Coffee heat rising

The Divide by 4 Percent Rule?

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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.

A pothole in the road to voc-ed

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I see the volcanic Stanley Fish is rumbling over the dim fate of the humanities. He sees SUNY Albany’s dismantling of its French, Italian, classics, Russian, and theater programs as the beginning of the end.

It’s not news, of course. Foreign language departments across the land have been eviscerated or killed: at Drake and Louisiana State (which also terminated all of its English instructors), with a death warrant in the works at the University of Maine. Arizona State, my beloved former employer, eliminated the foreign language requirement for the bachelor’s degree years ago, and bumbling semiliteracy in a second language is no longer required for many graduate programs. In any event, ASU will accept American Sign Language to fill what few requirements remain.

And what do we expect? When everything but business and engineering is devalued and we convert education to an assembly line, what are the humanities other than a pothole in the road to voc-ed?

So it goes. Elite schools no doubt will continue to educate the elite, an exercise that involves furnishing the mind, not just inculcating skills. But as for true public education? Expect your tax dollars to support institutions modeled on proprietary schools, whose mission is to churn out lots and lots of worker bees, future technicians and paper-shufflers with bachelor’s degrees that give them no clue to what the world is about or how it got to be that way.

And if a kid in the middle or working classes has a hunger for insight, a mind for deep thinking, or a taste for art?

Oh well.

Is Money Talk Rude?

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Over at Surviving and Thriving, Donna Freedman brings up an interesting topic: the old tradition that you don’t talk about money. Spinning off an article that appeared on CBS MoneyWatch.com in which an informant told a reporter that “talking about money is really crass,” especially during a recession, Donna suggests that there’s a limit—a fairly tight one—on how much you should say about what. In particular, she objects to sharing details about one’s salary and one’s net worth. The Surviving & Thriving piece generated a lot of lively discussion, including a comment from a behavioral scientist at an outfit that coaches people on requesting a raise.

Like Donna, I grew up in a time when you did not talk about money matters. It just wasn’t done, as my mother would say. Personally, I find the whole subject of money fascinating, and so I talk about it freely. If that’s crass, it explains why people don’t like me. What’s iconoclastic when you’re young and pretty is something else when you’re old and fat. 😉

The first time I really shocked someone by frankly revealing what I earned came when I was working at Arizona Highways, at the time the largest regional magazine in the country. I was earning about $24,000, the highest salary I’d ever made. Because Highways was a state publication—we were part of the Department of Transportation—my salary was a matter of public record. Anyone could (and to this day can) look it up.

One of my job responsibilities was to trot around town giving little dog-and-pony shows to plug the magazine. I was asked to go to a low-income middle school for “Career Day,” a much-ballyhooed event in the public school district.

Grinding poverty is a real phenomenon here in Arizona. Because it’s a right-to-work-(for-nothing) state, salaries in general are surprisingly low, and when you’re poor, you’re very poor indeed. Low-income districts include the children of migrant workers, who earn minimum wage or less and who often are stiffed for their pay in one way or another. In a state whose schools overall rank near the bottom nationwide, education in ghetto schools is a heart-rending joke. A friend who worked in a low-income high school for several years told me his kids did not know where the Pacific Ocean was or even what an ocean was, that they could barely read, could not do basic math, could not make change, did not know enough to make their way through the modern world.

When I walked across the campus, I noticed only one white face among the teeming students, and that (I was later told) belonged to the son of a teacher. Most of the teachers looked as worn-out as the school buildings, which were old and shabby. As I spoke to the class, the teacher, an older, tired-looking man, translated my words into Spanish.

During the Q&A period, one girl asked me how much I earned. Without a pause, I told her.

After the class ended, the teacher took me aside. He actually was angry.

“You shouldn’t have told her how much you earn,” he said.

“Why not?” said I. “It’s public record. And it doesn’t do me any harm to let her know what a magazine editor earns.”

“She has no way of understanding what that $24,000 means.”

Well, thought I without saying it, You’re her teacher. Maybe you should teach her how many pairs of Adidas $24,000 will buy.

In retrospect, I think he was more offended by the question and the frank answer than by the darkness in which his students lived.

Over at WalletPop, SmartMoney.com reporter Kelli Grant lists five money faux pas, some of which are bound to ring everyone’s bell. Right at the top is asking people what they earn.

