In an hour and a half, it’s off to the Social Security office to do battle with the bureaucracy again. I’m going to try to be there when the door opens.
Apparently they’re cutting my benefit by something over $235 a month. The reason? I earned more than they thought so they’re raising my benefit.
Huh? you ask.
Yeah, that’s exactly what I thought.
Friday afternoon, this amazing communication arrived by snail-mail:
We checked our records to seer if any changes in your benefits are necessary.
We are increasing your benefit amount to give you credit for additional earnings which were not included when we figured your benefit before.
What We Will Pay and When
You will receive a payment on or about December 8, 2010 for $1,442.40. This payment includes both your new regular monthly benefit and benefits due from January 2010, the month of the increase, through November 2010.
After that you will receive your regular monthly payment of $1,021.70.
WTF?!?? My regular benefit is and has been, since the start, $1,257.50. The “new” monthly payment with its “increase” is a $236 cut in pay!
Looking back over the correspondence I’ve received from the Social Security Administration over the past year, I see that at one point they decided my benefit was $1068.40. I must not have noticed that; otherwise I would’ve had a shitfit at that point…more likely, I imagined that was the net amount. The fact is, though, the figures in these memos are always gross amounts, way, way, way off from what really lands in your bank account. At any rate, that figure never materialized: the gross payment has always been $1,257, and that’s the amount they took away from me for the crime of earning such a vast amount in part-time adjunct teaching that I owed $340 in extra taxes.
Evidently, the SSA can at any moment decide to change your benefit amount, and evidently whatever they’ve been doing based on whatever they figured sometime in the past is moot.
Isn’t it interesting how they invariably send these damn things so they appear in your mailbox on a Friday afternoon after their offices are closed? Then you get to stew about it over the weekend.
In fact, this meant I got to work over the weekend, instead of having time to myself as planned. A raft of student papers was due at 11:59 last night. Spending half the day at the SS office will mean I won’t have enough time to read an entire batch of papers today, unless I work until midnight. So, to stave off a half-overnighter, I spent Sunday afternoon reading the papers that came in early. Fortunately, that included about half of them, so there should only be about three or four hours of work to do today.
But that was not what I wanted to do with Sunday afternoon.
If you or someone you’re close to is about to walk into the labyrinth that is Medicare, take a look at the December issue of Consumer Reports, now on the newstands. This month CR is running the best, clearest guide to Medicare I’ve seen to date.
Medicare’s rules are astonishingly complicated and booby-trapped with land mines. The government and a vast slew of vendors send you hundreds and hundreds of pages of information and sales pitches. As well-intentioned as most government writers are, the copy they pour out is verbose, involved, sometimes contradictory, and often impossible to figure out.
CR has boiled the entire mess down into two pages of do’s and don’ts. Their article explains why you should get signed up for Medicare before you turn 65, how Medicare Part B works and what will happen to you if you fail to sign up in a timely way, how to avoid being screwed out of Medigap coverage—and why you really need it—and what the advantages and disadvantages are of Medicare and Medigap.
It’s crystal clear, easy to understand, and mercifully brief. This thing should be offprinted and sent to everyone who’s coming eligible for Medicare.
Hmh. I’d forgotten how much I enjoyed Consumer Reportsbefore I let the subscription lapse. Now that I’m feeling flush again (sort of…), maybe I’ll re-up. It’s a useful resource for the frugalist and the wily consumer. If you’d like to subscribe, you can click here to subscribe online at the same rate the magazine is offering on its blow-in cards. Come to think of it, those of us who are running monetized PF blogs ought to be able to write off the cost as a business expense.
Is it possible for a glimmer to be dark? Here’s what I mean…
I consider the prospect of advanced old age to be extremely dim. You’re old, you’re sick, you hurt all over your body, and you’re alone. Because our culture does not promote caring for aged adults en famille, you’re probably going to spend the last years of your life in an institution—at best a life-care community that provides a simulacrum of independence, at worst a nursing home that’s really an expensive prison for the infirm and the frail. I’m not looking forward to it. Indeed, I so don’t look forward to it that I quietly hope not to live more than another ten or, at most, fifteen years.
