Coffee heat rising

A little frugality goes a long way

Well, I was about to say “I amaze me with my frugality,” but the truth is, I haven’t been pinching pennies any more rigorously than usual. That notwithstanding, despite almost $1,000 in “extraordinary” (read “not in the budget”) expenses, I’m only going to have to pull about $245 out of savings to cover this month’s charges. 

dcp_2529Yes. This month I ran amok with the extraordinary expenses. To kick off the budget cycle, a Talbot’s junket racked up an $86 debit when I succumbed to the lure of the Sale! tag. Got a cute little top at B’Gauze, also allegedly on sale at the bargain price of $47. Then we chose this month for Mrs. Micah to migrate Funny to BlueHost, which was quite the project. Her fee was amazingly reasonable, but it also could be viewed as outside the realm of ordinary costs. Next, nothing would do but what I had to harden the security on my office right this minute, in light of the swarm of burglaries the neighborhood has seen: $295 for purchase, delivery, and installation of a solid-core door plus $281 for purchase and installation of a pick-proof, drill-proof lock and metal door guard. (Gulp!) Moving on, the locksmith profited further when Bila the Painter couldn’t figure out how to remove the (very involved!) antique Baldwin lock from the front door at the downtown house: $150 for two visits, one to get it off the door and one to put it back on. All these added up to an astonishing $969.67 in extraordinary expenses.


My de jure budget now has me spending $1,200 on ordinary, day-to-day expenses, such as gasoline, food, household goods, and whatnot. That amount should cover one or two out-of-the-ordinary costs, such as a visit from the plumber or a trip to the veterinarian’s office. Against the desired $1,200 limit, I’m actually $396 in the red. But the de facto amount that goes into the credit-card piggy bank (a money market checking account earning a little interest) is $1,500; anything that doesn’t get spent out of that sits in the account and serves as emergency back-up. Against the $1,500, I’m “only” about $245 in the red. As a practical matter, the accrued cushion in that piggy-bank account will cover it, so I really won’t have to transfer a dime from savings to pay for this month’s spending extravaganza.

Could I have exercised some restraint?

Well…yeah. I needed some summer clothes, but you know, there’s no law that says just because a store is advertising a sale you have to run right in and buy stuff. The clothing purchases could have been deferred to the end of the month, at which time I would have been out of money and so wouldn’t have bought the shirts at all. Staying out of Talbot’s and B’Gauze would have cut the deficit by $133, leaving me a modest $112 in the red. 

But some of these things really needed to be done now: I wanted to install the door and lock while I still have an income from the Great Desert University. And theoretically the locksmith’s work on the downtown house could be included in the cost of the paint job, which is coming from a different piggy bank. The project to monetize Funny needed to start soon, so I would have some time to learn how all that works and possibly to improve earnings from the site before I’m out of work. Eight or nine months seems like a pretty short lead time, really: that was a sooner-the-better proposition.

So, I don’t feel too bad about all this. Riding the train (and taking two weeks of vacation time, eliminating a bunch of endless gas-guzzling commutes) eliminated one gas fill-up. Thanks to the stash in the freezer, I haven’t had to buy much food. And the stockpiling strategy allowed me to put off purchase of a few household items into the next budget cycle. 

Once I’m retired, of course, $1,200  will have to be the real maximum expenditure limit, and not a pretend “can I really live on this” figure. As a practical matter, I’ll have to come in well under $1,200 in most months to get by. That will be a challenge as inflation rises. But right now I’m spending significantly less than that in ordinary, day-to-day expenditures. If I spent about $970 in extraordinary expenses and overdrew the $1,200 budget by only $400, that means regular, routine costs consumed about $570 less than budgeted ordinary expenses. (I think: arithmetic is not a science that serves me well.) 

Whether that figure is right or wrong, it’s pretty clear I can eat, drink, and make merry on less than $1,200 a month. Meanwhile, with the Renovation Loan now paid off, recurring monthly bills drop from $840 to $670, a figure that will drop another $30 when I cash in a whole life policy in January (because I have to pay taxes on the proceeds, I’ll need to put that off till I have no earned income to speak of). 

So let’s say I can expect to spend maybe $1,000 a month on routine living expenses. That plus the remaining $640 in recurring bills comes to $1,640 a month, or $19,680 a year. Think of that: a retired person can (in theory) live on less than 20 grand! For me, investment income alone will almost cover that.

