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Personal Finance

American Retirement: Be scared, be VERY scared???

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So, as on cue, we get another nervous-making rant to the effect that ô God! dear God! Americans are JUST NOT SAVING ENOUGH for their dotage. If you look at NerdWallet’s latest terrifying reprise of Americans’ average 401(k) balance, by age, you’ll be ready to shoot yourself so as to will your savings to your adult kids before you use the money all up. Yea, verily: if you have a kid between 20 and 29 who manages the average savings level, the brat has  set aside only $11,600; but the median for that bracket is a piddling $4,000. If your kids have stumbled into their 40s without undue catastrophe, they’ll have stashed all of $106,200 on average (maybe three years’ worth of living expenses, if they’re lucky), rather more than the median figure of $36,900. And if you — not your kid — have accrued the average US savings for your age bracket, at 65 you have a grandiose $198,6700, but the median among your contemporaries is an even more spectacularly inadequate $63,000.

Horrors. Clearly we’re DOOOOOMED.

Why do I doubt it?

Well, here’s why. A 401K does not one’s only retirement instrument make.

In fact, Americans have a variety of devices that help them prepare for retirement. Not the least is real estate: paying down that mortgage.

Once you’ve paid off a mortgage, your house effectively returns to you the amount you were paying monthly toward the mortgage. It gives you that much money that you don’t have to pay out to keep the roof over your head. So, let’s say (for simplicity’s sake), you pay off your mortgage on your 65th birthday; your payments were $1,000 a month. From then on, that house represents $1,000 a month of retirement savings for you: $12,000 a year that you don’t have to earn and you don’t have to take out of your IRAs or 401(k). If you live to, say, age 85, it returns 12 months x 20 x $1,000: $240,000.

So, let’s say sure, you only have $106,200 in your 401(k). But with that plus the return on your paid-off house, you have the equivalent of $346,200 to live on. Not awesome. But not bad.

Okay, now let’s bear in mind that the 401(k) is not the only savings instrument you might have. For example, some of us know about Roth IRAs. In many ways, it’s better to pay taxes upfront and then stash the balance in a Roth than it is to use a 401(k) and bet that you won’t be earning enough in your dotage to put you in the taxman’s headlights. Lemme tellya from experience: It ain’t necessarily so that you’ll be free of income tax in your poverty-stricken old age.

Uncle Sam requires you to take a percentage of your 401(k) in each year of retirement, forcing you to choke up a chunk of taxes. If you’re not earning any more than Social Security and an annual savings drawdown, that tax bite can be a hardship.

If at the age of 45 you started racking up post-tax savings in a Roth IRA at the maximum amount allowed per year, presently $6,000, in 20 years you would have $120,000. Now let’s continue to assume you pay off the mortgage on your 65th birthday, meaning it starts to “return” the equivalent of the monthly payment, about $240,000 over the next 20 years. At 65, then, you have the practical equivalent of $120,000 + $240,000: that is, $360,000. Now let’s add up the average 65-year-old’s savings: we get $120,000 (Roth IRA) + $240,000 (amount you don’t have to earn to stay in your paid-off home) + $106,200 (average agèd American’s 401(k) savings): $466,200.

Not so bad. But now you not only have the roof over your head more or less free (except for taxes and maintenance), but the house also represents a monetary asset. You can sell it, or you can borrow against it. Let’s say it’s worth $188,900, the median home value of a U.S. house: that gives you a pre-Social Security retirement net worth of $655,100. If we take as the house’s value the average third-quarter 2018 sales price ($390,200), we come up with $866,400. That’s before Social Security income.

So. Yeah: it would be good if you maxed out your 401(k). But its balance doesn’t tell the whole story.

The whole story is represented by the total of all your assets, your Social Security, and the extent to which a paid-off house reduces the amount of cash flow you need to live adequately.

Discoveries: A couple of life lessons learned

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Yesterday my agèd friends who just moved into the Barbizon Plaza the Beatitudes, a very fancy life-care community where business is booming, invited me join them at the institute’s fanciest dining room (it has three!) for lunch/dinner. The Beatitudes, in its current incarnation, is very nice indeed: much like living in a first-class hotel or on the Queen Mary.

(Yes, I once did cross the Atlantic on the Queen Mary. That ship personified luxury accommodation.)

And in that visit, I gained several valuable insights.

First off, after much worried clucking about how far the eateries are from their apartment (in their 90s, they both have their share of infirmities), they both said — out of the blue — that after having to walk around for just a few days, they’re each feeling a lot better. J. said her back and joints are actually improving, and she’s experiencing noticeably less pain. L. said he also was feeling, overall, better than he had in a long time.