Last night some choir friends invited me to join them as a guest at a meeting of the church’s social group for the radically aged. It was something to do…well, it fit in with the new scheme to get out of the house. So I went to dinner with them at the church.
It started out as a quiet evening. Most of the folks there were pleasant enough but reserved; they looked like they felt less than thrilled to be there but, like me, had nothing better to do. After a while, though, perhaps under the influence of a little wine, the people at my table started to chat. Turned out they had interesting things to say not only about their own wide experiences but about current events and phenomena. So it turned out to be a nice enough thing to do.
What struck me about the group was that we had a roomful of very elderly people—most, I’d guess, were in their 80s—who are living in their own homes. Unlike my father, who checked himself into a life-care community called Orangewood immediately after my mother died (he had been lobbying her to go there before she fell ill, but she resisted), none of these folks seemed to feel they need the shelter of an institution to get on with their waning lives. Nor do any of them appear to be dependent on their adult children. They’ve managed to preserve their autonomy in various ways, and evidently those ways are working.
I used to think my father could have engineered most of Orangewood’s benefits at a lot less cost without having to give up his freedom. For example:
• He could have moved from his house into a smaller apartment or condo, eliminating yard care and reducing the amount of housework.
• For a very reasonable price, he could have hired a housekeeper to clean said smaller space once every two weeks, the same frequency he got at the old-folkery.
• He could have stocked his freezer and refrigerator with prepared meals from Costco and Trader Joe’s, as these folks reported doing. This would eliminate the need to go to a communal dining hall every day for a bad meal of starchy, salty, sugary steam-table food.
• For what Orangewood cost by the month, he could have hired a taxicab to schlep him from pillar to post every day of his remaining life, mooting the concern about not being able to drive in old age.
• Orangewood had hobby rooms, a pool, and a limited array of other small amenities. But he already lived in Sun City, whose amenities by comparison are vast. And, for residents, free: no need to fork over an “endowment” of your entire life’s savings.
The only advantage Orangewood provided, for the $30,000 buy-in fee and the $1,000+ monthly fee, was guaranteed access to a decent nursing home. Unhappy experience showed that, at least in the Phoenix area, getting access to even vaguely acceptable nursing care when you actually need it is damned near impossible. Consequently, it does make sense to put oneself in line for a nursing home well in advance of need. However…the trade-off that you have to make for the privilege is huge.
Some time in the near future, I’m going to have to think about unloading this house and moving someplace that requires lots less maintenance. I’d like to wait until the real estate market turns around, if it ever does. M’hijito and I will have to figure out what to do about the upside-down investment we made before I can do anything. And I’d like to wait until my son decides where he’s going to be if and when he finishes his proposed graduate program. If he goes back to San Francisco, then I probably would be better off moving to Sun City than staying in the decrepifying central districts of Phoenix. Sun City is safer, it has more amenities for the elderly, and the surrounding infrastructure is newer and more upscale.
But those concerns aside, finding a bunch of really older people who are managing to take care of themselves just fine, thank you, is encouraging.
Whew! What a week this has been! I about swooned under the workload, was reduced to tears this morning while contemplating my $448 (!) paycheck, finally came to and decided that there’s gotta be some financial and sanity-preserving changes made around here. Today!
Awoke at 3 a.m., stumbled across the hall into the office, and plopped in front of the computer, there to resume editing the copy that wore me to a frazzle last night. By 9:00, the phone was ringing, the e-mail binging, and neither Cassie nor I had had a bite to eat. Well, I swallowed a fake Pepcid around 4, but I don’t suppose that counts as “food,” eh?
