Guest Post: Retirement Stages

I forgot to ask my reader if I could identify, so until the reader self-identifies, I will not put an identity onto this Guest Post/Comment sent to me offline.

Thank you ProfK for your insightful comments and guest post. ProfK blogs at Conversations in Klal.

When people discuss retirement, they are often discussing different things, hence statements like that of one of my friends, "retirement is goyish." The first time I heard of this comment arguing that saving for retirement was unnecessary, I was perplexed/floored. What could possibly be "goyish" about having the money stop working because it is simply impossible or not in the best interest of the client/patient to be in the workplace? What could possibly be goyish about retaining some dignity and not come to rely on others when your expenses exceed your income (which can and does happen even if you continue to work)? What could possibly be "goyish" about leaving the classroom because your heart is no longer there?

Once I put my thinking cap on (dan l'chaf zechut), I realized that my friend has a T.V. view of retirement where retirees cease being productive. Personally, I have no issues with people who have worked for many years, met their obligations, and put their children on their own two feet, taking some of their hard earned money to do things they are interested in doing, be that traveling the world or leaving the world of earning to sit and learn or volunteer. I guess there are always those who will park themselves in front of their TV and speed the aging process. But that doesn't make retirement bad, does it?

In the spirit of full disclosure, I tend to jump straight to "stage 2" as defined by my guest poster because I'm hoping to reach the audience that views retirement as only fun, fun, fun, forgetting that retirement also means expenses that made yeshiva look like a bargain.

From now on, I'm hoping to use "stage 1" or "stage 3" in posts about retirement because I like the demarcation. It is important to remember that one spouse might be in a "stage 1" while the other hits "stage 3" pre-maturely. Or a couple might never enjoy a "stage 1" because they slowed down while they were still working.

Nonetheless, when thinking about retirement, there is much to consider. So, without further ado, my guest poster:

----------------------------------------------------

Just a few thoughts on the posting on retirement that you put up that the article referenced doesn't cover and that might be helpful when you do your commentary later.

Given the age that people live to today talking about retirement is a misnomer--there are at least 2, possibly 3, retirement levels for people over 65, and each level has differing requirements. Level 1 is the "yippee, I no longer have to work all year and can finally do all the things I've put off doing and see all the places I've put off seeing" level. During this time period, generally from immediately post retirement until some time in the late 70s, retirees seem to like to travel, and still pretty much have the energy to do so. People on this level are likely to move away from their home communities, particularly if those communities are in cold weather areas. Trying out new experiences is part of this level. Generally speaking people on this level are still fairly healthy, although some problems may be developing or first show up. Most seniors on this level are still fairly self-mobile, most continuing to drive their own cars. Obviously there are exceptions, but I'm talking about the general run of people in this age range. This level lasts until the mid to late 70s. While there are some who may require assisted living facilities or nursing homes, the majority of those on this level can remain in their own homes.

Level 2 is from the late 70s into about the mid 80s. This level is characterized by a reduction in "energy," with activities slowing down. Many serious health issues can become problematic during this level. In particular, vision and its related ailments starts playing a larger role in the lives of people on this level. People on this level may find themselves needing to be closer to family--and moving to be closer if they are living elsewhere- because they need extra help they didn't need for Level 1. Mobility may become an issue for some on this level--you see a lot of knee and hip replacements as joints wear out and bones break easier. Many on this level no longer drive a car, so getting places can be more difficult. Certain heretofore quite doable household chores take much longer, if they can be done at all. A number of people on this level may find themselves requiring assisted living facilities or nursing homes.

Level 3 does not have a large population of people, although that will change as they are constantly upgrading average life expectancy. People on this level are from the mid 80s to in the 90s. Fully healthy, fully independent people on this level are rare. While some may live by themselves in their own homes, they need assistance with many/most ordinary tasks of living. Short and long term memory problems are common on this level. Any health issues that arise present more of a difficulty as people in this age range have less resistance to such health issues, less ability to fight back. For wont of a better word, people on this level are fragile. On this level living independently becomes the exception rather than the rule. Certainly a large percentage of these people find themselves living with family or living in nursing homes.

From an economic point of view, the monies required differ for each level as expenditures change. Planning for retirement income, therefore, requires people to look at the three levels and see how much will be needed to sustain them on each level. As the article noted, nursing homes are notoriously expensive. If that possibility may exist as you go to Level 2 and Level 3, spending will need to be adjusted in Level 1 to account for this.

