Monday, February 25, 2019

Cash is a Stranger to Me

I was recently in the city to have lunch with some friends, and I think it may have been the first time I ever went to a credit-card-only restaurant. There was some confusion as we tried to figure out how to split the bill with one person wanting to chip in cash and two people being willing to use cards, but then not having enough small change to appropriately share the cash. I suppose we could have asked the server to just put different amounts on each card but that seemed even more complicated!
Later that afternoon, I stopped in a cafe to grab an iced coffee. (It was one of those weird hot days and I was getting rather parched walking back to the train station.) Again, no cash was accepted. (I was also a bit shocked that a small iced coffee cost $4.75. I think I am already becoming unaccustomed to the ways of NYC. But it was very good coffee.)

Whether or not I'm going to places that don't accept cash, I find that I almost never spend it anymore. Every couple of months, I get my hair cut, and pay for that in cash. Once in a while, Sweetie and I will go to the local pizza place for lunch and we'll pay cash for a couple of slices. And occasionally there will be some other little thing. It used to be that I might buy a copy of a newspaper. But I get home delivery of the New York Times 4 days a week, and now I read the Wall Street Journal at the library. Even parking meters always seem to take credit cards now.

The Times just published an article about the backlash against this phenomenon: This Legislation Could Force Stores to Take Your Cash. I can see both sides of the issue. People argue that going cashless shuts out poorer people, who are unlikely to have access to credit and bank accounts. But businesses like the safety and administrative ease, and governments like having a data trail to prevent tax evasion and corruption.

I hope paper money doesn't disappear completely-- like postage stamps, paper bills are almost works of art, and I've always like collecting unusual ones from my travels. But I can't say I'll be using it very actively myself.


Monday, February 18, 2019

My Quarterly Blog Update: What's Up with Mom

That seems to be about the frequency I'm posting with lately! I really appreciate the comments from longtime readers and am glad to know you are still checking in! And it is good to hear from you about how you are doing in your own pursuits of financial stability and independence.

T'Pol, thanks for asking after my Mom. She is actually doing quite well. I invested the money in her two trusts (one revocable trust that is all hers, and one irrevocable trust, where she only gets the income but can't touch the principal) in Vanguard funds and they have been doing well enough to generate over $13,000 of income for my mom in 2018. She has been living on what she still gets from my father's pension, and her social security payments. In 2016 and 2017, she asked me for $5000 from the trust income to pay for other expenses. One year, that included my grandmother's funeral. The other year, she was moving to a new apartment. In 2018, she ended up asking me for two $5000 checks, as she had some expensive dental work. I was a little worried at first that she needed that much more-- it came at a point where she was fantasizing about moving to a larger and much more expensive apartment, and I sent her a slightly stern email querying the amount to make sure she wasn't somehow going behind my back to rent the new apartment. This was in December, and I explained to her that things were generally going well with the trusts but that the markets had just plunged and that we should be careful. I had another conversation with her where I reminded her how stressed out she had been when she was drowning in credit card debt, and that we had things under control now.
I worry that my mom doesn't understand the concept of building up a cushion for emergencies. I'm legally required to report to her on the trusts every year, and I've come up with a nice little template where I paste in a lot of charts and numbers from Vanguard showing what the assets are, how they did, and how much is being paid to her. (I do this by transferring the income from the irrevocable trust into the checking account for the revocable trust, which I also control. When my mom needs money, I write a check from the revocable trust made out to her personally.) My mom always just seems to glaze over on the overall details of the investments and just wants to know "How much did we make? How much more do we have than when we started?" Right now, the value of the trust accounts is over $130,000 more than when we started in 2015 (with about $450,000), and I worry that a number like $130,000 just makes my mom think "woo-hoo, we won the lottery!" So I keep reminding her that the funds go up and down, and that the money has to stretch itself out over quite a few more years, and that the more money we have invested, the more income we make, etc etc.
Some of that sinks in, some doesn't. Even though she is basically spending all her income except for a few thousand dollars of the trust income some years, she was on the verge of signing herself up for an apartment that would have cost her about $900 more a month! She said "oh, I'll just cut back on my budget somewhere," but she doesn't have any big areas she can realistically cut.

