posts advertising my wares on FaceBook (two business pages, several “groups,” and my timeline: a half-dozen separate time-consuming mind-numbing actions), Twitter, Google+, and LinkedIn.

I should be hustling some new business for The Copyeditor’s Desk.

I should be writing new copy for Plain & Simple Press.

I should be writing some sort of personal-finance post for Funny about Money.

I should be trying, once again, to get into Goodreads so as to hustle my wares there, even though that cause appears to be too forlorn to waste more time on.

But y’know what?

Yeah. That’s correct:

i…

don’t…

wanna…

If it looks like work, if it sounds like work, if it smells like work, if it feels like work: I don’t wanna do it.

That’s not to say I’ve totally diddled the day away, so far.

compostThe new cute little composter arrived. It’s “Cute” (the maker’s term) because it really is quite small: maybe a third the size of the one the fake beekeeper destroyed.

At first as I unpacked it from its cardboard box, I was disappointed. Then thought…waaaitaminit here. Let’s not be stoopid about this.

As a practical matter, smaller is probably better. First, it’s a lot more manageable. The old one, when it was full, could be almost impossible to turn, so it took forever and a day to compost stuff — and I had to reach in there and toss stuff by hand. This thing will be easy to roll even if it’s full.

Second, the manufacturer has made two exceptionally smart improvements in the thing’s design. a) The lid and its opening are MUCH larger compared to the overall size of the tub; and b) they’ve developed a hinge held together with a long, sturdy pin. If you remove the pin, you can lift the lid off the tub, making it easy to lift or dump the compost out.

So. I decided I don’t just like the Cute Composter, I downright love it.

The little guy is now in his place by the side of the house, with a pile of leaves, exhausted potting soil from dead plant pots, and kitchen trimmings in his belly.

Yay! We soon will have compost, and this fall we will have a vegetable garden again, for the first time since the memory of Fatlady runneth not to the contrary.

Gerardo just blew in and blew out; while he was here, he had the underlings gather up some relatively seed-free dry leaves and deposit them in the little composter. It’s full just now, but I expect those will pack down as they start to degrade and as I sprinkle a little water in there. By planting time this fall, there should be some nice compost for the pots that will hold chard, lettuce, spinach, mâche, and some LGOs.

The writer’s group I belong to puts out an annual anthology. They’ve put out a call for submissions — theme has to do with “celebration.” I have an essay that fits, though it fits in a distant way.

So I diddled away a fair amount of the morning editing and tightening that — their length limit is 3,000 words, and the lash-up runs to a little over 3400 words. Managed to cut it down a bit. Last year they accepted an essay of about 3400 words, but they had a different editor. WTF…we’ll see what happens. Nothing ventured…

My son has wondered if he should throw his $20,000 emergency fund at a refinance of his house, given that this could cut his mortage payment by about 300 much-needed dollars a month. His dad advised him absolutely positively not to do that. When the subject came up yesterday, I seconded his dad’s motion. Discussion ensued; the question was left up in the air.

So I called Wonder-Financial-Advisor today. He thirded the motion. We believe he should hang onto the cash, given the still amazingly low interest rates.

The dad has urged M’hijito to make no move until after his 102-year-old grandmother passes away. The suggestion, never fully articulated, is that money could be forthcoming from the estate. Said dad is in charge of the grandmother’s finances and so should have some idea what he’s talking about.

But the question is: WHAT estate?

The old gal has been living in a nursing home for many years. She’s blind and deaf. By now whatever money she might have accrued must have been absorbed by her care. How could there be anything — ANYTHING — left?

Well, I personally don’t think there is any such thing. But why the ex- would advise my son along those lines not once but several times…hm? It escapes me.

Almost.

The immortal grandmother was the daughter — the only child — of a man who owned a lumber company that served Denver, Colorado. He was a prominent local businessman. When he died of advanced old age in 1977, his funeral was overrun by well-wishers from the business community. A LOT of people showed up.

I don’t know what happened to that business. But if he sold it, dollars to donuts he sold it for a substantial profit.

His background was Amish. As that factoid might lead you to imagine, he lived quietly and conservatively. Not sparsely, but frugally. I suppose it’s not outside the realm of possibility that there was a trust. That could have protected the estate from the clutches of the nursing home’s collection agents.

And if that’s the case, there could be a small amount of money there. It wouldn’t have to be much to solve my son’s financial problems, such as they are.

So I diddled away some more of the day on the Internet, trying to track down the old man and, mostly failing that, trying to find some trace of the business.

Total fail on the latter. Inconclusive on the first. Became bored and so brought that to a halt.

It’s now the middle of the afternoon, and I still do not feel up, in any wise, to working. and so…

Away.

 

 

 

Money Happens!

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SDXB used to say, when I was having an attack of Bag Lady Syndrome, “money happens.” And so it has come to pass…

Unlocked the Fort Knox mailbox this morning to discover a notice from the community college district saying a check they’d sent last year had never been cashed. Would I please sign and return the enclosed form, so they can send me a new one?

It’s $568 and change!

Well, the Mayo has been sending me bills for some $650. Medicare and Medigap so far have remitted only about $340, and it’s been long enough that by now if they were going to pay up, they should have. But you never know…

With Medicare & Medigap reimbursements, you really do never know: I have no idea how much they’re going to pay (most of it, I gather from the mountains of paper they’ve sent, but it’s incomprehensible, so who knows?), no idea how much the Mayo will stand down from, and no idea when any further payments are going to show up.