Another bouncing young psychologist has found me and has been clinging to my skirts (well, blue-jean cuffs) as she struggles her way through the grueling process of applying for a clinical internship. This is a gawdawful rite of passage that happens as they’re trying to wrap up the dissertation and engaged in research projects or assistantships. The competition for internships is so fierce and the standards so high that they live in fear of being turned down, so they churn out dozens of application packages, which are large and filled with arcane technical reports intended to show what they can do. Each package is prefaced with an elaborate cover letter, exquisitely tailored to its target institution, which is supposed to be two pages long but which requires so much information that squeezing it in to two pages is excruciating.
This project would be torment for a native speaker. But if the soon-to-be doctor’s first language is something other than English, the challenge is just horrific.
So I’ve been struggling with the client all week. Where I work 14 to 16 hours a day, she works 24. Last night we both collapsed into our respective sacks on our respective sides of the country at about the same time.
Meanwhile the li’l 101s are shoveling incomprehensible papers in this direction. Twenty narratives, penned by authors who express a certain puzzlement at the instructions, reside on the Blackboard server awaiting my attention.
Later!
This morning after reading a couple more client documents in their second or third iterations, I was forced to pay the AMEX bill. This caused me to look at my dismal finances and to be reminded of a few inconvenient truths; to wit:
• I’ve already eaten $1,173 into my Absolute Catastrophe savings, and there’s no end in sight. • The $265 pool maintenance bill did nothing to help that situation. • A paycheck of $448 does nothing to help the situation, either. • Nor does reading and rereading and re-rereading vast swaths of arcana at $4.50 per single-spaced page (don’t ask!). • Although some pay periods bring in plenty of cash to pay the bills, many do not. • The combination of eight-week and sixteen-week sections magnifies this phenomenon no end. • It drives me screaming bat-shit crazy not to know from month to month how much net pay will come in. • Three months without teaching pay in the summer and another month without pay in midwinter are more than the money left over from decent pay periods will cover. Over 12 months, I’m running at a loss. • By the time I’ve worked from three or four or five in the morning till ten or later at night, I’ve racked up about 50 cents an hour for my elaborately refined skills. • The scheme to defer drawing down 4 percent of retirement savings for a year or two—or preferably till I reach age 70—comes under the heading of “forlorn hope.” • Sitting in front of a computer moving little other than my fingers from before dawn till long after dusk is making me flicking miserable. • The stress of worrying about how I’m going to make ends meet is making me physically sick.
This stuff has gotta stop.
Yesterday at the weekly breakfast meeting of the Scottsdale Business Association, the gents started talking about travel and play and life, the universe, and all that. The general consensus, led by Jerry Rose—a former teacher who decided there was more to life than teaching and so went into the travel business—was that you’d better live life now, because there may not be a later. This conversation was happening after I’d put in two hours of work before leaving the house at 6:30 a.m. to head over to the confab…
Listening to them talk, I thought, I need a life!
First off: get rid of the money worries. It’s time to give up on trying to preserve and build capital. Called the esteemed financial manager and arranged a meeting. Trotted over to his office.
There I explained that I need a minimum of $1,093 a month, net. Combined with the munificent $957 a month from Social Security, this will cover my basic bills, even in the hottest, most utility-heavy summer.
No problem, said he. This can be accomplished with a 3 percent drawdown. Since my retirement investments, which he and his colleagues have put into a wide variety of instruments (some of them calculated to be inflation-protective), are earning between 5 and 7 percent just now, he notes that this should not eat into principal. He remarked that I could draw down 4 or 5 percent without causing any harm.
With a base, steady income of $2,050, anything I earn through teaching, editing, or blogging is pure gravy. It makes a $448 paycheck look good! In a month, that’s an extra $896 on top of what I need to live!
Eight hunnert and ninety-six dollars would buy a lot of clothes at J. Jill’s. It might even take me to Santa Fe for a weekend. 😉
Knowing from the git-go that there’s going to be enough cash in my checking account to pay the bills is a huge relief. And it’s mighty nice to know that I can get there without leaving myself a pauper at the age of 90, should I live that long.