So overall, I would say things are pretty good, and we haven't had any fights about money, which is the best thing of all. But I'm always wary of what could go wrong! We are lucky to have the resources we do have, and as long as we are careful with them, everything will be fine.

And I do have more stories to tell, and hope to get around to posting again soon!

Monday, November 26, 2018

Embarrassment

I should be proud of my financial situation, right? I've worked hard, saved and invested, and reaped the benefits. But one thing I left out of my post the other day about some of my friends who remind me how lucky I am, is that I can't help feeling a little awkward or embarrassed sometimes when I talk about money matters with them. For all that I can empathize with their struggles, my own life is totally different. I don't have their fears and worries right now. And I wonder if they resent my situation or feel envious. I've realized that I share a lot less about my life on social media now because I worry that I'll sound like I'm bragging or rubbing people's noses in my good fortune. Perhaps that is also why my writing on this site has lagged so much in the last few years (though I have no excuse for losing momentum several years ago, well before I retired!). It's one thing to be striving and working and in the fray of trying to get ahead. But once you just stop and say "I have enough money and I'm just going to chill out for a while" it's not very relatable!

On this site, I can be quite open about things-- that's always been the whole point. And in "real life" I have always tried to be realistic about finances, if not totally transparent. Because our culture can be so caught up in materialism and keeping up appearances, I felt like I was doing a civic duty in a way whenever I'd say "I can't afford that" or "I've been saving a lot of my paycheck so I can afford that" or "I've been maxing out my 401k since a very early age." So many people fall into cliches when talking about money, somehow reinforcing the idea that it is okay and normal to be constantly spending money on nice things and having lots of debt-- I don't want to be part of that. But sometimes it's easier to tell little white lies about one's situation. I've met a number of people in our new community that have asked if I'm retired, with a sort of doubtful look, like "I don't want to insult you by implying you are older than you look but you don't seem to be working and you're not at home with children and I also don't want to insult you by asking if you've been laid off..." In a couple of these conversations I've ended up downplaying my financial freedom and talking more about being "between jobs" or "trying to change careers" or "doing some consulting projects" or "hoping to start a new job soon but it's dependent on funding..." The latter is basically true, but all of these things are easier to say than "well, I don't really have to work right now and yeah, I've basically retired 20 years before most people do, but no, it's not because I've inherited great wealth, I'm just a normal person who was fortunate enough to have parents who could support most of her education and give her a happy childhood while imbuing her with a lifelong penchant for saving money, and I've never been afraid to invest..." That's all kind of a mouthful, a bit TMI!

Ultimately, I can't control what people who don't know me think about me. The truth is too long a story. But I wish there was a way to convey it. Some of my situation is due to luck/privilege, but a lot of it is due to controllable factors. I suppose what would embarrass me most is to be seen as someone who has benefited from pure luck and doesn't "deserve it." But I feel proud if I can serve as an example of someone who has made good choices-- choices that anyone can make.

Monday, November 19, 2018

Tech Check

Back in my Palm Pilot days, I was such a junkie for the newest and latest device, it became a pretty significant part of my spending, even if I did lessen the blow by selling unwanted devices on eBay before they lost too much value. But nowadays, my relationship to tech toys is quite different-- I always seem to be holding on to whatever I have, and buying a new one only when it is absolutely necessary. Not just because I want to save money, but because the new things somehow don't seem as nice as the old ones. For instance:

In 2015, I posted about my decision-making process for buying a new iPhone. Seeing that post made me realize that I've now been using my phone for over 3 years, so the value I've gotten out of paying the full price up front for it is even better. It still works fine and I'm planning to hold on to it as long as I can. I don't like the even larger size of the iPhone X and newer models, so I might have to keep an eye on whether any future models will be produced in the size of the 6/7/8, and at least upgrade to an 8 before that size goes away.