Of course, we still have my share of the downtown house’s mortgage: $9,600/year. The net on $13,944 in Social Security benefits should cover that, but if not, I’ll earn more than $9,600 teaching at the community college. So, even after taxes, any freelance income will be pure gravy.

Although some observers might regard my lifestyle as ascetic (I refrain from spending on cable TV or a cell phone, for example, and I rarely go out to eat), I don’t think of myself as extremely frugal. I never clip coupons, I don’t pursue freebies from CVS, I buy my clothes new, and any day I’d  rather own a book than borrow it from the library. I eat like the Queen of Sheba and do not stint on wine and beer purchases. 

The trick is to get out of debt, including mortgage debt. Once the house and the car are paid for (and you’re not trapped under a load of revolving debt), you’re home free—given decent retirement savings. Without a huge cost for the roof over your head, a very moderate level of frugality will allow you to live quite comfortably.

Community Colleges: Baby-boomer nirvana

Next fall, I want to take 125 credits at Paradise Valley Community College. Think they’ll let me audit those? For those of us boomers who are into lifelong learning, this place is some sort of heaven. The English Department chair gave me a college catalogue, which I’ve been perusing with growing amazement and joy.

Some of these courses sound too wonderful for words.  Eight different courses on computer graphic art and design, starting with introductory and intermediate digital phtography and going thorugh computer animation, web-site design, and computer-aided graphic arts. Five courses in ceramic-making. Fifteen classes in drawing, painting, and watercolor. Wanna dance? There’s ballroom, swing, Latin, hip-hop, Middle-Eastern, West African, and Brazilian dancing! You can learn to speak Japanese and Chinese (why go or here?). Music in World Cultures….Rock Music and Culture. Private instruction in voice, jazz and classical piano, guitar, trumpet, French horn, trombone, tuba, flute, oboe, clarinet, bassoon, saxophone, violin, viola, violoncello, and contrabass. Or maybe you’d like to get fit: weight training; six courses in fitness; all sorts of group exercise sessions. And get this: you can earn college credit for going on one of several spectacularly scenic hikes! We have caving. We have canyoneering. We have rock climbing. We have mountain biking at Sedona. One credit each.

Then there are the anthro courses: Bones, Stones, and Human Evolution. Buried Cities and Lost Tribes (a semester each: Old World and New World). Magic, Witchcraft, and Healing: An Introduction to Comparative Healing.

After having edited a bunch of Poisoned Pen Press’s best detective novels, it’s occurred to me that I, too, could write those things. But…how to find out enough about detective work to do a decent job at it?

Well. A would-be detective writer could easily cobble together her own course of studies at PVCC. While we’re in the anthropology department, we could start with Introduction to Forensic Anthropology.

Survey of the role of forensic anthropologist, from the crime scene to the courtroom. Understand how a forensic anthropologist can determine life history of an individual. Contrubitions of forensic anthropology to crime scene and other legal investigation. How forensic anthropology is used to decipher historic cases, and how it is depicted in poular culture. Case studies involoving criminal investigations, mass disaster incidents, and global human right issues.

Prerequisites: none

Moving on to administration of justice, the wannabe crime writer can take a three-credit course in Serial Killers and Mass Murderers, and another called Forensic Pathology: Death Investigation (should fit right in with the forensic anthropology training). Then there’s plain old Criminology:

Study of deviance, society’s role in defining behavior; theories of criminality and the economic, social, and psychological impact of crime; relationship between statistics and crime trends. Examines crime victimization and the various types of crime and categories of offenders.

Prerequisites: None

Gosh. Think of that. There are no prereqs for any of these courses. You could actually learn enough to turn yourself into a pretty respectable crime writer.

The tuition is very reasonable: $71 per credit hour; $96 per hour if you want to audit. That’s only about $300 a course—four months of instruction. For dance, fitness, and outdoorsy activities, all one-credit courses, it’s a hundred bucks. You couldn’t get a guided hiking tour of Sedona for that price on the commercial market—and you sure couldn’t get sixteen sessions of dance instruction for that. Most dance studios don’t advertise their prices (if you have to ask, after all…); the Academy of Ballroom Dance charges $120 for just six lessons.

This is a bonanza for the retired and the frugal. At a very reasonable cost, you can develop a hobby, meet new friends, learn a new line of work, get fit. Why join a gym if you have a community college down the road? And why be bored?

Awesome. I can’t wait to get retired.


Is it time to punt?

