Coffee heat rising

Planning for layoff-induced “retirement”

In a moment of lucidity, I realized that of course if my basic survival account is padded with a five- or ten thousand-dollar cushion, what will matter in “retirement” is not month-by-month income (earnings will fluctuate wildly because teaching money will come only in spring and fall), but how much I will earn on average. That is, after the layoff, I won’t be living on bimonthly paychecks. I’ll be living on a fund of money that is restocked once a month from a variety of sources. 

When income from these sources runs low, I’ll have to use some of the cushion to live on. But when income rises while community college classes are in session, the cushion should be replenished, assuming my average costs don’t overrun average income.

Thinking about this the other day, I realized to my amazement that—any way you look at it!—my income in forced retirement will be higher than my salary. Unfortunately, the changed circumstances of retirement will make that irrelevant, because costs will rise significantly. However…there it is.

When GDU is paying my full salary, the net is $3,044. The pay cut created by two furlough days a month has reduced my take-home pay to $2,836.

My financial advisor says that with a 5 percent drawdown, my savings will last 100 years. At 7% the money would last 50 years. A 5 percent drawdown plus Social Security plus teaching income should create a net of $3,288, assuming the total tax gouge is around 20 percent. 

This looks wonderful, eh? Well…not so fast.

Even though my net monthly expenses will drop because I’ve paid off the second mortgage on my house and because I will cash in the whole life insurance policy as soon as this tax year ends, it still won’t be enough.

Right now I’m paying my share of the mortgage on the downtown house with a small drawdown from my largest IRA. In other words, I’m not paying the mortgage out of my salary. That cost will have to be folded in to the 5 percent survival drawdown—in fake “retirement,” I will have to help pay the mortgage out of money I would ordinarily use to live on.

Even that would be manageable…except for Medicare.

Medicare, Medicare Part D, and Medigap insurance will cost twelve times what I’m paying for health insurance now! And that will run my average costs over $3,288 a month.

Freelance income might take up the slack, but it’s so sporadic and so unreliable, I’m not including it as a source of average monthly income. As we’ve seen, the likelihood that I can keep my credit card charges down to $1,200 is slim, and so overruns of this tight little budget are probable and may be frequent. All it will take is one vet bill or one repair bill to run the thing deep into the red.

It looks like I’ll be forced to take a 6 percent drawdown, even though I don’t want to and even though I think it’s highly ill-advised.

One pool repair bill runs upwards of $115. You can’t walk into the vet’s office for less than $100. A pair of glasses costs $300. As you can see, then, at 6 percent I’ll get by…but it’ll be tight. Very, very tight. 

Probably some freelance money will continue to flow in, maybe as much as two or three hundred dollars a month. whoop-de-doo!

Yesterday I dropped by the college, where the departmental chairman was hanging out with the secretary. They said not to worry about enrollments: because the college nullifies unpaid early enrollments and community college students are just as broke as the rest of us, most people wait until the week before classes start to sign up for classes. The chair was confident all three classes would make, but, he said, even if they don’t, he still has several unstaffed sections. He said he was sure I would end up, willy-nilly, with three sections. 

So that will help to fill up the fund that I’ll be living on after December.

And it’s pretty clear there’ll be no problem landing three sections a semester as long as I can dodder onto a college campus. GDU has so massively shot itself in the foot—in both feet!—by jacking up tuition, adding a per-credit surcharge to the inflated tuition, and by generally mistreating students that vast numbers of students who would qualify to get into the university are going to the community colleges for their first two years. 

It will be a very long time before the university recovers from its own missteps and from our right-wing legislators’ fierce, vengeful animosity toward higher education, set loose by the departure of Governor Janet Napolitano, who was able to keep the kookocracy under control to some degree. The universities in this state, especially GDU, have been permanently damaged by the crash of the Bush economy and actions of the surviving extremists in our elected offices.

It’s too bad—a disaster, really, for our state—but on a selfish, personal level…what redounds to the junior colleges’ benefit may redound to mine.