So (said she, while loafing in front of her computer): those daily walks are not an option! If you want to feel as well as you can feel, get off your duff and walk around the neighborhood. Or the park. Or the indoor mall, if that’s what it takes. Apparently, the more you move, the longer you’re likely to keep moving.

Next: as to the long-term care insurance conundrum:  A lady came up and said hello to us, then disappeared into the scenery. In passing, my friends remarked that she had not bought into that place…that she rented an apartment instead.

Whoa! Hold the phone. That puts a whole new complexion on the long-term care insurance issue. Now that they mentioned it, I recalled that my father once rented an apartment at an old-folkerie associated with a nearby hospital (it’s quite a story…one day I’ll have to write it up for your delectation!). And it was possible to rent an apartment at the old-folkerie where he had used the entire proceeds of the sale of his home to buy in, though at his LTC commnity  renting was a short-term arrangement.

If you could live at the Beatitudes, on a long-term basis, as a renter rather than as a member of their buy-in “community,” and if renting there would give you dibs on a bed in their nursing home, then it might make sense to keep up the LTC insurance. Here’s why:

If you’re living in one of those life-care communities, you’ve got access to its nursing home (in these parts, a VERY big deal, because decent nursing homes are few and far between here). You’ve got twice-monthly housecleaning. You’ve got daily access to prepared meals as part of the deal. You’ve got a secure environment that’s safe and free from bums and burglars. You’ve got a whole staff keeping an eye on you and likely to notice when you don’t show up because you fell in the shower and broke your hip. You’ve got staff who fix things that break.

But these outfits charge a huge entry fee, basically about what you would clear on sale of an upper-middle-class home. That entry fee effectively serves as nursing-home insurance: by getting you into the life-care community, it pays for access to the institution’s on-campus nursing home: if and when you need it, for however long you need it.

But what if they let you just live there as a renter, with no pre-paid nursing home care? (Pre-paid, we might say, on the come….)

If you did not have to fork over your entire damn life savings to put a roof over your head with guaranteed access to competent nursing care — if instead you could be pretty sure you would end up in a specific nursing home for a period that could range from a number of days to a number of years, as long as you paid for it as needed —  then it would make sense to keep the MetLife LTC policy.

It would, of course, depend on what the institute charges for rent. And whether it gives renters the same preferential access to its nursing home that it gives to residents who give them a giant buy-in fee. (These outfits generally guarantee residents access to the on-campus nursing home or, if the place is full when you need it, to a nursing home of comparable quality.)

For people who buy in, in addition to its stiff entry fee the Beatitudes charges around $3000 a month per person. Together, these charges act as de-facto nursing home insurance. The money buys you a bed in the nursing home should you need it, without an increase in your monthly ding. Of course…if you never need it, then that’s money down the drain. If you do need it, the arrangement could in fact save your heirs most of their inheritance.

But if you could rent to live there, without having to cough up a buy-in fee, it would make sense to keep the nursing-home insurance — that is, assuming a rental agreement includes access to the on-campus nursing home. The Beatitudes supposedly charges people who live in the wild something in the range of $10,000 a month for nursing-home care. This would quickly drain your assets.

It costs me $2,000 a month to live in my home, and I don’t get anyone else cooking my meals. Another thousand bucks to feed me, clean the house, change the sheets, and guarantee availability of nursing care is within reason, more or less….but only if I don’t have to give up whatever I would make on the sale of my home! If renting made that possible, with the understanding that I’d have to pay out of pocket for any nursing home care required, then…

a) Living there would be do-able; and
b) It would make sense to keep the MetLife LTC insurance, because $130 a month, even if I live into my 90s, is one hell of a lot less than the $350,000± that I’d have to fork over from sale of my house.

I’d really like this house go to my son so that he can either sell it and bank the proceeds, rent it out to generate some cash flow, or move into it if he pleases. That means I do not want to have to sell it and spend the proceeds to get myself into an old-folkerie when I can no longer manage the place. Next week I’ll call over there and arrange to listen to their sales pitch. And be sure to ask them whether you really can rent without having to buy in, and if so, what you get for the rent.

Merry Christmas…i guess

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Christmas treeWelp, Merry Christmas one and all. Think some spiritual thoughts…that will take Herculean effort. (So we invoke one ancient culture’s religion when we see our own, as interpreted by its fundamentalists, has failed). Personally, I find it a shade difficult to choke up much merriness, given that we’re watching our country crash in flames.