This month’s statement from Fidelity shows another $10,000 loss in my big IRA, despite my financial advisors’ having moved as much as possible into conservative investments, gold, and cash.

At the age of 63—damn! soon to be 64!—I’m watching my retirement investments melt away. That IRA has dropped in value from a high of $326,000 to $193,000. Total savings have dropped from over $600,000 to less than $420,000. Meanwhile, we owe $23,000 more than the Investment House is presently worth, and I took out a second on my own house to renovate said investment.

I’m wondering if it’s time to do something completely, utterly, totally contrarian. Hang onto your hats, folks, because this is one scary idea:

Maybe I should cash out that big IRA before it’s all gone. I have enough set aside in savings to pay off the small second mortgage on my house; if instead I combined that with the amount remaining in the IRA, I could use the money to pay off the loan on the Investment House. My son could then continue to pay me the amount he’s been paying toward the mortgage as a variety of “rent.”

I would repay him his share of our combined investment in the house so far. This would provide him enough to go back to school, which he would like to do.

If he decides to go to the University of Arizona, which has a better graduateprogram inpublic administration than the Great Desert University’s, I could either rent his house, providing a nice bit of cash flow, or I could rent mine for even more, move into his, use the rental on my house to cherry out the little house downtown, and collect a ton of money.

Because I no longer have enough in savings to support me in old age, I’m going to have to work until I drop. When the deans physically throw me out of the place (assuming I haven’t died before then), I would have the rental income from one house, Social Security, and income from taking out a reverse mortgage on whichever house I’m living in.

Hm. I wonder what that would look like?

Let’s assume a miracle happens and the Obamaites succeed in turning the economy around. Let’s assume that starts to happen in, say, three months, during which I continue to lose at the rate of 10 grand a month.

Several options present themselves:
1. Stay the course. Change nothing in the investment strategy
2. Pay off the house; have my son pay the amount he’s been paying, only to me.
3. Pay off the house; my son goes to school elsewhere and I rent his house.
4. Pay off the house; my son leaves for graduate school; I move into his place and rent my house.

I ran some figures in Excel. My math is not very good, so these prognostications may be out in left field. But if I’m right, it looks like I would be better off to pay the mortgage and have M’hijito pay me a monthly “rental” in the amount that he’s now paying the mortgage company. I’d still have enough to refund him his investment in the house, which would pay a big chunk of his graduate school tuition, or at least revive his Roth IRA.

I posited three mortgage-payoff scenarios and estimated my net income if I retired at age 66 (which ain’t gunna happen) or at age 70 (the earliest I can imagine being able to afford retirement). I assumed equity investments would continue to drop 10% a month for the next three months and then begin to rise at about 3% a year from now forward. In scenario 1, M’hijito stays in the house and pays me rent of $600 a month. In scenario 2, he goes to graduate school in Tucson and I rent his house for $950/month. In scenario 3, he goes to Tucson, I move into his house, and I rent my house for $1,000/month.

I listed all the bottom lines in Excel and then sorted to show the numbers ranging from least income to most income.

Compared with staying the course (leaving my investments where they are and continuing to pay the mortgage), all three pay-off-the-mortgage scenarios seem to look better, unlessM’hijito stays in the house and I’m forced to retire or am laid off at age 66.


The big unknown is whether I will keep my job. If I’m canned before I reach age 70, we lose a very big bet. But if I can hang on until age 70 and I’m not purely raped by the taxman, then I end up with a net income fairly close to my present net.

On the other hand, if I’m canned, we’re screwed anyway.

My son would get back the money he put into the down payment. He could continue to live in the house as long as he pleased, but he would no longer be chained to the thing: he would be free to go to school or take a better job elsewhere.If I moved to his house, when I really get desperate for money (which will inevitably happen as my health starts to fail and medical care costs soar), I could take out a reverse mortgage on the place. M’hijito would then lose that house after I die, unless he wanted to pay off the reverse mortgage, but he would inherit my paid-off house, which by then would be making a nice rental income for him, or (with some fix-up) would be a good place for him to live.

Whaddaya think? Crazy? Or not crazy?

To move or not to move…and if so, where?

Yesterday’s confirmation of my suspicion that I won’t be able afford to stay in my home after I retire is disturbing. I will have to move someplace cheaper to operate. And if I need to carry a mortgage to do it, I’d better find a place sooner than later. No one will lend a house-sized chunk of money to an old lady trying to live on Social Security.