Projected cash flow at 5% drawdown
Projected cash flow at 5% drawdown; red = outgo

Layoff: Getting by in unwilling retirement

There just may be a way to survive post-layoff with little risk and not too much fear and loathing. A drawdown of 4 percent from retirement savings plus early Social Security plus a modest hand-to-mouth income would support my current lifestyle. Here’s how:

If I move my plan to create a large cash-flow pool from savings in 2010 forward to, say, today, I could pay for the Investment House mortgage out of cash flow + non-tax-deferred savings (thereby preserving tax-deferred savings, if the market improves over the rest of 2009). Assuming I pick up two junior-college classes in the fall and thereafter engineer three a semester, I could continue to carry the mortgage with no problem whatsoever. In fact, not only can I continue to pay the mortgage and live in my wonted style, at the end of 2010 I could be some $3,200 ahead of the game.

And that’s not counting revenues from freelancing and not counting whatever little bit Funny about Money might generate once it’s monetized. It also is figuring the highest monthly expenses year-round: utility costs represent summer expenses, twice the winter rates.

This is a function of longstanding frugality. Because I put about $400 a month into casual savings, plus all the after-tax revenues from freelancing, a fair amount of cash has gathered in the credit union’s money market account. So…next time someone tells you frugality is bad for your psyche and bad for the economy, tell them to think again.

Now, I allow as to how I have indeed said I’d rather eat worms than teach one more section of freshman comp. However, when you come right down to it, we’re talking about a grand total of eight months’ labor a year. Around here, you get about a month off over winter break and three months over the summer.

To make a long spreadsheet short, if I gather all the savings now in the credit union and add the coming federal tax refund, I could “grubstake” a “pool” account with $11,448. By December 31, after paying my $800/month share of the mortgage bill, that base amount will have grown to $14,788, assuming I take on two community college courses in the fall.

The point of this “grubstake” or “cushion” would be to keep from overdrawing my checking account in months when expenses outrun revenues.

So, in January, when I have to start drawing Social Security and 4 percent of what little remains of my retirement savings, I would start with $14,788 plus $1,162 of Social Security and $1,333 of investment proceeds, plus net monthly pay from the community colleges, which is about $500 per course.

If I teach two sections, at the end of 2010 I end up $1,276 in the hole.

But three sections produce $3201 worth of black ink.

The fly in the proverbial ointment, however, is income taxes. While the $500/community college course represents net pay, the amounts for Social Security and investment income are gross figures. Assuming just 18 percent (an optimistic guess if ever there was one), taxes on investments and Social Security combined would come to around $5,400. So the truth is, the reward for teaching three courses could be a $2,190 annual deficit. I’d probably have to make around $4,000 in freelance income to pay for that. Impossible to tell, though: taxation in this country is so frigging complicated there’s no way an ordinary taxpayer can make any such projection without professional help.

Well, the taxes come under the heading of “tomorrow’s another day.” Money happens: I’ll find a way to cover it.

Staying solvent in penury

At last! The FIRST GLIMMER OF HOPE in the past 24 hours of number-crunching.

If my figures are right, after I’m booted out into the financial snow I can continue to pay toward the Investment House mortgage, continue to live in the outrageous style to which I have become accustomed, and not go broke. The trick is to earn about $13,500 a year, the amount a good part-time job around here pays. I would need to net $938.75 a month and add it to Social Security and 4% of surviving investments to pull this off.

My arithmetic skills are so wobbly that I had to add up a year’s worth of income and outgo to figure this out. Here’s how:

The amount I’ve used to represent monthly expenditures shows the highest monthly utility bills of the year. But the power and water bills drop by more than 50% in the spring and fall. The working figure also includes a $170 payment on the Renovation Loan, which I can easily pay off, dropping that monthly bill to 0.

It occurred to me that with the pending much-reduced income, I could create a “pool” account much like the one I fund now with biweekly paychecks. But because so little money would go into it and the demands of daily costs are so high, the initial “grubstake” would need to be much larger than what I put in to start my present, much better-funded pool.

My current pool account was bankrolled in the amount of one paycheck, which at the time was about $1500 (it’s significantly less now, thanks to the furloughs). What if instead of funding this new “pool” in the amount of a paycheck, I grubstaked it in the amount of an entire year’s net income, $22,500? I have more than half of that laying around the credit union right now, and if I pick up two classes between now and the end of December, I could easily come up with the rest. So, on January 1, I deposit $22,500 into my “pool” checking account, scrounged from present savings and future earnings. That becomes the account’s “cushion.” If unexpected repair bills or the usual astronomical summer utility bills outpace my income, the 22.5 grand will more than take up the slack. In theory, over the winter when bills are much cheaper, I should catch up.