Welp, money may not buy happiness, but it’s about to buy a nice chunk of stress relief. What this means is that I don’t have to teach two or three sections of composition a semester. Hell, I don’t have to teach any sections if I don’t feel like it.
Whatever I do earn teaching can go to paying the mortgage on our upside-down house, to setting aside some money toward the next car (which I’m going to have to buy one of these days), and to buying something nice for myself and M’hijito now and again. Probably I needn’t teach any more than one section to pull that off. I’m thinking what I’ll do is limit my course load to two and then just take whatever comes along. If our chair comes up with a summer session course for me, that will be nice. If he doesn’t, that’s fine, too.
So, that should help a great deal.
Now all I need to do is figure out what to do with this life I’m shaking free.
Image:
Charles Sprague Pearce, Detail from Labor mural in lunette from the Family and Education series by Charles Sprague Pearce. North Corridor, Great Hall, Library of Congress Thomas Jefferson Building, Washington, D.C. Public domain.
Frugal Scholar has been ruminating about an idea inspired by something Jacob of Early Retirement Extreme wrote to the effect that you can get a rough preview of how much you need to retire by dividing the annual cost of an item (or, by extension, a set of items) by 4 percent.
Jacob’s theory is that you can calculate the amount you’ll need to cover the cost of, say, your daily coffee habit by figuring the annual cost and multiplying by .04, the “canonical” 4 percent withdrawal rate. His idea is that you will figure out how much savings you’ll need to support each of your various expenses in retirement, and, because these will be smaller than the daunting total, you’ll feel a) more motivated to work toward each smaller goal and b) less inclined to diddle away money on unnecessary purchases. In his example, if you spend $50 a month on groceries, you’ll need $15,000 in savings ($50 x 12 ÷ .04) to sustain your eating habit through retirement. A more realistic $300 a month would require a stash of $90,000.
Holy mackerel! What fodder for the neurotic frugalist!
So naturally I had to whip out the calculator. Do I have enough to sustain me through the end of my life at a 4 percent drawdown?
We know expenses are, at most, $2,045 a month. This is the amount I budget, even though the truth is expenses go that high only during the pricey summer months, when utility bills hover near the stratosphere.
$2045 x 12 – $24,540
$24,450 ÷ .04 = $613,500
So the answer is hell, no, I most certainly do not have enough to sustain me through old age. When last seen, total cash holdings came to about $488,000. I’m doomed!
Or am I?
My actual maximum monthly out-of-pocket costs are not $2,045, because they’re defrayed by net income from Social Security. In reality, the amount I have to come up with to support myself in my present penurious splendor is “only” $1,070, or $12,840 a year.
$12,840 ÷ .04 = $321,000
In that light, retirement looks a lot more doable, even on my pretty modest savings.
The problem, of course, is that it doesn’t take into account the effect of inflation, at least not in any realistic way. To manage that $12,840 from a 4 percent drawdown without draining my savings over a 25- or 30-year period, I will have to keep most of my money fully invested in stocks and bonds. No CDs for this little chick! A CD doesn’t earn enough to allow a 4 percent drawdown—at that rate your savings would disappear pretty quickly. And CD rates do not track inflation effectively, mostly because they’re so low they don’t generate enough income to keep grand-baby in shoes.
And as we know, the market is highly unreliable. Lose $180,000, as I did in the late, great crash of the Bush economy, and your income drops dramatically. In that event, if you’re drawing down 4 percent, you’ll have no chance of building your nest egg back up to a point where it will support you. If today I lost $180,000 again, a 4 percent return on the remainder would be $12,320, less than I need to survive even with Social Security.