If I’m going to stay in the Phoenix area and not live in a three-story walk-up, there are only two choices: Sun City or a foreclosure in the city’s gentrified core. The city stands down off the property taxes in the historic district (the locals consider a house that’s 50 years old to be “historic,” a bit of a joke but hey…it’s Arizona). Right now three or four such shacks are on the market.

The historic area known as “Willo,” part of the larger Encanto district, is exceptionally well maintained and pretty: gentrified with a vengeance. My ex- and I lived there for 15 years. We moved after our son got big enough to play outdoors—surrounded with a blighted area boasting the highest per-capita drug use in the city, Encanto is infested with homeless mentally ill and dangerous criminals. We felt it was unsafe to let him play outside, particularly after one of the neighbors (yea verily: an elderly woman) was killed by an ax murderer. A woman living alone down there really needs a large dog. But (sigh) I suppose that can be arranged.

I saw two derelicts on Third Avenue as I drove down into the area this afternoon. One of them was so spaced, the poor guy, he was stumbling up the middle of the street. On the other hand, when I stopped to look at one of the vacant repo houses, I chatted with a yard crew. Their foreman said his company cleaned up and did handyman work for the bank that now owns the place. They were up on the roof the other day replacing parts in the air conditioner when two squad cars full of cops showed up and, pistols drawn, ordered them to explain themselves.

So that would mean the cops are showing up, something they rarely bothered with in the past. I remember the time The Walker, a mentally retarded gentleman who used to walk around and around the neighborhood, oblivious to the traffic on Third and Fifth avenues, from early in the morning when the settlement house tossed him out to evening when he could go back to bed. One hot day he passed out on my neighbor Chuck’s lawn. Chuck called 911 to get an ambulance for him, and the despatcher said—I kid you not!—”Don’t worry, he’ll sleep it off.”

They figured the old guy was a drunk, and they didn’t give a damn that drunks were passing out on people’s lawns. Chuck had to call the city, raise Hell, and put a block under it to get somebody to come take care of the man.

On the Night of the Screaming, it was an hour before the cops showed up. They almost arrested my husband, who appeared, coming home from a firm meeting, about the time a squad car surfaced. This was the time a rapist tried to come in the side door, having got himself all hot and bothered after he watched me, through a window, doing some calisthenics. I went to another door, threw it open, and started screaming “Fire!” LOL…didn’t know I even could scream that loud.

Anyway, the prospect of watching a house burn down brought the neighbors out, which scared our boy off. They watched him lam out of there on a bicycle.

That’s the neighborhood I’m planning to move back into. On the other hand, the mayor lives there now. That would explain the improved police presence. The city has long been anxious to gentrify that area, and these days people with lots of money have moved in. So…times may have changed in Encanto.

Because of the area’s exceptional charm (it’s actually the only charming district in the entire Valley—otherwise, all the housing is ticky-tacky sprawl, except for the huge and hugely expensive 1950s ranch houses of North Central), prices ran up very fast and stayed up, long before the Bubble. In 1968, three months after we moved into our very beautiful Santa Barbara-style house, a Realtor came to my door and offered $100,000 for it. We had just paid $33,000. Twenty years later, after I Ieft the marriage, I considered moving back into the area, but by then prices were utterly out of the question.

No more. The bust has brought prices for some very sweet little places back down under $400,000. If I can get three and a quarter for mine, I probably can afford as much as $370,000.

Right now an exceptionally pretty small house, shown above, is on the market for $365,000; probably the price can be negotiated down. It’s pretty tiny—1,488 square feet, compared to the 1,860 in my present hovel—but it has three (minuscule) bedrooms, an office, and, a valuable rarity in that neighborhood, an actual garage with a garage door! And a pool, freshly replastered. The roof looks new. The house has a new HVAC system…very big, indeed. The kitchen has been remodeled; the distressed owners left a restaurant-style gas stove and a big, brand-new refrigerator. Strangely, they built an outdoor fireplace on the far side of the pool, in a space too small for outdoor furniture; but it’s atmospheric, I suppose.

Three hundred sixty-five grand is cheap for that area. That’s $245 a square foot. Just down the road, on the street where our babysitters used to live, someone is trying to get $850,000 for this little manse: at 2,520 square feet, that comes to $337.30 a square foot. Now I will say, it’s a lot more elegant inside and out; it has a huge, fancified kitchen, the most stylish of all possible swimming pools, and a large, swell bathroom with a whirlpool tub. And no place to park your car. One extracts 2,520 feet from those places by converting the garage into a “guest house” (read “impossible to air-condition studio”).