First I added subtracted each month’s typical bills from each month’s balance (the previous month’s balance plus Social Security plus investment income plus a proposed amount of earnings), assuming I netted $1,000 a month from freelance fees or part-time jobs.

Lordie! The result is I live like a queen, never dip into the red, and end up $2,090 to the good at the end of the year.

Well…I don’t exactly live like a queen, but at least I don’t suffer a significant drop in my already modest standard of living. I get to keep putting $200 a month into a fund for unexpected expenses and indulgences, and, best of all, I have no problem paying my share of the Investment House mortgage.

Next, I repeated this 12-step process assuming I earned only $500 a month. This left me $5,265 in the red at year-end. To estimate how much I might need to break even, I divided $5,265 by 12 months and then added it to the $500 monthly extra income. This suggested I would need just under $939 a month to run in the black.

Since my math cannot be trusted, I ran an empirical experiment to see if this was accurate: plugged $939 into the 12-step process. And by golly! This scenario produces a surplus of $3.00 at the end of 12 months.

This is the first time I’ve run a set of figures that make it appear I won’t be taking up residence in a tent city after I’m laid off. With three potential income streams, it should be pretty easy for me to net around $1,000 a month. These activities will force me to get out of the house and interact with some live humans, which can’t be bad. And who knows? It may lay the groundwork for a full-time job after age 66, when the government stops grabbing back your Social Security just because you still have something to contribute to the workplace.

A layoff strategy

On our morning walk, La Maya asked if I have a come-back planned should Her Deanship announce, during this afternoon’s unexpected audience, that the Great Desert University intends to lay me off.

As a matter of fact, I do. Several recessions ago in a galaxy far, far away, I happened to read a magazine article whose author argued that as soon as an employer proposes to lay you off, you should immediately come back with an alternative. The theory was that you can sometimes bargain yourself into a better position, or at least gain paid or partially paid time to search for new work.

Unclear whether this idea remains operative in the more extreme conditions we’re seeing today. But nothing ventured (etc.). So, I have a couple of come-backs:

1. Her Deanship says soooo sorry, we’re laying you off. I say:
Last night on the local PBS news program, a legislator said that a string the size of a rope is attached to the stimulus package Our Beloved Governor has asked the president for. To get the stimulus money, Arizona will have to abrogate and reinstate all the outrageous cutsto higher education(well, as one of the lead budget-cutters, he didn’t use the term “outrageous,” o’course). Therefore, in the next few weeks the university’s budget will be restored and all your programs can proceed as before.

So, why don’t you cut my hours by 50%, temporarily? This would save on benefits and taxes, and half of my gross salary would cover the cost of one research assistantship—including the out-of-state tuition waiver. Then, when things are better, you can reinstate me at 100% FTE.

2. Her Deanship says that will never do! I say:
Rather than yank the College’s support out from under not one, not two, but six scholarly journals (causing bad press for GDU not just locally but nationwide that will ring through the ages like time’s endless echo), why don’t you outsource the preproduction services to me? This will save the university the cost of my salary plus taxes and benefits, remove three research assistantships and a 50% FTE assistant editor’s position, and get the job done at enormous cost savings.

Pull that one off, and The Copyeditor’s Desk has a bread-and-butter client that won’t quit. Tina and I will both be self-employed, which has its disadvantages but also has the advantage that we won’t have to schlep to campus. We can farm the work out to the graduate students on a freelance basis. While we can’t give them research assistantships, we certainly could hire one a semester as an intern, given what we would earn editing six journals plus the other work we’re doing.

Mwa ha ha! No wonder I’m an academic. I was born for this kind of bullshit!

Reviewed the financial strategy I’d already planned for the layoff eventuality. It’s going to be very tight. However, if it’s true that the stimulus package will pick up 60% of COBRA, my back vacation pay will cover COBRA until I’m eligible for Medicare, especially if the university keeps me on until the end of the fiscal year (June 30). Also, $2,400 of unemployment is now tax-free, so that means the pittance Arizona dispenses will be a slightly larger pittance.

So, I guess the main reason I’m not feeling very exercised about this development (besides the fact that I’m tired of thinking about it) is that, although it would be a major inconvenience, if they lay me off my world will not come to an end.