My other electronic tool is a MacBook Air. I bought it in 2012. It pretty much works fine, at least when it's plugged in, but the battery tends to conk out on me when I least expect it, going from 35% or 40% to 0% without warning. They've just announced a new MacBook Air, so that's starting to make me think about an upgrade. But maybe I could just replace the battery on my current laptop? Would that be a good investment at this point? One other factor I have to consider is that I have the prospect of some work in the coming year. If I'm using my computer for work, it would make sense to get a new one, to have something more reliable. And I'd be able to deduct that expense when I do my taxes. I'm not totally sure if this job will pan out, so I will hold off on any purchase for now and see how things go.

One other technology-related purchase: I finally upgraded my Quicken software. I've ranted many times on this blog about how Quicken for Mac upgrades have SUCKED for years! I was still using Quicken for Mac 2007 because none of the upgrades seemed like an improvement. But a few weeks ago, it finally started acting up and my file got corrupted. I was able to salvage enough from backups to import most of my data into the new Quicken for Mac 2018, though I lost a few months worth of net worth data. I was able to export some snapshots into Excel so I have the last few years of income/expenses by category, and net worth as of year end. And eventually I will have enough data in the new Quicken for year on year comparisons to be valid again. The new software actually seems to do most of what I want, but I'm still pissed off at Quicken. They've gone to a subscription model, so I'll have to pay for it again on a regular basis instead of being able to stay with the same version for years. Oh well-- I guess I had a good run there with the 2007 version!

I just don't find myself tempted by any other tech toys right now. The Alexa and other such devices hold zero interest for me. I might get Sweetie an Apple TV for Christmas. Someday I'd enjoy having a really nice stereo system, now that we live in a house where loud music won't bother any neighbors. But otherwise the kind of tech that's on my mind these days is a lighter snow shovel or battery-warmed mittens!

Tuesday, November 13, 2018

Life Goes On...

I continue to enjoy my leisure as a "retiree." I'm healthy, I feel relaxed, I go to the gym a lot, I read a lot of books. I continue to feel incredibly lucky, especially when I hear about other people's struggles with money. Such as...

A friend who I don't think I have written about here before, so I'll call her Sally. She's been divorced for many years, and for almost that entire time, she's been chasing her ex-husband to try to get him to pay child support. She has often been working multiple jobs and is willing to do pretty much anything to make money, however menial or physically demanding. Her ex-husband works on and off, mostly for cash. He hides income via his girlfriend. He complains that it's "not worth it" to look for a job sometimes. He may or may not be using drugs at times. He owes her over $50,000. Meanwhile their two kids are in college and racking up huge student loans, even while attending state schools. Sally has a full time job with benefits now, which has helped her a lot, but they have crappy health insurance, so every time she or her kids have to go to the doctor, she is trying to get the doctors to not order too many tests, and questioning every prescription to see if they can stretch it out to a lower dosage. With regard to one medication, her doctor said "It costs you $900? I had no idea!" I guess it's a good thing to make sure doctors don't just over-prescribe and over-test, but I think it is better for medical decisions to be made on the basis of what a medical professional thinks is best, vs. what a consumer thinks they can afford. I just hope Sally will eventually get to a point where she doesn't have to worry so much about money.

And then there's Mortimer, who has appeared in my posts from time to time. Mortimer has been unemployed for almost 2 years now. His COBRA ran out and he's on Medicaid. He's kind of tapped out the friends who were able to help him find jobs in the past. I think he feels a bit paralyzed when it comes to next steps-- he's taken some classes to develop new skills, but I'm not sure if he'll be able to parlay them into a new career. Mortimer used to make around $75-100k, I think, and I think he is struggling with the idea of starting over at a much lower level in his late 50s.