Another place around the corner from where we used to live is on the market for $525,000. The seller boasts that the taxes are $1,780, significantly less than I’m paying on a house worth something around $300,000. Cute little fellow, isn’t it? It has a nice big kitchen, an office with handsome built-ins, big bright rooms, and the original tiling in the bathrooms, very attractive. At $228.25 a square foot, you get 2,300 allegedly livable square feet, again because the garage has been converted and you have no place to park your car. Understand, there’s no neighborhood in Phoenix where you can safely leave your car outside, and this particular high-crime area is not a place where you would want to leave your car sitting en plein air all night long. One of our neighbors popped out of her home one morning, jumped in her car to go to work, started to back out the driveway, and, turning around to watch where she was steering, found a derelict sleeping in the back seat. When she got her husband to evict the uninvited tenant, the man was indignant to have been awakened at such a ridiculously early hour.

The house I saw where I stopped to talk with the workmen was on the market for $270,000, having failed to sell at auction a week or so ago. The reason for that, I expect, is that it backs onto the commercial strip facing McDowell, a busy and loud main drag, so that the view from the backyard is the backside of some aged, run-down commercial buildings and their gigantic garbage bins. Needless to say, few people are willing to buy a fixer-upper of a repo for anything like what the bank wants to get for that thing. At any rate, while we were chatting I noticed a pile of broken car window glass in the street. The crew’s super said the car had been broken into while they were off at lunch. So: a garage is a nonnegotiable, as far as I’m concerned.

All these nervous-making issues notwithstanding, the area has many things to recommend it:

  • An amazing esprit de corps exists among the neighbors. People live there because they love the old houses and they love living in the central part of the city. They’re vital, young, and generally quite friendly. When we lived there, we knew and socialized with neighbors for three blocks around; in my present house, I haven’t exchanged more than 200 words with any of the neighbors except for La Maya and a lady down the street who has a dog about Cassie’s size.
  • The neighbors keep the houses up. Every yard is perfectly groomed. No one looks out her window to see anything like Dave’s Used Car Lot, Marina, and Weed Arboretum.
  • It is a lot closer to the Great Desert University than where I’m living. I could get to work in ten minutes flat.
  • The city has fostered a midtown cultural and arts district. The neighborhood is within walking distance of the main city library and two vibrant museums.
  • The train will go right up Central Avenue, four blocks from the coveted house. It will carry riders downtown and let them off within walking distance of the theater district, making it possible to enjoy plays and music without having to pay $10 or $15 to park your car for a couple of hours. There’s a baseball stadium downtown, too, for those who enjoy athletic events and can afford to watch them.
  • My friend VickyC lives in the general area.
  • Once the bust is over, property values can go nowhere but up.
  • Taxes are kept low (although nothing can stop the city and county from rescinding the special tax district).
  • It’s within walking distance of Phoenix College, where in my dotage I undoubtedly can pick up some classes to teach, to the tune of a couple thousand bucks a semester. This would be an easy way to pick up some pin money. Since the college has a writing program, I’m sure I can get hired to teach something less torturous than freshman comp.

The other possibility is to move to Sun City.

The biggest advantage of Sun City is price: it is extremely cheap to live out there. SDXB’s taxes are half of what I pay, and when he moved his homeowner’s and car insurance dropped to a third of what he was paying here. It also is very quiet and relatively safe—the crime rate is low, and since the notorious Sheriff Joe Arpaio knows that elderly right-wingers (which describes most of the populace) will keep him in office, he provides prompt and effective police coverage. The houses are built for old folks: many are intelligently designed, and they have lots of storage. Most have double garages. There are two big hospitals and several life-care communities, amenities one needs to think about as one ages.

For $300,000, for example, you can buy this place. Truth to tell, it’s a better house than anything in the price range in Encanto. It’s bigger, it’s newer, it’s in a safer area, it has an updated kitchen and interior, and it backs onto a golf course. Similar houses can be had for lots less: most of the sellers are either old folks who have been carted off to a nursing home or out-of-state heirs, both sets that fall into the “distressed” category. Houses are not selling in Sun City, with the result that every second shack is on the market. For $290,000, I could buy a place on a fake lake, with its own private dock.