Planning to be poor

Over the next few days, I need to write out a plan for how I’m going to survive on a fraction of my income, which I expect I’ll have to do after the Board of Regents meets and Our Beloved Leader engineers the opportunity to declare a state of financial emergency so he can make all who are the likes of me redundant.

I’ve already figured out that it’s possible (not easy) to get by on Social Security and a tiny freelance income without moving out of my home. To do it, though, I’ll have to change my shopping, eating, and living habits in a big way. Today I won’t have time to work out the details—have to learn a new (to me) program that I’ll need for the full-time freelancing mode. But I have some ideas for the general shape of the thing:
-Identify items that I can buy in bulk at Costco, Sprouts, and co-ops.
?Compare prices of these items with prices in Walmart and Target. If items items of comparable quality can be had cheaper, get over the revulsion for Walmart and buy the stuff there.
-Get a great deal more serious about vegetable gardening
-Start collecting & clipping coupons. Learn the trick of getting goods cheaply at CVS and Walgreen’s.
-Identify specific classes of household goods (such as detergents) that can be purchased at yard sales.
-Get a room air-conditioner installed in the bedroom ASAP, while there’s still some money to do it.
-Identify two or three thrift stores in or near upscale neighborhoods. Check them out to see what kinds of stuff they carry and what prices will be like.
-Turn off the watering system (it needs to go off for the winter, anyway). Plug all the drippers around xeriscapic plants.
-Identify things that can be yard-saled or sold on Craig’s List.
-Cut the present budget to reflect the amount I will have post-layoff. Bank savings to use as “cushion” in checking account.

So it goes. Maybe I can sell the junk around the house for enough to pay for the room air-conditioner. . .

Battening down in the hurricane

It’s probably a bit late to batten down the hatches, since the perfect storm has already made landfall. On the other hand, I wasn’t really expecting to get laid off, and now that looks like a strong possibility. So, today I’m taking a series of steps to help weather bad times. Some of these, I think, apply to just about anyone in most situations. Here’s some plywood to nail over the windows:

1. Pay off or be in a position to pay off debt

My strategy: Prepare to pay off $21,000 Renovation Loan

This is a second mortgage, not an equity loan, but because it is a loan against my house it does put me at risk of foreclosure if I can’t make the payments, which I will not be able to do if and when I lose my job. I already have $11,000 in cash savings snowflaked for this purpose. Along these lines, I moved $5,500 out of short-term corporate bonds and $5,000 out of Vanguard’s Wellington fund, the two non-retirement funds that are losing the least.

2. Identify all potential cuts in budget and prepare to implement them.

My strategies:

Pay off the Renovation Loan, to save $374/month (the regular payment plus payments toward principal made to eliminate the loan by the time I intended to retire).
Cancel the newspaper, cell phone, DSL (good-bye Funny about Money!), long distance service, and monthly yard clean-up. Savings: $139/month.
Cash out the whole life policy. Savings: $30/month. This also yields $23,000 less 28% tax = $16,560 in cash, about six months’ worth of living expenses.
Quit putting $200/month into a savings account for casual expenditures. Cut all indulgences to zero.
Cut back budget for all other living expenses that are not regularly recurring bills.

These maneuvers will cut my monthly recurring bills from $821 to $482 a month:
As a practical matter, I probably will not cancel the DSL, since I need it for my freelance editorial business. Also, Funny is now getting about 6,000 hits a month. It may be worth monetizing it. If I did that, I would have a good argument for deducting the cost of DSL from my income taxes. It’s not much, but every little bit helps.

I could, in theory, cancel my homeowner’s insurance, saving about $65 a month. However, that’s a risky move. We’ve already seen that the minute I jacked up the deductible I darned near set fire to the kitchen. Murphy’s Law suggests that if I cancel the $780/year hit for homeowner’s insurance, a gigantic storm will come through, blow off the roof and, in a single lightning strike, burn down whatever remains.

With the monthly self-escrowing for principal payments and the monthly $200 general savings gone, monthly savings set-asides drop from $704 to $300.
I budget $1,500 a month for nonrecurring living expenses. If I’m very careful, do not indulge myself in anything, have no vet bills, and have no repair bills for the house or car, this amount can be as much as $300 more than needed. So, I’m figuring about $1,200 is what I will need each month to live on, above and beyond the costs of running the house.

