Get off the ledge: financial planning in a crisis

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Very surprised dogIt just won’t do any good—no matter what action you can think of, it’s already too late. You couldn’t see it coming, nor could you act fast enough to stop anything. As Dorothy Parker said, you may as well live.

In my more-than-a-decade of telling people they need an emergency fund, never did I think everyone would need an emergency fund at the same time. But such are the times we are living in. And if you have that emergency fund, you now have the freedom to pat yourself on the back and do absolutely nothing.  The working person’s emergency fund should carry you through an interruption in pay checks, even for a significant amount of time. Since you’re going to be at home, you probably won’t be putting a lot of discretionary money into restaurants, air travel, etc. No, this isn’t the happiest news, but adaptability is one of the secrets to a satisfied life.

The retired person’s emergency fund should be larger—2 years. Call it the bucket strategy if you wish, but that cash should carry you into a recovery. Maybe the market won’t be back to where it was, but it’s extremely likely that it will be better than it’s been for the last few weeks. Sure, some things that are passed up never come back—especially services. We might schedule them again, but the missed time is probably gone. On the other hand, no one’s shoes, or tv, or car lasts forever. Eventually consumer demand will swing back up.

I’ve been invested for at least 40 years now, and I’ve seen numerous times where pundits thought the world was coming to an end. Other things I’ve heard way more than once:

  • This time it’s different (Only in the specific details, not in the fact of a downturn or reaction to it)
  • I want to sell everything, wait for the market to bottom, then jump back in (How will you know?)
  • It may never come back (Well, then prices will go down since we’re all in the same boat)
  • I need a much more conservative portfolio (too late on that one)

And in about a year or two…

  • Gosh, I wish I would have bought when the market was down
  • I stayed in cash but then everything took off and I missed it

When the market is high, no one wants to take profits because things could go higher. When it’s down, no one wants to buy because things could go lower. So, it’s never a good time.

No matter what you regret, you can never redo the past. All you can do is learn from it, with honest assessment and perhaps revision. Maybe you’d forgotten what it felt like in 2007-2009, when the S&P dropped to 676—it closed at 2,386 today). Maybe you were too young then to have any money. Maybe you’ve found out that in fact you are far more risk averse than you expected, and when things get boring again, you may want to adjust your portfolio. In the event that you are indeed flush with cash, and can take the risk, there are bargains to be had.

The correct portfolio has the correct balance FOR YOU. If you find you are having heart palpitations, either it wasn’t right for you or you need to get off the screens and go for a walk. Your dog is waiting for you.

 

 

You Need a Union

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Pete Seeger

Click on the picture to hear Pete Seeger.

In perhaps the best era for the American worker, unions may have reached their peak power during the Harry Truman era. That’s about the same time the drumbeat against them began. I’m not sure how much of this was true, or how much of it was partially true but encouraged and enhanced by corporate PR that has always wanted to eliminate or disregard assertions of worker power. But let’s look at why you probably haven’t wanted to be associated with a union.

  1. They’re corrupt. There have certainly been headline incidents of union heads enriching themselves and pilfering funds. Right up there with corporate heads and government officials enriching themselves and pilfering funds. A more educated and involved membership could help to watch over such fancy accounting.
  2. They’re only for working class grunts. Yeah, that’s what they’d like you to believe. Because if you’re white collar, maybe telling you you’re elite will allow employers to compel you to work without a lunch hour, work at night, work on the weekends…work at their beck and call, because, well, you’re on a salary.
  3. They’re adversarial and only care about the welfare of their members, not the rest of society. This has been going on at least since World War II. Employees being treated fairly don’t have to be adversaries, and member ship groups (including lobbying groups, non-government organizations, and non-profit advocacy organizations…and members of Congress) exist to be strong advocates for their constituents.
  4. They’re racists. Groups that feel threatened will always try to exclude others who might be threatening, especially when there’s a small pie to be doled out. On the other hand, when unions have substantial minority membership, then they’re “only” for that minority. I don’t agree with either stance, and think that it’s in the self-interest of unions to have a large, diverse, and active membership.
  5. They’re selfish in their negotiations. This complaint mainly seems to be based on envy—unions have been able to negotiate better working hours, better vacations, better health insurance and far better pensions than most workers get—in fact, that’s a reason for them to exist. But the real question should be, why doesn’t every worker get these benefits? I used to think, for example, that teachers got outrageous pensions. Now I question why everyone doesn’t get a livable retirement pension.