And lo and behold, here’s a house with a pool, right on the golf course, with a kitchen best described as vast: it appears to be SDXB’s model, which is a nice house. It’s on the market for $259,900. I expect I could stand to live in this place.

So…why would I even consider spending $65,000 or $100,000 more to live in a smaller house in the noisy, crime-ridden heart of a big city?

Why, indeed?

Well, for starters, because it is Sun City.

  • It’s a ghetto for the elderly. I’m a big-city girl. If I’m going to live in a small town, I will move to a real small town, not a “planned community” that plans out the sound of children playing.
  • My politics lean to the left. Most elders in this part of the country lean to the right. Chances of finding sympatico friends are almost nil.
  • Sun City is full of couples. It’s difficult enough to make new friends when you’re old. But when you’re a single old person in a culture where people don’t care to have a fifth wheel along, it’s almost impossible.
  • Watching old movies does not strike me as a cultural event.
  • I can’t think of anything more depressing than watching the few friends I would manage to find grow more and more decrepit. While I enjoy friends my age, I also crave the acquaintance of younger people.
  • It’s way, way too far away from the university. If I can, I intend to keep my job another two to seven years. I wouldn’t want to make that commute every day for two weeks, much less for seven years!
  • My son hates it and has said he will not drive out there to see me.
  • The ‘burbs have moved west and surrounded the Sun Cities. As a result, the entire area is crowded, hectic, and crazy-making.
  • The Sun Cities themselves are’burbs: vast tracts of almost identical houses turned out of a limited number of cookie-cutter molds. They are ugly, dreary, and monotonous.
  • When you use the term “quiet” about Sun City, you mean the silence of the mausoleum.

So, while I’d love to turn a $40,000 profit on the sale of my house, I don’t think I’d like the trade-off. A smaller house in the central city would be less work for me to take care of and, with the taxes controlled and fewer square feet to air-condition, would cost less to operate. While I wouldn’t come away with the extra money I need to pad my retirement savings, expenses at least might be manageable.

It’s worth looking into.

Why there is no cross-over point

For most of us, the goal in building wealth is to reach the “crossover point,” where passive income from investments equals the amount you need to live on. The sooner the better: early crossover point = early retirement.

It’s times like these, though, that give me pause about that idea. To retire with little risk of a gigantic cut in living standards, you would need to have so much money invested that, unless you’re an entrepreneurial wizard, it would take an entire lifetime to accumulate it. Most of us will never manage to do so. The amount needed to support you reliably through an extended retirement would have to far exceed the actual crossover point.

Why? Two reasons:

  1. Inflation
  2. The vagaries of the stock market

Either of these can destroy the purchasing power of your investments; since high inflation and unstable market conditions often occur together, you can expect that sometime during your retirement, you’ll watch both of them sit down side by side to the dinner table that is your life savings.

That’s the case right now. At the end of March, my total investments came to about $583,000. Today, with the belated 403b statements from TIAA-CREF and Fidelity finally in hand, the total comes to $551,700, a loss of $31,300. Meanwhile, costs for food and gasoline are pushing my daily expenses past my budget.

What Dependence on Passive Income Would Mean to Me

If I tried to live on 4% of savings (the amount recommended as a safe drawdown) plus Social Security, I would experience a 35% pay cut. Not that it would matter, because I couldn’t live on 4% of what I have in savings anyway. Four percent of $583,000, the pre-stock fall amount, is a grand $23,320. Add my projected Social Security payments of $16,608 to that, and you get a munificent income of $39,928: a $22,072 cut in pay at retirement.

I can’t live on that. I’m barely living on what I earn.

In fact, as we speak my week-to-week budget is again in the red and about to go deeper therein: this afternoon the pool repair guy will clip me for $105, leaving me $4 in the hole against a budget supposed to last until the sixth. Today is the first. Thursday I have to go to the doctor; that will be a $20 copay, putting me $24 in the hole. If I have to buy prescription meds, add another $20 to that: $44 in the red. That means that even if I buy no food, no dog food, no gasoline, no toiletries, no cleaning goods-if I buy absolutely nothing-I will start next week $44 short. And this month I’ve had no extraordinary expenses, unless you call this afternoon’s overdue routine pool maintenance extraordinary.

I can’t let the pool ride until next week, because the pump and filter have slowed to the point where they’re not driving the system efficiently enough to keep the pool clean in an Arizona summer’s extreme weather conditions. Letting your pool go green is a violation of the law; the county flies over the city in helicopters, checking pools from the air. The fine for neglecting the pool would demolish my budget permanently.