Thank God I’m too old myself to be called into active military duty, or to have a kid young enough for that. The mess the Trumpites are making in the Middle East sooner or later will come back to bite in a big way, and at that time a mere force of mercenaries will not suffice. Expect to see your sons and daughters — or grandsons and grand-daughters — called up for active duty within the next decade. To say this bunch has plunged the country into chaos is, my friends, an understatement.

Or maybe we ourselves will want to join up, if the military will take us. God knows, we’ll need the money.

Watching what appears to be the start of the Bush Crash redux, I have exactly zero confidence that a collapse of this magnitude is going to do me any good in my enforced retirement. What I do feel confident of is that it will leave me with nothing like enough in savings and investments to support me through my dotage. It is almost certain, thanks to the lunatics who put a seditious fool in the White House and inflicted their set of wackshit discredited economic theories on us all, that I will not have enough to live on for the rest of my life.

During the 1970s, I watched my father’s savings — an amount he thought would support him comfortably through a lengthy retirement — melt away under an inflationary blowtorch. Now we get to watch my generation’s retirement savings disappear, too.

Lovely.

Oh well. There’s not a thing we can do about it. If you haven’t hunkered down yet, financially speaking, it’s too late now.

Remember what I told you, some time back: Politics is economy; economy, politics.

In one last gasp of optimism, tonight I’m singing with the choir for the evening service and then for the midnight service. That will be fun. The church tends to overflow on these big religious holidays. Though it’s not exactly empty the rest of the time, on Christmas and Easter people flow into the parking lots.

We — the women’s chant choir — sang for Compline last night. It’s a very short but very lovely service. The entire thing is sung, much of it in chant. It’s  relaxing and soothing, something that’s much needed these days.

In between the two Christmas Eve services, we have a potluck dinner. That should be fun. I’m hoping SDXB will show up for that and for the late service. Connie the Long-Haul Trucker is in Moab, headed toward the Valley as fast as she can fly for as far as the gummint will let her drive in any one 24-hour period: expects to reach the truckyard about 10 a.m. tomorrow. So she will miss the Xmas festivities, but will be here to see her family on Christmas day. That’s something. I guess.

Cassie the Corgi continues to have her ups and downs. Yesterday was a definite up. Today she seems to have crashed, along with the Trump economy. {sigh} Not only can she barely hobble around but (to continue the endlessly amusing simile) she seems confused. It’s like she’s not sure where she is. She’ll get outside and look around, appearing utterly flummoxed, like she’s wondering Where am I? What is this place and what am I supposed to be doing here? Eventually she’ll pee on the ground and then stumble back in the house, evidently only slightly enlightened.

That’s today. Yesterday she was downright peppy and for a moment was actually running around the backyard (very, very briefly) after Ruby.

So one is led on a merry psychological chase, in which one moment you think gosh! maybe she COULD recover somehow and the next you’re figuring where to dig her grave.

The neighborhood is brightly decorated. One street is completely lined with luminarias. Young people love to gussy up their places for Christmas, which is a delight. I personally am too lazy to feel inclined to climb on a ladder to hang up lights, then climb up again to take them down and then make myself crazy wrapping them back up and putting them away. Never have been much for conspicuous decoration, myself. But that doesn’t keep me from enjoying other people’s displays.

Luminarias line a garden path as part of Hispanic celebration of Christmas

 

 

Stress and Budget Stress

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As you’ve no doubt noticed, stress overall that has nothing to do with finances tends to put stress on your budget. Looked at the bank balance the other day and thought hooleeee shit! Down 12 grand from last June? Really?

Well, yeah: really. And no: not exactly. But it’s still not great. When you’re stressed out with a lot of extraneous bullshit pressing in on your life, the last thing you feel like thinking about is managing your personal finances. But in fact, that is the time that you need to get a grip on the bucks and the budget. Because when you’re distracted with life’s little tragedies, you tend to throw money at your problems without even thinking about it. And because life’s little tragedies tend to get mighty pricey, throwing money away heedlessly is a less than ideal strategy.

This month, with the endless drama of the sick dog and the bashed car and the leaking roof in the biggest rainstorm we’ve had in any Millenial’s living memory and the Great Flood of incoming editorial work and the key to my office door breaking off in the lock (sealing both computers, the voicemail machine, my glasses and all my money stuff in there) and the AMEX card lost or stolen and the receptionist duty I naïvely volunteered for slicing four indispensable hours out of my week and Cassie pissing Lake Urons all over the house and Charley the Golden Retriever disappearing and a weird scary pox thing developing on the hand of the arm where I had a Shingrix shot and more drives to veterinarians through homicidal traffic than I can count and the new Medicare card (now also lost or stolen) not working when I went to get a flu shot and the stove refusing to light and the HVAC unit busting and the pool water clouding from neglect and a hummingbird getting trapped in the skylight and on and on and fuckin’ ON, I just flat gave up on tracking the budget.