Now I will allow that it’s rude to bluntly ask someone about their income. On the other hand, I feel no great compunction about voluntarily sharing such information. There are some situations in which it’s useful to know what coworkers earn or what people in your part of the country earn for the job you do. Certainly, family members, including older children, should know and understand what you earn, so they can make reasonable decisions of their own.

My former husband never told me how much he earned. I knew in round figures, and of course I could have figured it out from our income tax statements if I could have grasped the complexities of a corporate lawyer’s income tax statement. But that was beyond my  ken. He just handed me a credit card and a checkbook and that was that. I spent freely, because I had no idea how much we had but assumed a corporate lawyer must be earning plenty. We were in debt up to our teeth, partly because I charged anything I pleased whenever I pleased.

It doesn’t do to be overly private with your spouse about money matters. A marriage is supposed to be a partnership, and in practical terms that means a financial partnership.

Nor, I think, does it serve our interests to be overly private with our coworkers. The only way we can know what we should be earning is to know what people in our company and in our trade or profession are earning. One of the reasons this state does have such grinding poverty is that people don’t fully recognize how poorly they’re paid relative to their peers in other states, and even relative to their peers in other companies. If no one will discuss what they earn, it’s impossible to know how well your own salary stacks up against a fair rate of pay.

To my mind, what’s rude is conspicuous consumption. Living in a McMansion is rude. Bragging about your vast wealth is rude. Carrying a purse emblazoned all over with some expensive designer’s logo is rude. Looking down your nose at people whose clothing cost less than the Armani you’re wearing is rude.

This is more a matter of behavior than of talk. The classiest millionaires are the ones who look, talk, and behave like you and me.

“Semester’s” end

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The first 8-week term of the semester ends this week. Three sets of papers and assignments will come pouring in, starting today; papers need to be read and grades filed by Friday…preferably by Wednesday, since two new courses go online next Monday. And naturally, I’m sick…have been for the past ten days. Bleyagh!

Got a post in the oven but don’t know when I’ll have time to write it. Watch this space!

😯

Where the jobs are…and aren’t

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Tina, editor par excellence, sends along this interesting (not to say alarming) article from NPR’s Planet Money. Even though the recession is officially over, as NPR’s Jacob Goldstein points out, that means rather little for the suffering quotient. Eight million jobs have disappeared from our economy since December 2007, most of them in manufacturing and construction.

Many of those jobs will never come back. It’s hard to believe sectors like retail, real estate and finance, and transportation can absorb eight million workers, many of whom are tradesmen and not white-collar workers. The feds are hiring, but only because the federal government is spending itself blind trying to beat back a full-out depression. Compared to the number of jobs lost, the number of jobs gained in federal employment is a drop in the bucket.

Something called “private education” is growing, possibly, Goldstein speculates, because during hard times people go back to school in hopes of retooling for different occupations. But let’s consider what “private education” is: presumably it means proprietary schools. These outfits, as we’ve seen, will give you a degree without much education, and pick your pocket in the process. What they’re turning out would be hundreds of thousands of graduates with no better hopes of landing a job than they had before they started. The quality of such training aside, if eight million jobs are gone, where are those newly trained workers supposed to get hired?

The only sector that appears to show genuine growth is health care. We’re told this is because of the graying (and increasingly doddering) of America. As the baby boom ages and boomers’ health fails, demand soars for nurses, doctors, medical technicians, and the entire vast infrastructure that supports them.

Think of that.

We’ve gone from a nation that produces things to a nation that takes care of sick old folks.

Not that there’s anything wrong with taking care of sick old folks. Just that…well. It’s ominous.

Image: Men standing in a soup line. Franklin D. Roosevelt Library. Public Domain.

Getting through a Social Security-free month

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Despite the late, great annoyance of having Social Security confiscate an entire month’s SS income in direct contradiction of what two of its workers said would happen, it looks like October will pass without too much disaster. I’ve managed to scrounge together some cash by combining last spring’s American Express kickback (which, mercifully, I’d stashed in a savings account and so not diddled away) with part of the summer stipend the college paid me to develop this fall’s online magazine writing course.

When it looked like I would only be teaching two sections this fall, one at a time(!), I’d planned to pay the saved stipend to myself over the four months of the fall semester, prorating it so as to provide what I’d get from teaching three sections.