. . . . just some thoughts I thought I'd share.

Worth While Read: 5 Biggest Retirement Myths

I've wanted to share some thoughts on the cost of aging for a while now and this Smart Money Magazine article is a good place to start as it mirrors some of my own thoughts on retirement/aging.

In Smart Money's 5 Biggest Retirement Myth articles, the author names these myths and I have followed each category with some notes of my own.

1. $1 Million Will be Enough

The article mentions that future retirees don't correctly estimate what they will need in retirement which is likely directly related to the following myth #2, that people spend less when they are older. When coupled with falling investment income and market fluctuation, that seemingly huge amount of money doesn't seem so big anymore. Furthermore, inflation on the basics makes it difficult to keep up. A paid off home still requires lights, gas, and water. Eating costs can easily double, especially if a special diet must be adhered to.

2. You'll Spend Less When You Are Older

If there is any myth that needs to go, this one is it. The article mentions exotic travel versus funding a grandchild's College Savings plan, both optional expenses, as well as rocketing entertainment and travel expenses.

Leaving aside the optional expenses, medical expenses are seriously underestimated in the planning stages. Life insurance may no longer be necessary, but the costs are replaced (exponentially) by long term care insurance. I'm continually struck by how much medical costs run even where health is relatively ok.

Many believe they will be able to stay in their (paid for) home, but find it is necessary to re-locate to a residence such as a condo or co-op. Fees and taxes alone can rival a mortgage in some places. People who have never spent a penny on cleaning services may now find that necessary. Ditto for lawn services or other personal services.

3. Older People Need More Bonds

4. You're Money Lasts Longer if You Move

In this section, the author talks about comparing all taxes (state income vs. sales tax vs. property tax). Additionally, not every retiree moves from an expensive area to an inexpensive one. The opposite might be more pragmatic ad that is something to consider. Quality of life factored in, some choose to follow their children to more expensive areas, or return to the expensive area because that is home.

Knowing a little bit about what nursing assistance can cost, having family close by and available to help could well be a more frugal choice over trading in more expensive digs for less expensive ones.

5. Uncle Sam Has Your Back

Medicare doesn't cover it all, necessitating supplemental insurance. Medicaid for nursing home care only sets in once you are properly impoverished. A spouse can retain some assets in addition to a home, but those assets need to cover housing, food, taxes, transportation, medical, etc. Long term care might alleviate some of the expense of nursing home care should that become necessary, but anyone have an idea of what nursing care runs even after insurance? And then there are still the expenses of the household.

More thoughts to follow I'm sure.

$250,000 in Income = Spend Wisely

I'm not quite sure how $250,000 in income (an income level unimaginable to me, or in the words of the article "an unattainably high annual sum") became the threshold of "rich", but somehow that number is thrown about both in our world and in the outside world.

While the magical quarter-of-a-million dollar figure can certainly make a family comfortable (especially if the distribution of the income earners is favorable), such income is not indication that one can throw conscious to the wind.

One of my readers (as well as my husband) pointed out this financial article that is making the rounds, Down and Out on $250,000 a Year. What can we learn from this article and it's eight city analysis:

1. Location, location, location: Living on either coast is expensive. If you can manage to earn a high salary away from the coasts, you will automatically be better off.

2. Location, location, location: Even better if you can earn a high salary in a income tax-free state or in a location where property taxes are more under control.

3. House, house, house: Especially considering the couple presented uses public schools, it makes a lot of sense to live in a better area which can be costly, but this presentation is a good argument for "moving on up" and rolling the money one is able to *save* while living in a nice, but less expensive, area with good home resale when the kids are younger. No matter how you cut it, paying a mortgage (even with 20% down) on a home in an expensive area is hard to sustain, especially if the financial situation changes for the worse.

4. Savings, savings, savings: Saving the max in a company's 401k tax plan makes a big difference in your tax bill and allows you to put away from the future. If you don't do this, your tax bill will be even higher and every additional dollar you earn will be worth less.

5. Used, used, used: Your car that is. Two car payments when you make a quarter of a million makes just as little sense as two car payments when you make a lot less.