Wasn’t any point to it. Money was flying out my door and into the vet’s at the rate of $1200 a hit, and there wasn’t a thing I could do about it. So it seemed, anyway.

But really, when money is pouring out like water through a hole in the side of a kiddy pool…that’s the time to keep track of what’s going on.

Having failed to do that, I almost fainted when I saw the bank account’s bottom line, since it looked like there was no way the remaining money was going to see me through to time for the next Required Minimum Drawdown (RMD). Social Security just supplements my RMD; the truth is, there’s no way in Hell I can live on Social Security. But I seemed to be looking at a drop of $12,000 in the bank balance from the end of June, 2018. Four grand (plus!) a month????

Given this moment of panic, it took some study to remind myself that I’d set aside several thousand dollars to pay for the property tax, the car registration (which because the dented Venza is much newer than the long-lamented Dog Chariot, is damned bracing), and the homeowner’s and car insurance. Okay, that was mildly reassuring. But we still had the fact that there simply isn’t enough left in cash flow money to cover another nine months. It might last five…if I’m careful. WTF?

Okay: the issue is, I finally realize, that I’ve been setting aside an optimistic $681 a month from Social Security into emergency savings. This was good: much of the expenses I’ve run up will be covered by the amount I’d already managed to squirrel aside before the current Shakespearean tragedy (comedy??) launched. But bad: it doesn’t leave enough in cash flow to cover regular expenses.

So today on the way home from visiting Young Dr. Kildare (yes, goddamn it: another doctor’s visit!!!!!), I’ll need to drop by the credit union and have them adjust the automatic transfer down to $300 a month. I could try to do that online, but since my propensity for screwing up online transactions has given staff there a flinch reflex every time they see me stumbling toward their door, I don’t think that would be wise. Better to get a grown-up who knows what she’s doing to perform this trick, so she doesn’t have to do gymnastics to fix whatever screw-up I create.

If I change the monthly emergency-fund contribution to $300, that will leave an extra $381 in the checking account, which I sincerely hope will help to cover routine expenses for the rest of the year. Kinda doubt it, frankly. But hope springs eternal.

The point is, though: when a barrage of incoming flack has got you stressed out, prioritize managing the budget. Set aside an hour or so a week to keep tabs on what’s going on financially, even if it means you have to roll out of the sack early once a week. This can spare you from a lot more stress on down the line.

All-Time RECORD LOW on AMEX! Woo hooo!

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The American Express bills came in yesterday, for both the personal and the business cards. The tab for personal spending?

$207.35

Whoa!!!!! That is an all time low! Literally true: I’ve never had an American Express bill come in under about $850. It’s usually around $1200.

To what can we attribute this miracle?

Well, I’ll tellya: I think it’s the Costco “envelope” budgeting scheme. Apparently, that strategy is influencing other kinds of spending. Because of course, since Costco dumped AMEX for Citibank’s Visa (I refuse to do business with Citibank ever again — period!), I haven’t been able to use the AMEX card at Costco. So…

????

Why on earth would putting all my Costco purchases on a pre-purchased cash card affect expenses normally racked up on AMEX?

Obviously, it’s a psychological thing.

I think it works like this: Making a list near the beginning of the month of everything that I know I need, including the estimated prices of those items, and trying to keep the total cost to $300 or less forces me to think carefully about what I really do need.

That is, the envelope method causes you to plan for purchasing. And when you plan, you get a grip on spending.

By thinking ahead a full month, I’ve been able to restrict almost all my household and food purchases to Costco, and that seems to limit impulse buys at other venues. In other words, I don’t have to run to a grocery store to buy, say, a can of Comet, and so I do not buy a bunch of other stuff while I’m there. Ultimately, I buy only the things I really need; not the things I imagine, on the run, that I can’t live without.

Yes, there was one impulse buy at Costco last month: I bought a pair of black pants, because our choir director asked us to wear black this year under our robes. Did I have a pair of black jeans? Yup. At least two of them. Did I need a pair of black pants? Nope. But they did not push spending past the $300 limit on the cash card. And they do look a lot dressier for church, and unlike other stretchy pants, they do have pockets to carry credit cards and the emergency phone (which can’t be left in the car at this time of year).

What happened, it appears, is that because of that careful plan-ahead, I bought almost everything I needed at Costco, within the $300 budget (plus the $60 for gasoline). Not feeling any crying need to buy much else, the result was that I simply stayed out of other stores.