Pay for a semester-long course disbursed over an eight-week short session, obviously, would amount to paychecks equivalent to teaching two sections over sixteen weeks. Not awful, but not enough.

Well. Yes: awful.

I’d figured that if I spread that stipend money over the semester, I’d have about the same as what I’d earn teaching three sections this fall. However, in September I had enough to get by, partly because we had a mild July and utility bills were lower than planned. So I just left that month’s prorated stipend payment in savings. Thank goodness! That allowed me to prorate the chunk of money over three months instead of four, giving me a monthly disbursal of $641.

Without the Social Security income, ordinary cash flow will not provide enough to get by in October. It wouldn’t under the best of circumstances, but…as usual, when you’re broke everything breaks. The most recent storm has cost $100 so far—Gerardo and his sidekick spent three hours yesterday afternoon cleaning up the blanket of debris that was spread over every square foot of my quarter-acre lot. I managed to get most of the crap out of the pool, but now the filter’s clogged. I’m out of diatomaceous earth and so will have to drop another unplanned $20 on that, so that I can backwash the pool. When I backwashed briefly yesterday, the backwash hose burst in three places, spraying me and half the yard with dirty, DE-mudded water, so now I’ll have to buy and install another hose. The electric bill hasn’t arrived yet, but it will be astronomical: last month was the hottest September on record, and it was so humid that I couldn’t keep the thermostat at its usual 84 degrees all day.

I hadn’t planned on having Gerardo come over this month—the storm changed that penny-pinching scheme. And I hadn’t planned on having to get another haircut this month—the new hair stylist, who took the place of the other new hair stylist who did such a great job but who immediately flew the coop, isn’t skilled enough to do a short style that lasts two months. So that’s $150 off the top, as it were…and we’re just one week into the month. Ugh!

Over this penurious summer, I’ve been eating out of the freezer and off the pantry shelves, and so the larder is about bare. Yesterday I spent $113 at Costco, and pretty quick I’ll have to buy more to restock the staples and frozen stash.

OK, so there’s $641 from the re-prorated summer stipend. Sifting through the savings account where that was stashed, I realized I’d never spent the $333 that came in from the Costco AMEX cash “reward” last spring. Actually, I’d stashed it to cover taxes and insurance, after I realized that the $300/month self-escrow I’d been making last year would not cover the jump in homeowner’s and car insurance, on top of property tax on a valuation far in excess of the house’s real value. The AMEX kickback went in there and I jacked up the self-escrow to $325, figuring that amount would cover the 2010 bills. Maybe.

However, this year the county cut property taxes, bringing them more in line with the actual value of Arizona real estate, which at the moment is about nil. So I figured I could raid that $333 and let the future bills take care of themselves. Thanks to the startling cost of Medicare and Social Security’s mandate that “early” retirees live in poverty, my medical expenses will come in well over 7.5% of 2010 income. So I should get a tax refund next April—that can help to cover the insurance and property tax.

Amazingly, $333 plus $642 comes to exactly the amount of a net Social Security payment: $975!

So, if no more unplanned expenses come in this month (har! this is only the 7th!), I should get by. Maybe.

The problem is, I have no idea what my salary will be and can only  make an estimate. It’s a rare day when two successive adjunct paychecks are the same. But if I’m right, there should be enough to make it through October.

November will be another matter. The government is withholding not one but two months’ worth of Medicare payments in November, since obviously if you don’t get paid in October you have nothing for them to engross the Medicare Part B premium from. So that will cut my net income by $111 right off the bat, merry Christmas to one and all. I’ll be buying precious few Christmas presents for M’jihito, and I probably won’t be able to afford the usual Thanksgiving and Christmas feasts.

Speaking of feasts, the choir director informed us last night that we’re expected to show up at the annual fund-raising shindig. The dinner is a hundred bucks! I don’t know what I’m supposed to do about that. I don’t have a hundred bucks to spend on dinner—the $20 donation I made toward the altos’ contribution to the silent auction was more than I could afford, with no Social Security coming in and no real idea what I’m going to earn from my laughable “salary.” Guess I’ll just lay low and pretend I didn’t hear him.

Last year he footed the bill for my dinner. But I really don’t feel comfortable about that and most certainly don’t feel it can happen more than once. Oh well.

Jeez…it’s getting late. Almost 6:00 a.m. Gotta run!