6. Debt, debt, debt: Student debt of the couple presented isn't particularly "high" but it, combined with the high mortgage and the car payments is a killer. Getting rid of debt is key to getting and staying ahead.

7. Shave, shave, shave: Even though our couple doesn't go overboard with expenses, if they want to get ahead and stay ahead, they need to shave expenses from each area of their budget. That would be the "little" expenses including activities for the kids, annual vacations, entertainment, dog, transportation (public transportation makes a lot of sense given parking and gas in this budget!), cleaning help, dry cleaning, and food (both take out and lunches--brown bag it!), in addition to controlling he big expenses listed above including the mortgage and automobiles.


As a final note, I have a rule to NEVER include investment income in a regular budget and was a bit surprised to see it included here, although the article shows two bottom lines, one with only earned income and one without earned income. It is a style issue, but I am of the opinion that investment income is best kept in a separate budget and then moved into other investments. If you need your investment income to meet your bottom line, you are way over budget, even if you include 529 college savings in the budget. My preference is to create a separate budget for such investment income and fund other investments from the spin off, or put away the extra for every-ten-year purchases. (Clarification based on a comment: my rule to not include investment income in a regular budget is not actually a never, ever. Obviously, a family in retirement will be relying on their investment income. My comments were more based on the type of budget I would create for a young/youngish family that has limited investment income. To get ahead, I highly recommend that such income should be used to strengthen one's financial position, not building such income into the budget for consumption and meeting regular expenses).

Even if it is hard to relate to the (young) $250,000 couple (there is still $15K in the budget for childcare) and it is easy to imagine that as the kids get older some of the expenses could ease, the article underscores just how important thrift is at all budget levels. And, it underscores the difficult situation that higher income earning couples in our own communities have when tuition is piled on.

P.S. I do realize that some of the out-of-pocket medical expenses are also exaggerated for a family without major issues. I don't know how one gets to over $4000 dental and over$5000 medical with insurance and without (bli ayin hara) major issues. However, the point of the article and anaylsis is still infomative and educational.

How Much Is Your Time Worth?

The following question was posed on a known chatboard regarding frugality:

Are frugal living tips worth it if you have the opportunity to earn money instead?

I'd like to address this question because I think there is an underlying, yet mistaken assumptions, regarding the value of time. The hunch I get is that many people who use the argument that their time is worth more, are valuing their time at a certain rate (i.e. their hourly rate). Now, time is a very valuable thing, and we all are going to come to different conclusions about how to best use this scarce resource, but I know of very few people who can successfully make the argument that their time is consistently worth a certain amount per hour.

In halachic works, we often run into the concept of two conflicting mitzvot. Perhaps one has the opportunity to escort a chatan and kallah or bury the deceasedm and the sources are there to help determine which mitzvah takes priority. For the most part, however, we are rarely called upon to dance at the wedding of someone with no family at the same time the chevra kaddisha calls to arrange a team for a taharah. Mostly, we have opportunities which we can prioritize within a reasonable schedule. E.g., in a single day I can both watch a classmate who has no other childcare arrangement on a day that school is unexpectedly delayed and cook a meal through bikur cholim from the comfort of my own kitchen.

Frugality is very similar. Very rarely is the choice between exercising some frugal measures and making your hourly rate. I think it a bit overreaching to assume that if you weren't cleaning bathrooms, that you would be making $150 an hour working on a contract for a client. More often the choice is whether or not you want to be spending your downtime on something you would like to do and something you'd rather not bother with. Now, there are times when such an opportunity arises, in which case it is perfectly fair to compare a day's profit to the additional cost of of takeout versus an average dinner. But rarely does one really make that comparison. For example, my husband is compensated nicely, but when he comes home, he has no other opportunities for paid work as he, like many professionals, are bound by contract not to engage in work for outside employers. So while his work in the office might be worth $X per hour, at home is time cannot be realistically valued at much more than $0 per hour. If I were to ask him to run to the grocery store to pick up a number of staples that are on sale for a savings of say $30 off what we might pay should we have not caught these sale prices, it would be ludicrous for him to argue that a post-tax savings of $30 isn't worth his time because he makes more at work. If he were to put forward such an argument, I'd remind him that he isn't currently at work. (Thankfully, he too has taken some challenging economics courses and doesn't tend to put forward such arguments, rather relying on the more compelling argument that if I were to send him to the store for the sale items that he will still not know what to buy and hence I should rely on the more reliable party in the house).