3. Figure how much will be needed to live in reduced circumstances.

My strategy: Add up projected reduced savings, monthly bills, and budgeted “other” living expenses.

1010DepressionStrategy3Okay. That’s better than the $3,000 a month I’m spending now. Over a thousand bucks a month better.

4. Try to figure out where the money will come from.
At the rate the market is going, I’m assuming there will be nothing left in my retirement savings. If I use the $23,000 that will come from cashing out my whole life insurance policy as an emergency fund to cover such things as veterinary, car, and house repair bills and to cover the $5,050 a year cost of COBRA, then I’m left with this:

My strategy: add up the next year’s sources of spendable income.

This assumes the tax on Social Security will only be around 20%, but it may be significantly higher, since I will have earned my regular salary for ten months of the 2008.

The RASL (amount GDU has to pay me for accrued sick leave) and vacation pay figures are net.

As you can see, even with the RASL pay and the one-time vacation time payment, I’ll come up short at least $6,600 in my first year of enforced retirement. It’s possible that I might be able to net that much with freelance income—a typical freelancer earns about $10,000 a year, working full-time.

If I don’t get a job, I am going to be in deep trouble. But I probably can get something working at a WalMart or even cleaning house. The rich will always be with us, and they’re always in the market for servants to do their menial work.

5. Consider whether there are any other options

My strategy: Figure what happens if I try to live on cash savings for the next couple of years.

If I don’t pay off the Renovation Loan but instead use the $21,000 cash savings and the $23,000 that will come from cashing out my whole life insurance policy, then we come up with a survival fund of $44,000. We have to add $170 a month back into the monthly cost of living. RASL is good for three years. The vacation pay is a one-time thing, affecting income in only one year. Without vacation pay, my shortfall will be around $10,000; without RASL and vacation pay, it will come to around $14,000.

As strategies go, living on principal is less than ideal. I suppose I could do it if I were pushed to the wall. But selling the house and living out of the back of the van would keep me going longer.

6. Count blessings.

My strategy: Quit focusing on the tsunami’s roar and pick flowers by the roadside.

At least I have a roof over my head and the resources to pay it off
No mortgager will be able to evict me from my home.
It will take the county tax assessor two or three years to put me out after I begin to default on taxes.
M’jihito has a job and is young enough to recover from whatever happens to this country, assuming anyone in the sub-Richistan classes can recover.
I have a nice paid-off van with plenty of room to sleep in.
I know how to cook from scratch.
Beans are delicious and I know lots of ways to cook them.
The veggies I planted have started to sprout.
My health is good and so I at least can work, if I manage to overcome the prevailing cultural bias against older people.
The Copyeditor’s Desk is getting steady work and could (maybe) crank $10,000 or $12,000 a year for each of its principals.
They haven’t canned me yet.
It’s fall and so I won’t have to run the HVAC system for another six or seven months.
The weather is drop-down dead gorgeous.
The dog is unfailingly cute.


Update, December 2013: As it developed, my estimates of the taxes were overblown. My job lasted until December 31, 2009, and so salary from GDU did not trigger a tax on Social Security, which I started drawing in 2010. Only a portion of one’s Social Security is taxed, and that’s only if you earn more than a certain minimal figure. As it developed, forming an S-corporation ensured that would not happen and sheltered most of my freelance income and all Social Security income from taxes.

After the layoff finally came, more than a year after this post appeared, it proved impossible to find another job. Even had the job market not dried up in the Great Recession, my age worked against me — employers wouldn’t give an old lady a second look for positions that read like they were written with my skills and experience in mind. By that time, though, I had already paid off the loan, cut my living expenses significantly, and made arrangements with a community college to teach the maximum allowable number of courses on an adjunct basis. Although adjunct pay works out to something less than minimum wage, between that and Social Security I managed to stretch a $14,000 emergency fund to cover five years, and then some.

By staying put in the market, I eventually managed to recover most of the losses in retirement funds. Five years later, total savings (including the whole life policy, which I never did cash out) are about where they were before the crash of the Bush economy. My son and I spent several years underwater on the house he and I copurchased, while he worked a miserable job at a company that overtly abused and grossly underpaid its workers. Today his house is worth what we owe on it and mine is worth what I paid for it. He has a better job and hopes for a promotion. I will never work for The Man again, and am glad of it.