Another friend, let's call her Tory, who has been dealing with the aftermath of divorce-- not her own, but her husband's, who she married relatively late in life. I'll call him Todd. He pays a large amount of alimony to his ex-wife, and unlike Sally's ex, he pays it regularly and on time. In his late 50s, his finances hadn't totally recovered from the divorce settlement, and then he lost his job. He set himself up to do some consulting but wasn't able to make much money. Then, fortunately, he got another job. But then Tory lost her job. And then Todd lost his new job. Todd is by now in his early 60s and Tory is in her late 50s. They have a 10 year old daughter. (Tory didn't mention it but I know it took her a long time to get pregnant so that was probably another big expense.) They lived in an upscale suburb of NYC, and after a couple of years with no success at finding new jobs, they realized they weren't going to be able to stretch out their assets long enough. So they sold their house and moved to the midwest to start a new, cheaper life. Just to kick them in the shins a little more, they ended up taking a loss on their house sale, since they'd bought it at the top of the market. Tory is happier now and seems optimistic, but I can't help feeling like there is an undercurrent of disappointment. For a few years, everything was falling into place for her, with a new husband, a new baby, a career and a nice lifestyle, and then she had to give it all up and move far away from family and friends. A tough choice.

I'm glad I have friends who are open about what is going on in their lives financially. I don't really know all the details of their savings and income and expenses, but they are honest about their difficulties and what they are doing to try to survive, rather than just pretending everything is fine. It's a good reality check.

Friday, July 20, 2018

A Millionaire Can Get Medicaid

So here’s an interesting development: I just found out I qualify for Medicaid, at least for the moment.

Now before you jump all over me saying I’m a greedy conniving cheat who shouldn’t be leeching services from the government, I will just say that it is very likely that I will never actually cost the government any money for using Medicaid. I’ll explain below. But I do think this is a great example of some of the perversity built into our current healthcare system.

I currently pay over $750 a month for COBRA coverage from my former job but in a few months, it will run out and I’ll have to buy my own insurance. I’ve been researching the plans offered through NY State’s marketplace under the ACA, otherwise known as Obamacare. I was going back and forth about what kind of plan to get and which insurance company to choose, but then realized that I shouldn’t be agonizing over it for just the last month of 2018— I could just pick the cheapest Bronze plan for that month since it was unlikely that I’d use medical care that month other than in an emergency, and then I could wait until the 2019 open enrollment period to decide on a plan for next year.

 I decided to see what the application process was like— I didn’t think I’d finalize and submit it right away, but I wanted to see what info was needed. The process is actually pretty straightforward, though if you aren’t sure what all the lines on your tax return mean, you might want to get some help. You basically have to give identifying information to be sure you qualify, and then income and deduction estimates for the year of coverage to see if you are eligible for any subsidies.

 The system is linked into NY State government data, so it knew I wasn’t earning any wages (via a paycheck with withholding) this year. For my estimated income for 2018, I just used the business income, interest, dividend and capital gains numbers from my 2017 tax return. (The business income is a little trickle from blogging, plus a consulting project I did last year, which is unlikely to be repeated this year.) They then ask about certain deductions that affect your adjusted gross income— again, I pulled this information from my 2017 tax return and extrapolated for what they would be in 2018. One of those deductions is what you pay for health insurance premiums if you are self- (or un-) employed.

 So here’s the thing— my taxable income this year is only likely to be around $20,000. When you subtract from that what I’ll pay in 2018 for my health insurance, which is over $8,000, boom, suddenly I’m at poverty level. Assets are not taken into consideration at all. It is also worth pointing out that the dividends and capital gains produced by my 401k and Roth IRA accounts are not taxable, so while I factor those in as “income” in my planning for the future, they don’t affect my eligibility for Medicaid. While I hadn’t originally planned to finalize my application, I sort of inadvertently did: a screen popped up saying I qualified for Medicaid, and that it would be effective as of July 1! I was very confused by this so I called the helpline and talked the whole thing through with someone to see what it would mean.

 Since I will still be paying for my COBRA coverage through November, any medical costs I have will still be covered by that primary insurance, but apparently Medicaid will become secondary coverage, if the provider I use accepts Medicaid. (That's a big if-- one of my doctors stopped being in-network for any insurance companies, so I’m sure she won’t accept Medicaid.) I’ll probably get a physical and maybe see another doctor or two before my COBRA runs out, but I’m guessing it may not be anything that Medicaid would cover.  There is also a slight possibility that I’ll get some work later this year— in that case I’ll have to go back into the application and update my projected income, and presumably that would put me back in the position of buying a bronze plan, with maybe a small subsidy towards the premium for 2018. And in 2019, without all those COBRA payments, I’ll probably no longer be eligible for Medicaid and will just get a subsidy for purchasing a plan. And depending on my actual income, I may end up paying all or some of the subsidy back when I do my 2019 taxes.