To get back to the question, I think the answer is "yes". The reasons for frugality will be different for everyone. Sometimes there simply is no other choice, i.e. it is a simply necessity. Lower income frugality/ traditional college student frugality is first and foremost about staying a float, although often there is a function of achieving a larger goal. Our brand of frugality could be defined as "middle income." The savings enjoyed from frugal choice buy some peace of mind, some luxuries, and help us exercise some choice regarding our children's education, and help fund retirement and college savings accounts. I also have friends and acquaintances who have seen some real success and, with the exception of those who are just blowing their money, they too exercise frugal choices. But their frugal choices often don't resemble my frugal choices, but the elements of value and principal do play into their decisions which puts their choices on the spectrum of frugality, albeit upper income frugality.

Besides considering the real value of your time, is to remember that saving money takes practice and requires some technique. When we first got married, I was a complete wreck in the kitchen. My kitchen technique was akin to the person who can't walk and chew gum at the same time. I had no idea how to substitute ingredients. I could not multitask in the kitchen, which made Shabbat preparation an all day job as I put my full concentration into whatever single dish I was making at that moment. Cleaning seemed to take a lot of concentration too. Stocking my kitchen was a laborious task that involved many detailed lists and preparation. But, just like any other endeavor, practice is how you perfect an art or a sport. When I first learned to play piano, it took a lot of concentration to be able to coordinate reading the music, count the timing, and coordinating both hands. Now, when I sit at the piano, I might be rusty, but I can mostly rely on muscle memory and a developed sense of timing. I do think it is well worth it to perfect some frugal techniques because the dividends to pay off continually.

Ask Orthonomics: Opting Out of Social Security

I received this question earlier, and my readers have already addressed the question for me (thanks!), but I like to make sure that important subjects have their own posts so interested parties can find them for future reference.

I'm a lurker and comment rarely, I agree with most of your opinions on finance and would love to hear your opinion about my situation. Husband and I are in kiruv, self employed with four children KA"H, our combined income amounts to 46K, we are considering opting out of social security, do you think it is worth it for us? Provided of course, that we invest the equivalent properly.

Dear Reader,

Thank you for bringing up an interesting question. Opting out of Social Security/Medicare is something I don't see younger Rabbis doing, but it isn't unheard of amongst the older Rabbinate. Perhaps the requirements have changed over time, but I'm not quite sure what religious objection we have to a public insurance system as issues regarding the financial sustainability of social security are not valid religious grounds for objections. The Form 4361 is the form needed to opt out and needs to be filed by the second year in the clergy.

The consequence of opting out of social security is that a member of the clergy can no longer receive Social Security, Medicare, or any other welfare program. I'm not quite certain if this means you would be ineligible for all the various welfare credits that already flow through the IRS Form 1040 in the form of "refundable credits" or if this is only exempts you from Food Stamps, WIC (?), Pell Grants, etc. Nonetheless for the $3519 (7.65% of salary) that you would be saving from your half of the employment taxes, you will be losing access to a great deal of programs. (Note: You mentioned being self-employed, but I'm not sure if that is in kiruv or another activity).

The Christian Church has built up numerous "financial ministries" and none seem particularly enthusiastic about members opting out, for both ethical reasons and financial reasons. The United Methodist Church strongly advises its clergy not to exercise this option. Crown Ministries advises clergy that when they opt out of social security they will need to consider income replacement in retirement, purchasing life and disability insurance, and replacing medicare coverage. The truth is that every single one of us who pays into social security needs to do all of the above, especially when you are considering a large family and (yes!) Yeshiva Tuition.

I don't believe that at this income level you will have the means to take the excess and invest all of it. And given the specific concerns in the frum community regarding paying for private schooling, I think you would be nuts to opt out of Social Security, Medicare, all welfare programs, and expect that the "powers that be" will be interested in letting you keep the change to invest in the very things you will need to invest in.

Signed,
Orthonomics

[Updated] To address a comment in the comments section:
I'm surprised no one is bringing up what, at least to me, seems like an obvious problem here: by signing Form 4361, you are certifying that you are conscientiously opposed to, or that because of your religious principles you are opposed to accepting public insurance. The question raised in this post is opting out of Social Security payments because you want to save that money and/or reinvest it yourself. By signing this form, you're basically lying. I don't know of any Jewish religious principle that opposes public insurance; in fact, I would argue quite to the contrary, but that's a different topic for a different day.