One thing is as certain as death and taxes: the market will go down again. Whatever goes up must come down; the market follows that fundamental rule of physics, if in a metaphorical way. And it’s safe to assume that inflation will return. It could return with a vengeance, given the overall sickness of the world’s economy.
What this means is that, unless you’re very wealthy, you’re left with only one course of action: keep working until you drop.
Right now I’m not pulling down any retirement fund money, because I’m scraping together enough by part-time teaching to cover my costs. I intend to keep teaching as long as I can dodder into the classroom, which I figure will be about another five years. After the age of 70, I probably won’t be able to do it any more. Then I’ll be forced to use savings to live on.
Well. I don’t feel too worried about my own future.
But I sure do worry about my son’s. Given that most Americans now earn low rates of pay and can expect, with competition from Third-World countries stealing jobs as fast as water can drizzle out of a half-open tap, to see pay continue to fall, and given that the Republicans have come as close as they dare to saying aloud that they intend to get rid of Social Security, what are our kids going to do in old age?
I fear most of our sons and daughters will not be able to look forward even to semiretirement: that they will have to plan on working—full-time, not at some part-time gig—until they are too infirm to work at all. Experience tells us that no matter how much you love your job (and most jobs available today are anything but lovable), after 15 or 20 years, you’re royally sick of it. After 20 or 30 years, you need to retire, for your health and your sanity’s sake. Without Social Security, that will not be possible for most Americans.
Readers have suggested that one reason underlying my occasional fits of panic over money, which usually occur when something interrupts cash flow that I had planned on and depend on to pay bills, is my habit of allocating funds to various categories. Possibly, they imply, the sea would be calmer if all income poured into a single account and I just didn’t worry about whether enough was sitting there to cover taxes, insurance bills, and the inevitable little surprises. After all, I do have a decent emergency fund—$14,500, more than I gross all year from teaching. In theory, that should cushion the various little blows that strike from time to time, and it should cover the hefty annual bills one has to pay.
It is true that I have a bad habit of overmanaging my finances. The result is that I indeed do complicate things, typically by setting up piggy-banks to hold funds designated for this or that purpose. These organizational devices grow over time into weedy Gothic structures with lots of gingerbread on the facade and secret stairways inside the walls.
One facet of this underlying problem is that I’m now living on a highly variable income. From September through May, a steady flow comes in from the community college. But I never know how much that flow will be: there’s no way of knowing how many classes I’ll be teaching until they’re assigned; in September, January, and May, classes meet only a few days, and so pay from that is predictable only in its sketchiness; and I can occasionally earn little stipends by attending training workshops or preparing an online course. Social Security, we’ve seen, has its treacherous shoals. Blog income can be anything from $100 to $300 in a month. And freelance editing is very much a catch-as-catch-can endeavor.
This, for a person who harbors a pathological desire to know that each month enough cash will reside in the bank to cover the utility bills, is nervous-making.
During the time leading up to the layoff, I mapped out a strategy for “smoothing out” income so there would always be enough (I hoped) to put food on the table and run the house. Fundamentally, the idea is to build a “pool” with a reserve deep enough to protect one from unexpected expenses or periods with no income. Out of that pool, money is allocated to pay costs that recur over longer cycles than one month. In my case, these are all annual: property tax, homeowner’s insurance, car insurance, Medigap insurance. I can’t easily pay such large bills out of pocket; the only way to ensure enough cash to cover them is to self-escrow a prorated monthly amount. The income “pool” also disburses a small monthly transfer to a savings account, which accrues enough over time to pay for things like clothing and the occasional surprise car repair or plumbing bill.
As I was figuring this out, I realized the six or eight credit union and bank accounts (not to mention the many investment accounts at Fidelity, TIAA-CREF, and Vanguard) had become unmanageably baroque. I was spending way too much time reconciling accounts and trying to figure out arithmetic and data entry errors. I decided to consolidate as many accounts as I could…that’s how, last December, I unearthed some $28,000 that had been accumulating over the years, like so much dust in the House of Usher.