{chortle!} I’d seen that $207 balance in the online accounting, but didn’t believe it. Thought it must have been a mistake (mine, no doubt: if it’s online, I’m unlikely to get it straight). But NOOOOO!

Who’d’ve thunk it?

Let’s Say Something Personal-Financey

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Over the years, Funny about Money has wandered away from its original subject: at the outset and for the first half or more of its lifetime, it was a personal-finance blog. A good 98 percent of what I wrote about had to do with money.

But there are only so many ways you can say “get a decent education; get a job; get out of debt and stay out of debt; live frugally; build retirement savings; invest savings; build an emergency fund; live on a budget.” After you’ve said those a million times, you tire.

Okay, admittedly: the story about saving money by washing your clothes without laundry detergent — that one was pretty good. Actually got me in the national media. And the one about using olive oil to condition your hair: all-time favorite, got a zillion views before anyone ever heard of “social media.” But still…. How many wacksh!t penny-pinching ideas can one person come up with? 😀

So Funny has evolved away from “personal finance” toward plain old “personal.” It has become a kind of online journal, a five-finger exercise to start a writing or editing day.

Yesterday as I began downloading posts by way of back-up — don’tcha just know this new “Gutenberg” thing WordPress is about to foist on us will erase a LOT of archived content! — this fact floated into consciousness: really, I should write more about money matters.

These days money seems to me much tangled in politics. Unless you’re describing ways to mix up home-made laundry detergent, you cannot talk about money without some political inflection. And given the political place our country has taken itself, that is a tedious subject.

Interestingly, The Economist’s columnist “Bagehot” holds forth this week about the glum mood of Britons. In doing so, he exactly describes the political and economic mood in the U.S. “It is hard to look at British politics these days without worrying that this is a country in decline…. Today Britain is a shadow of its former self: inward-looking and anxiety-ridden, stagnant and expensive, split down the middle and fearful of the future…. Productivity growth has been nugatory. Real wages have been falling for a decade. A growing population is trapped in a cut-throat gig economy. The next generation fears that it will be worse off than the baby-boomers.”

Where have we seen that of late?

Bagehot speculates that “Most of Britain’s problems are internally generated….” But I would suggest that what he describes reflects an international dysphoria. It’s not just the Brits who sense that we’re cruising toward Hell on a skateboard. This fear — these falling wages, these “side gigs” that are no longer opportunistic schemes to supplement our salaries but now form many citizens’ only source of income, these obscene medical and health insurance bills, this junk merchandise imported from countries where workers earn 90 cents a day, that college tuition that straps a graduate to an entire lifetime of debt, this sense that our children and their children will never live as well as we have, this spreading drug addiction, these people sleeping on the sidewalks and begging on the street corners, this prison population that is the largest in the world — this fear has brought us the likes of Donald Trump.

And, IMHO, it — this fear — leads us to miss the point.

The problem is that money is politics and politics is money. He who has enough billions of dollars, as we saw in 2016, can afford to buy a presidency. And who has those billions of dollars?

Big, big business. Megacorporations.

Those megacorporations have been quietly taking over the running not only of our country but of every country in the so-called “developed” world for at least a generation. When you have companies that can observe your every move (did you know that Google tracks you everywhere you carry your smartphone?) and record your every word and block you from public forums if you say things the company decides it doesn’t like and manipulate your choices of everything from the food on your plate to the reading material on your tablet, what you have is a kind of shadow government.

That shadow government has nothing to do with the truths we hold to be self-evident. It has everything to do with maximizing profit and with controlling the sheeple who pay into the profit. It is, IMHO, one of the reasons we have seen our public schools dumbed down into the sub-basement: when young adults know nothing of history and civics and literature and jurisprudence and ethics, they can easily be tricked into voting for interests that actively operate against their welfare.

So…we Yanks suffer from financial and political angst, same as the Brits do? You bet.

Financial angst and political angst are manifestations of a shared loss of government of the people, by the people, and for the people. Shadow government is actively taking over representative government. Angst, indeed. When we get government of the corporations, by the corporations, and for the corporations, the man and woman in the street lose financially. Shadow government is not good for your pocketbook.

When private corporations own your country — and, for that matter, the world — you do not tell them what to do. They tell you what to do. They control you through your pocketbook, and they control you through the products and services they allow you to access. They choke off representation of the people — unions are crushed, monopoly replaces competition, education is degraded, productive leadership is replaced with circuses, class differences are aggravated, schism is fostered, hatred and hostility replace discourse.

These are not accidents, my friends.

Mark my words: Money is politics; politics money.