I wrote the following: "Opting out of Social Security/Medicare is something I don't see younger Rabbis doing, but it isn't unheard of amongst the older Rabbinate. Perhaps the requirements have changed over time, but I'm not quite sure what religious objection we have to a public insurance system. . . . " In other words, I'm not sure why some Rabbis in the past opted out and I don't have the historical knowledge of the system to determine if clergy could automatically pass on these withholdings without religious objection. Like I noted above, concerns over the viability of the social security system are not "valid reasons for religious objections."

And quite honestly, have am concerned by the discussion in this post as focusing solely on the money savings and pros and cons of opting out of paying this tax. Am I reading this whole thing wrong? I would expect differently from this blog so am a bit surprised.

I'm disucssing the financial issues because I believe that is what promoted the reader to think about leaving the system which is why I concentrated on the pragmatic issues. I did a little research on numerous statements from different church denominations, none of which came out and said signing would be "assur" but all of which said we strongly recommend against this and which asked the clergy member "are you really being honest with youself?" I think if the couple gets past the money issue, they can then ask themself, do I really have a religious objection. Like social security or not (I have plenty of reservations), if the family still wanted to opt out, their next stop should be a posek with a reputation of integrity. I don't know of any religious objection, but then again, I know people in the frum community who don't believe in buying life insurance or saving for retirement for "bitachon" reasons. I think they are sorely mistaken, but if people think that saving for retirement isn't "Jewish" I imagine that they could have the same objection to this safety net.

Don't worry, the blog hasn't changed. Just my approach to the issue was too heavily focused on the pragmatics.

A Reply To a Honestly Frum

From Honestly Frum [orange]:

SL, from what I am gathering from reading you and Al and others is you believe that there is no solution to the day school tuition issue and we should simply adapt and send our kids to public school where necessary. I cannot buy nor stomach this answer. I think that there are solutions out there and we must do everything we can to insure our kids have a frum education.

I will once again clarify something: I have NOT recommended sending our kids en masse to public school. My posts on alternative schooling, with the exception of a guest post on virtual public schooling, the posts I have featured on alternatives have not touched on public schooling.

I have featured posts on homeschooling, supervised general ed through a charter school within the confines of a Yeshiva, cooperative schooling, and hybrid schooling in the Christian world.

When I started writing, I focused tuition posts primarily on ways that schools could become more efficient. For each year I've been writing, I've seen (high school) tuition increase over $1000 for each year I've been writing. I've tracked articles from all over the country and the trend here is the trend there. I have yet to see schools announce major restructuring or policy change (forming "school districts" to negotiate with vendors and ensure greater efficiency, offering joint classes between neighboring schools, shrinking administration, implementing minimum tuitions, capping lifetime aid, establishing year round/4 day/morning and afternoon schooling, mixed grade schoolhouses, or other efficiencies that have been tried in other schools).

At a certain point, I have come to more clearly recognize many of the market and social forces at work (someone could write a great PhD behavioral economics dissertation on the subject) and don't believe that the schools are going to lead the charge. I've come to realize changes are going to have to come from the grassroots. Parents who are sending a super-sized family to school for the same price that others are paying for one child, aren't going to lead the charge. Board members under the thumb of donors/directors/Rosh have their hands tied. Parents who are getting a better deal than they would receive in a single priced school aren't going to take up this battle. If anyone is going to take up the battle in the present, it will have to be me and you.

I too believe there are solutions, but I don't believe that those with a thousand reasons why suggested proposals will never work are going to be the movers and shakers. Additionally, the average educator (don't take this as a slam at all educators, I'm just stating an observation based on conversations I've had with those in the field) is generally biased against anything unconventional, be it a mixed grade/one room classroom environment to homeschooling. Heck, just keeping your kid out of pre-school at 2 and 3 years old and skipping camp generates plenty of criticism . . . . . . . .. Meanwhile, my biological clock is ticking. I can't hold off having another child while I wait to see solutions develop.

To me my kids education is far more important than putting an extra 15K away for retirement.

Perhaps you don't have parents or in-laws that are simply unable to keep plugging away at the job, but old age happens and watching parents deteriorate physically and mentally is a reminder to me of the importance of saving for the future.