So I closed all but three bank and credit union accounts, invested $14,000 in mutual funds, and kept $14,500 in the bank to serve as an emergency fund. Actually, since I did not believe I could possibly live on a gross of $29,900 (Social Security plus the $14,160 I would be limited to earning in 2010, by SS rules), I expected I would need that 14.5 grand to live on this year, and so that money became the deep underlayment of the “pool” account. It would sit there as money from various income streams piddle in to the “pool.”
The three surviving credit union accounts, then, comprised a checking account to hold the $14,500 emergency fund and month-to-month spending money, a savings account to hold a monthly set-aside for short-term emergencies and necessities such as clothing, and a money market account to hold the monthly self-escrow to cover annual property tax bills and insurance premiums. I know myself well enough to know that if I don’t put those funds where I can’t reach them casually, they will get spent long before the clothing costs or the annual bills roll in.
My financial advisers and I knew that three sections a semester, the teaching load I could reasonably expect, would put me$340 over the Medicare earned income limit, which would mean confiscation of an entire month’s Social Security check. We did not know how much Funny about Money would earn, and the amount of editorial earnings is utterly unpredictable. But we did know that every dollar earned blogging and freelancing would trigger a 50-cent penalty from Social Security; that amount, no matter how small, would be extracted in a peculiarly abusive way that is not described in Social Security’s complicated guides. To avoid having freelance and blog income bring on even more punishment for exceeding the earnings limitation, my lawyer suggested an S-corporation, which would hold that money separate from my personal income. It would have to pay me a small salary—last year that came to $500, gross—but it could pay business-related expenses out of pretax dollars, and anything above the salary I drew out would be counted as dividends, not as “earned income.”
Because corporate income must be kept separate from personal income, of course I had to establish a business account for the S-corporation. So much for my bank account simplification program!
Still, even with that corporate account in the mix, I think my system for getting by on an unpredictable and variable income works pretty well and is relatively simple. The four credit union accounts are represented here by blue boxes:
All personal income goes into a checking account, which serves as the “pool” of funds to cover all expenses, self-escrows, and savings. The personal checking account also holds the large emergency fund, which, because it represents enough for me to live on (when combined with Social Security) for a year, I regard as money to cover living expenses during a serious illness or injury that would leave me unable to work at all.
At my age, it’s not a question of if such an event will happen; it’s a question of when. For that reason, I’m extremely reluctant to dip into the “major catastrophe” emergency fund for ordinary living expenses.
That is why I had a hissy fit over the misinformation recently dispensed by Social Security’s telephone CSRs and the subsequent confiscation of next month’s Social Security check. This fiasco will require me to use up to $1,275 of my catastrophic emergency fund. After last spring and summer’s clothing purchases and the Murphy’s Law spate that occurred when too little income was flowing into that account to cover the base expenses of utilities, insurance bills, and food, not enough remains in my personal diddle-it-away savings account to cover $1,275. Drawing dividends from the S-corporation, while it’s doable, would trigger some taxes I don’t want to pay and leave too little in that account to cover the business expenses I project for the next four to six months.
As you can see, living on freelance or nine-month teaching income is a very iffy arrangement.
If you have a large enough contingency fund… If you earn more than enough to cover monthly bills, more times than not… If no major catastrophes occur… If few expensive minor headaches occur… If no one shafts you… If you can keep on getting work… If you have the self-discipline to husband your money so it will last through lean times… If you don’t have a nervous breakdown when too little comes in to cover your basic bills…
There may be other ways to manage these unknowns. The only one that occurs to me is to build a nice, deep “pool” that will always hold more than you really need to live on, and then to budget out of that enough to cover expenses. Heaven help you if you don’t have an emergency fund!
to subscribe online at the same rate the magazine is offering on its blow-in cards. Come to think of it, those of us who are running monetized PF blogs ought to be able to write off the cost as a business expense.