If you still hate unions, I invite you to watch two movies and get back to me. The first is Germinal, starring Gerard Depardieu. The second is the newer movie, American Factory.  The reason people eventually turn to unions is because they are so exploited and endangered, with little or no recourse, that their only choice is to risk everything.

Nearly everyone I speak with in the healthcare field could use a union. More and more healthcare is driven by gig work (with no benefits), outrageous productivity requirements (aka a virtual assembly line where the belt is continually speeded up), expectations that you will work through lunch and take more home, and fire-at-will if the professional tries to complain about the impossibility of delivering quality patient care. I’m not as familiar with other industries, but I do hear stories. Gig work is a huge step in screwing the worker. The employer has managed to shed the last vestige of responsibility for the worker—hire and pay only when they can make money off the worker, no overhead in providing facilities or equipment, the worker responsible for providing transportation, no benefits (unemployment, days off, health insurance, disability) and, the first to go, no retirement. Getting rid of pensions (the backbone of the WWII generation’s retirement), was only the first step. But hey, you’re free to work flexible hours, and provide your own home for a work site. And gee, we’ll pay you a little bit more than the going wage, so you’ll get snookered into thinking it’s a better deal. (See my post, here, on calculating that.)

Unions need to find a way to organize workers from different employers, different from the model they’ve used historically. They can call themselves professional associations for all I care, but if they walk like a union, quack like a union, and negotiate like a union, they’re a union. As the strong unions in the Scandinavian countries have demonstrated, unions can be partners in advancing the interests of all concerned, including employers, who can benefit by more satisfied, productive workers.

Oh, and one more suggestion. Go watch Metropolis. You might not think it’s science fiction any more.

Tax stamp

Why your taxes went up

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Many of us are still pondering why we didn’t benefit from the alleged tax cut and worrying about what will happen this year, again. After all, tax brackets went down 3-4% for the first 4 tax brackets. But (and this continues this year) your taxable income most likely went up. Don’t expect that to improve for 2019. At a recent conference I attended, this was much discussed. Why?

You live in a blue state. Clever how that worked, huh? Because in many blue states and urban areas, your property taxes on a middle-class home probably exceeded the $10K cap. Add in your state income tax paid. And don’t forget that mortgage interest you used to itemize. With just these three, there’s a good chance you could exceed the $24K standard deduction (married filing jointly) or $12,000 (single). These increase to $24,400/$12,200 for 2019. Woohoo. But once income tax and property tax are capped at $10K total, your mortgage interest might not put you over the standard deduction.

Your charitable deductions don’t count. If you don’t itemize, you don’t get to take a charitable deduction.

You can’t deduct employee expenses. If you buy supplies, or uniforms (except for teachers), that’s on your dime, now.

You don’t have kids. People with kids saw the tax credit doubled.

For 2019, your medical deductions might not qualify. For 2017 and 2018, you needed medical expenses  greater than 7.5% of your income. For 2019, it goes back up to 10% of adjusted gross.

Changes to alimony. Alimony is no longer deductible to the person who pays, beginning with divorces finalized in 2019. The recipient will no longer be taxed on the alimony, but this is likely to result in lower payments to the recipient (since the payer will be dinged for more).

There’s not a whole lot to be done, except by voting. However, it’s important to remember that lower taxes are not the only consideration—what you get for them is also important. It’s how much spendable income actually ends up in your pocket. If you didn’t have to pay for healthcare, long term care, could look forward to a decent guaranteed income in retirement, and didn’t have to save or pay for  college or vocational training, but had to pay, say, 5% higher taxes, you’d most likely be better off.  It’s the value you get, not just the taxes you pay. I discussed this quite extensively in this post, and what exactly we get compared to other Western Democracies here.