If you can prove to me that my child will have the same level of observance if I send him to a charter school as if I send him to a Yeshiva day school I'll get behind it but until such a time I cannot bring myself to give my children anything less than a Jewish education in a Jewish environment.

Each of the alternatives I've explored would keep the children in a Jewish environment, although I could see supplemental experiences exposing them to a more diverse crowd.

Perhaps Co-Op and low cost school models work but public school should never be a substitution for yeshiva. At the same time that we have an organization like nechomas yisrael taking kids out of public school and putting them into yeshiva we have people in our communities complaining that yeshiva is too much for them so they are sending their kids to public school.

Kiruv is popular but quite pricey. Perhaps a topic for a future post. Of course we want children desiring a Yeshiva education to have that choice, but so many of our own, already committed families, are curtailing their own family size because of the mess we are in.

Are we not all willing to make any sacrifice, financial or otherwise, to insure our kids get a proper yeshiva education?

For years people have prioritized a Yeshiva education. We sent mom into the workplace. Grandparents helped out. Many people (grandparents too) borrowed against the equity in their home. Others went into credit card debt. Many skipped saving and passed the cost of teaching their children a vocation to the next generation. Now we have people in their mid-20's and 30's who are strapped by their own day care and yeshiva bills + their student loans. We have grandparents with larger mortgages on their home than I do. I think things are just coming to a head.

Your kids might turn out just fine from public school, but there is a much higher chance or assimilation in public school.

Absolutely true. This is why we need a grassroots movement to help create viable alternatives. The right-wing Christian community has established homeschooling networks, fully prepared curriculums, and homeschooling conventions taking place in convention centers. There are hybrid schools and low cost schools. If I were a business-minded educator, I'd open a one room school (I need to find the policy paper I found on re-establishing one room schools in large metro areas for educational and cost benefits. Where is that paper?)


Is this a risk you are willing to take? I sure am not and will spend every last penny I have to do what I can to make sure my kids are raised in a proper Jewish environment.

I think this is the difference between the camps. While I don't know if I have what it takes to homeschool and I have some concerns regarding the viability of this for our family, hence my interest in a more cooperative agreement, I believe that our home is a great environment for our children and that the closer that I keep them, the better off they will be. We might not be the biggest talmudei chachamim, but I'm not afraid to take charge of a greater portion of the chinuch our children receive, be that education for a 3 year old or a 3rd grader. Between the two of us, I do believe that we have what it takes to raise Jewish children. Perhaps this is because my parents both took charge of my Jewish education, weak as it may be, and much of my general education because they thought that too many of the (public school) teachers were too lenient when it came to editing papers. My parents decided that if the teachers weren't going to mark up my papers with enough red ink, that they would take over where the teachers left off. My father supplemented my education by assigning me reading. So, I guess I have a mesorah for taking charge.

And I don't think I need to spend every last penny to raise our kids in a proper Jewish environment. I'm very confident that there will be other parents who are going to be looking for alternatives and that we won't have to go down the path alone.

Incentive

Parshat Miketz offers tried and true savings advice recalling that the grain, during the years of plenty, was collected hand over hand, or in the interpretation of some little by little. Often people through up their hands and proclaim why bother savings as it is impossible to do so anyways with all of the numerous bills, etc.

What they haven't quite comprehended is the power or addition in conjunction with the miracle of compounding interest. There were periods of time when we were able to save money in major lump sums, or what I like to call before tuition or BT. Those days have seemingly passed. But, we are still able to see satisfying changes in financial position for the positive despite no longer being able to save the amounts of the past.

Just a few weeks ago I received my statement from my first 401k from my first job. There is something extremely satisfying about seeing that percentage of investment income earned is about to surpass the amount of money invested. I wish I understood this more clearly when I started this first retirement account. If I could go back in time, I would have invested more pre-tax income. At the time I lacked some incentive.

Speaking of incentive and the parsha, I think there is an important lesson to learn. From a basic reading of the text (I'm ignoring commentaries to the contrary so as to not loose my point), Yosef enacted a one-fifth (20%) tax rate on gross domestic product during the seven years of plenty and the land produced an abundance. He also stored the grains within close proximity of the taxed. Economic theory tells us that overtaxing decreases production, so I think we can reasonably conclude that the tax rate enacted by Yosef was not draconian.