So I figure what I’ll do is pay the Mayo the amount that has arrived so far, put $310 from the “found money” aside for future reference, and keep the remaining $260 to cover my own bills.

This is good, very good. It’ll pay the $175 for the art class, and then some!

PF Notecard #3: Live Below Your Means

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Advice on a card 2On the index card that lists everything you need to know about personal finance, point #3 is “Live Below Your Means.” But what the heck does that mean?

In my notecard stack, it means more than live “within” your means, which suggests you live up to the limit of what your income will support. Living below your means is spending significantly less than you earn, and doing so in a meaningful, strategized way.

The primary way to accomplish this is to automatically set aside a portion of your income for savings. Most employers that direct deposit can deposit portions of a paycheck to different accounts. If yours will do that, arrange to have, say, 10 percent of your take-home pay deposited to a savings account. Alternatively, you can set up your bank account to do an automatic transfer from checking to savings on a certain day of the month. If you have a side gig, you may be able to put the most or all of that net paycheck into savings and live on the income from your main job.

That’s after you’ve had a specific amount withheld for a 401(k) or 403(b). If your employer doesn’t provide a savings plan, then set up an investment savings fund and have 15% of your pay deposited to that, right off the top. IMHO the preferred device for this is probably an index fund with a low-overhead mutual fund company such as Vanguard or Fidelity. At least part of this amount should go into a Roth IRA, which will protect you from the onerous and tax-heavy Required Minimum Distribution rule after you retire. Keep the rest of it in regular funds, if you think there’s any chance at all that your income after retirement is likely to be close to what you get while working.

So: 15% of your pay should go to an employer retirement plan or, if contributions are not matched, to your own long-term investment savings. THEN at least another 10% (up to 20%) of the remainder goes into savings in a bank.

What’s left is what you live on. That’s living below your means.

And how do you accomplish this frugal lifestyle on the few pennies you have left? Any number of ways…

  • Buy a smaller house than you can actually afford.
  • Buy in a lesser neighborhood than you could in theory afford.
  • Buy less expensive cars than you can afford.
  • Eat in most of the time. Learning to cook is one of the biggest moneysavers out there.
  • Never charge more than you can afford to pay out of pocket in a given billing cycle.
  • Stay out of debt. If you can’t pay for something in cash, don’t buy it.
  • Never pay full price for anything. Buy clothing on sale, at outlet stores, or in thrift stores.
  • Vacation frugally. Consider a camping trip instead of a flight across the globe.
  • Break the “Stuff” habit: don’t buy things you don’t need. Pass on a clothing purchase if you already have something that will do.  And refrain from collecting bric-a-brac and useless items, be it piggy banks, comic books, computer games, or old CDs. Think minimalist.
  • Choose a hobby that doesn’t break the bank. If it requires pricey equipment or supplies, find another way to pass the time.
  • Learn to do things yourself.

None of these is very hard.

What about that 10% you put into the bank? Before long enough will accrue to provide a decent emergency savings stash. If you’re lucky and two or three years pass without a really big unplanned bill, you may have enough to skim off some to contribute to your retirement savings.

I have three sets of savings: short-term emergency savings (enough to cover a routine plumbing or car repair, for example); long-term emergency savings (major repairs, non-routine dental bills), and retirement savings. A bank account will do for the first two; retirement savings, of course, should go into some kind of investment. Back in the day when CDs paid a little interest, I used to have long-term emergency savings in a credit-union CD. Now it’s all in the same savings account. My retirement savings are professionally managed; most of it is with Fidelity.

All You Need to Know about Personal Finance Fits on a Notecard
#1 Get an Education
#2 Get a Job

PF Notecard #2: Get a Job

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Advice on a card 2The second item on the notecard that holds all the personal finance advice worth giving is “Get a job!” To that I’ve added “Get a side job if need be.”

Well, obviously unless you’re independently wealthy, you’re gonna have to get a job in order to have anything resembling personal finance at all. Even if you are independently wealthy, get a job: it’s good for your morals.

In America, a job may (or may not) contribute to your savings plan (item 5) by offering matching contributions to a 401(k) or 403(b). In any event, you’ll not be doing much saving unless you have a job.

But what I suggest is that you not stop there. In addition to a real job, you may be well advised to have a side gig, or at least a hobby that can, without much difficulty, be turned into a paying concern. If you’re trying to pay down debt (item 4), a side income is especially useful.

When I was laid off my job at the height of the late Recession-That-Was-Not-a-Depression, I was very glad I had been teaching adjunct off and on. That  made it easy to land another gig: two sections in the months before my job ended allowed me to shore up emergency savings, fast. And I also was very glad I’d kept the copyediting business alive on the side. Once I was no longer working full time, it was relatively easy to prime that pump, so money started coming in my home-office door even before I walked out the door at the Great Desert University.

A side gig can be, by itself, a de facto emergency fund. It represents a cash flow source that doesn’t go away if you lose your primary job.

It’s also useful for a working couple who decide to have a baby. A side job may make it possible for one partner to become a stay-at-home parent while the kid is small. And a home-based business could even make the SAHP gig permanent.

Certain kinds of hobbies can be turned into sideline enterprises. I know a woman who makes hand-crafted greeting cards, for example.  She’s amazingly good at it, and in turn people pay amazing prices for the things. And really: I was surprised at what people would pay for the beaded jewelry I was making for a time. If you’re willing to work hard enough at it, you can turn almost anything into a paying enterprise.

And you may be mighty glad you did…

All You Need to Know about Personal Finance Fits on a Notecard
#1 Get an Education