The costs of gasoline and food are now so high that my budget will not cover all my routine needs. That’s while I’m earning $22,000 more than I will see during retirement, when about two-thirds of my income will be based on an optimistic projection of investment income.

These needs will never change: I always will have to eat, I always will have to maintain the dwelling I occupy, I always will have to transport myself around the city to purchase necessities.

You might say I simply haven’t reached my crossover point. I would reply that for most people, there is no crossover point.

What This Means for All of Us

The longer you work, the more you appear to earn: inflation alone pushes your salary higher through cost of living increases, and if you have a decent employer, you get occasional merit increases. But the more you earn, the more it takes to live. Even though my salary is high in absolute terms (the median income for a four-person family), the truth is that relative to the cost of living, it is the same or even lower than it was a year ago. So, probably, is yours.

Lower, indeed: since May 2007, when I started the weekly budget plan, I was consistently in the black until the March/April 2008 cycle. Every budget cycle ended in the black overall…until inflation ticked up and income stayed static. Since April, I’ve been in the red almost every week. Because state employees received neither COLAs nor merit increases this year, costs have risen but my income has stayed static. Remember, if you retire when you reach the crossover point, income always stays static.

Let’s imagine, for example, if I were retired and would never see another merit pay increase; if the only increase I would see would be an occasional cost of living increase in Social Security, not necessarily granted every year; if every time the stock market dropped, I saw a cut in pay. Add to that the ever-increasing cost of Medicare.

If I work until I’m 66 and we grant that I need about as much as I’m earning now to stay where I’m living and not be forced to move someplace cheaper, then the crossover point that would allow me to remain in my paid-off home would require income-generating savings of $1,134,800, and that amount would have to increase annually to keep up with inflation! In other words, the recommended 4% drawdown from life savings of over a million dollars combined with Social Security would not suffice to provide a person with enough income to live in my current modest (some would say “ascetic”), debt-free style.

Thus I would argue that unless you are part of a married couple, both of you are earning in the six figures, and you live frugally, stay out of debt, and save exuberantly, you are unlikely ever to see a real crossover point at which your passive income will cover your expenses for the rest of your life. This applies to most people who think of themselves as members of the middle class: teachers, midlevel administrators, shopkeepers, sales staff, police officers, fire fighters, most people in the trades, most government employees, just about anyone who inhabits a cube…virtually all of us.

What Can Be Done

If you are a young person, get out of debt, stay out of debt, and save every penny you can. Max out your employment-related savings plan, fully fund a Roth IRA every year, and put everything else you can into non-tax-deferred savings.

Angle to get yourself into a decently paid job that’s not too obnoxious, so that you can contemplate working until death do you part from your employer without wincing at the very thought of it.

Why not simply plan to work until you drop dead and just spend everything you earn? Because few of us will stay healthy long enough to work until we die. Because we live in a culture that abhors age and discriminates against the elderly, and so few of us are likely to be able to hold a decent job until we die. Even though you probably will need to work well into old age, you had better have enough savings to live on between the time you can no longer land and hold a job and the time you shuffle off this mortal coil.

If you are my age (born during the Cretaceous Period): do not even think about retiring unless you have well over a million dollars per person to generate passive income.

I’m now planning to work until I’m 70 and to bank after-tax Social Security income starting at 66 1/2, when I’m eligible for the full amount. If I can hold my job that long, I can maintain my lifestyle for a while longer. If I die before then, at least I won’t have had to choose between going hungry or moving to cheaper housing in a ghetto for the elderly. If I live that long, the number of years remaining to me will be few enough that a larger draw-down probably won’t consume my entire savings before I die-and maybe I can even stay in my home.

2 Comments left on iWeb site:


The crossover point from YMYL is based on absolute certainty of income: the book recommended Treasury Bonds, which at the time paid a guaranteed 8-10%.Those days are long gone.

YMYL also said not to be afraid of inflation: I am tracking this right now.

Tuesday, July 1, 2008 – 10:31 A


IMHO not to fear inflation is to wear blinders.

My father thought he had plenty to carry him and my mother through a long and comfortable retirement. Then came the 1970s and double-digit inflation. His formerly generous savings, which indeed were invested conservatively, bought him a poverty-level lifestyle.

Tuesday, July 1, 2008 – 12:51 P