 I really wonder how many people fall into a situation like mine. I didn’t do anything to “game the system.” I just happen to benefit from a quirk in how the laws are currently designed (and yes, they should fix that quirk). If I had more investible assets, my dividends and capital gains would probably be high enough to disqualify me. And if I wasn’t paying for my platinum level COBRA, my adjusted gross income would be too high for me to qualify-- that, to me, is the most bizarre detail. But for the next couple of months at least, I am a millionaire who qualifies for Medicaid.

Wednesday, March 07, 2018

My Early Retirement Calculations

A commenter on the previous post asked if I'd share the calculations that made me feel confident about retiring early. I'll give you a simplified version!

There are a few different ways that people tend to look at retirement readiness. One of the simplest is the 4% rule. The idea is that if you can live on spending only 4% of your savings each year, you don't need to add to those savings, as investment gains should generally outpace what you are withdrawing. This is also sometimes expressed as a 25X rule-- multiply your annual spending by 25 to see how it compares to your savings.

My total net worth at the point of deciding to quit my job was somewhere around $1.2 million. (It has since been between $1.3 and $1.4 million due to stock market gains.) 4% of $1.2 million is $48,000. My lifestyle while living in NYC was costing me more than that, but by leaving the city, it was possible to realistically budget for a lifestyle where my half would be less than $48,000. And that doesn't include Sweetie's net worth, which is a little over $2 million (not counting the equity in the house we just bought and paid for in cash, as well as some money set aside for renovations). When taking both of us into account, 4% of $3.2 million is $128,000 and our combined yearly budget is well under that. (My current calculations have it as around $92,000 a year, including a generous travel allowance. We'll see how it plays out in reality as we adjust to our new life in the country!)

This method of calculation doesn't factor in Social Security benefits or other retirement income. My Social Security will end up being less than what they project because they don't take into account that I won't continue to make what I was making last year. (It will be interesting to see if the projections will update in the next year or two when my income goes way down.) Sweetie will get Social Security, as well as a defined benefit pension starting in about 7 years. The pension, which appears to be well-funded and safely on track to be able to pay out in full, will be additional income of about $87,000 a year. That obviously makes a HUGE difference in our projections for the future.

I also used the retirement calculator that is part of the Fidelity website (not sure if it's publicly accessible or if you have to have an account)-- it is a fairly complex tool that allows you to input all sorts of info for yourself and a partner, including life expectancy, assets on hand, sources of income, one-time events, budgeted retirement spending, and other goals like paying for college. It then uses a Monte Carlo simulation to model how things will play out under different market conditions, and projects your savings and spending until your "end of plan," which is their delicate way of saying "when you drop dead." You can see 3 versions of the results-- one assuming a "significantly below average" market, one "below average," and one "average." I plugged all our numbers into this, assuming we'd both live til 95, inflating our expenses (by about 50% over what they currently are budgeted at) to allow for plenty of fun and expensive healthcare, and keeping expectations of any future inflow from earnings or inheritance to an absolute minimum. When really pushing this to the absolute worst case scenario, it says I might run out of money in my early 90s after Sweetie is dead. But even by just changing the parameters to "below average" market instead of "significantly below" brings us back to having over $2 million left over after both of us are dead.

No prediction is 100% confident, and a lot of things could happen that would change these calculations, so of course I still have my moments of worrying about whether it will all work out as planned. But we're also allowing for so much leeway in our budgeting that there will be room for us to cut back if needed. And we'll naturally cut back on some things like travel as we age. The biggest worry is that we'll decide we hate living in the country and want to go back to NYC-- we wouldn't be able to afford to live as we did before, but we could most likely make it work if we really wanted to. I feel incredibly fortunate to have this kind of freedom-- Sweetie and I have worked hard and made good decisions, but I also know that pure luck is a lot of what separates us from the half of all Americans who say they can't come up with $400 in an emergency, let alone retire early.