When it comes to yeshiva tuition and tuition assistance, many would like to see parents take on more employment, higher paying jobs, more jobs, etc. It is fantastic that so many parents view tuition as their duty and will go to all lengths to avoid scholarships. But, others simply won't; the incentive is simply not there.

Should schools want to see parents who are on scholarship pay more tuition by increasing their incomes, they need to understand the underpinnings of incentive. If those on tuition assistance believe that if they change their earning situation that the school will nab 100% of the new earnings, they are unlikely to take on additional employment without heavy handed techniques that provide incentive through fear. But, if you only take a smaller amount of the new income and most of the new income can be used at the discretion of the earner, the incentive to earn is kept intact.

Of course, what makes economic sense might not be great school policy. I'm not quite sure how practical it would be to enact a tax on additional income of mothers that return to work, for example, while dual income families are charged tuition at a different rate. There are already plenty of hard feelings on all sides. And speaking of practical, schools really shouldn't be playing big brother any more than they already do. Additionally, when the marginal governmental tax rates (social security + medicare + the marginal federal rate + the marginal state rate) already takes up nearly a third of the income to say nothing of the costs of transport, childcare, and non-tangibles such as decreased family time and stress, there isn't much left for anyone else to grab.

Just some thoughts for this evening. A shavua tov.

Where Have All the Pensions Gone?

I have used my soap box to try and encourage modest living and saving for practical reasons as well as for a higher purpose. In particular, I've stressed the importance of saving for retirement and starting to save for retirement as soon as possible. Just days ago I took issue with a letter from the Rockland County Tomche Shabbos which basically said forget the IRA, there are more pressing needs.

Shortly after I wrote that post and the comments starting coming in, it hit me that there may be an honest disconnect in regards to retirement savings, which I think we should refer to as older age savings*.

Recently we ended up engaged in a conversation with some older family members regarding retirement. Despite their struggles in retirement, some issues which I will detail in a later post regarding the costs of retirement, they didn't seem to understand why so many young people are focused on their retirement accounts. The zinger came when one of them said "but what about your pension?" Uh, pension. What pension?

I have to wonder how many people out there, especially people who are running the opposition campaign and stating/implying that retirement savings are a luxury (see tuition vs. retirement) honestly believe that those saving for retirement are just "hoarding" money because they simply are living in a previous era.

Perhaps there are a good number of people in our communities who are simply unaware that the rules of retirement have changed that that today penions are a rarity and funding those IRAs, 401(k)s, and 403(b)s is how an employee funds a "pension"? Perhaps there are a good number of people who are unaware that social security isn't what it used to be (to say nothing of the fact that anyone with income beyond social security will be handing a good chunk of it right back to Uncle Sam and one's state of residence)? Perhaps there are a good number of people who honestly believe that if the parents don't have money, the kids will be able to step it and take over?

If there are people who just don't understand the level of self-sufficiency that is expected of the younger generation, I'd say that re-education is needed. More notes re: retirement later.

---------------------------------------------------------------------------------------

*Retirement seems to conjure up images of doing nothing all day long and cruising around the Caribean. All lovely things, but perhaps not things that have great value in the frum community (given that our first "real vacation"--a vacation that doesn't involve crashing with friends of family, might come post-retirement, I'm not going to knock cruising). Older age is something that happens and often comes with a large price tag.

Tzedakah Marketing Gone Terribly Wrong

For once I am nearly speechless. I've written about tzedakah marketing campaigns centered around promises of miracles. I've written of tzedakah marketing that is simply obscene given the target audience. But this method of marketing will now top my list as the most tasteless and irresponsible of them all.

To promote tzedakah by guilting people about saving for retirement and creating mass panic about investments? Wow! I'm not quite sure what to say except that this is really low.

How can anyone possibly say with a straight face that the amount that Klal Yisrael (read: the frum community) places into retirement is "staggering" unless we are referring to staggeringly low? [Quote: "Let’s consider the net sum placed by Klal Yisroel in IRAs annually. It’s staggering.] You could say that a staggering amount is spent on tuition as well as debt servicing interest, cleaning help, camps, dating, weddings, sheitels, manicures, clothing, and even food. But retirement savings? No way, no how. I know highly paid professional couples that don't pay cash for their cars/minivans. Let's just say staggering[ly high] isn't the way I would describe the savings rate of the frum community!

A GUARANTEED INVESTMENT
Dear Editor,
I would like to suggest an excellent and fully guaranteed investment vehicle for this year’s IRA contribution. It’s called Klal Yisroel. It’s the oni who knocks at your door, it’s the local yeshiva that can’t pay their rabbeim, it’s the neighbors who can’t afford to make a wedding for their daughter, it’s the people in your community who have had their electricity shut off, it’s the many people facing eviction from their homes.

Let’s consider the net sum placed by Klal Yisroel in IRAs annually. It’s staggering. Can we collectively really afford to place that money in an investment that either will make or lose money, in an investment house that may or not be in existence when we retire? Is this prudent at a time like this? Can we find a better investment for our IRA? Permit me to present my suggestion:

Safety & Return: Hakadosh Boruch Hu Himself guarantees both the security of the
principal of our tzedakah investments, and a substantial return as well. To cite just one of numerous sources for this, the Torah tells us, “Aser te’aser es kol tevuas zarecha” (Devorim 14:22). Rashi tells us, “Aser bishvil shetisasher - Give tzedakah so that you become wealthy.” Rashi, with his ruach hakodesh, reveals for us the path to financial wealth. There are far more sources that can be cited to bring home the same point, but permit this one source to speak for them all.

Limits: We are free to invest as much as a chomesh, one fifth of our income, toward this guaranteed investment. “Beshuv Hashem” (Tehillim 126), once we have returned to seeing things with clarity, only then will we realize that “hoyinu kecholmim,” we were like dreamers. We were so wrapped up in our faith in the US banking system, which is weak, and the investment houses, many of whom failed and the rest of whom are weak, and had so much faith in the strength of America (uninvited guests dropping in on the President of the United States in the White House), that we completely lost sight of reality. Our faith was misplaced.

My friends, we’ve all been fooled. There is no stronger guarantee than the Torah, and no stronger Guarantor than Hakadosh Boruch Hu. Let’s begin by taking any
money we were going to place in IRAs this year and invest those dollars in alleviating the tzaar of Klal Yisroel. May I suggest we call the local yeshiva rather than waiting for them to call us? Let’s inquire whether the rabbeim and other staff members are up to date in their pay. Let’s take a deeper interest in the plight of the aniyim of our
community. Is there a local tzedakah fund that we can contact? Our rov probably knows which situations require the most immediate assistance. Let’s take a
deeper interest in aniyei Eretz Yisroel. The next time an oni knocks at our door, let’s try a little harder to focus on his plight.

Now, I’m not advocating a reckless abandonment of the US banking system. Rather, I’m suggesting that we place our IRA investments in a far better and more secure long-term investment, shoring up our more pressing needs right here in ouro wn Torah community.

These concepts are not new. Rather, they are the oldest and most proven concepts
in existence. Let’s be mechazeikeach other to reevaluate our priorities.
[Director of] Tomche Shabbos of Rockland County

Perhaps in response to the verses quoted I will quote birchat hamazon, "Please, Hashem, our G-d, make us not needful of the gifts of human hands nor of their loans -- but only of Your Hand that is full, open, holy, and generous, that we not feel inner shame or be humiliated for ever and ever." Yes, we have a lot of very pressing needs in our communities. And one of those pressing needs is financial stability.

Where will these families turn when they are no longer able to work? That's right! Us. And a note on the 20% rate we are allowed to give. There are many different opinions as to what ma'aser can be used for. Those that count tzedakah and tuition or partial tuition as ma'aser likely need not worry about hitting that 20%.

Trying to guilt people out of putting a little something away for their own future needs: Tasteless and irresponsible.

And with that note, a friendly reminder that you have until tax day 2010 to fund your IRA or ROTH IRA. In a recent post, the letter writer looking for solutions stated: "At this point, we need a lot of money just to get by, no matter how simply we live. We have children to feed and our expenses are only growing." If she only knew just how expensive older age can be she'd plotz. Having some hands-on knowledge about such things I will state unequivocally that we NEED community members to be saving for their future. Aging isn't inexpensive.

What Are Educators Saying About the Tuition Crisis? Part II

Please read part I in the prior post before reading the remainder of Rabbi Teitz's comments that make up part II of my post. This comment of Rabbi Teitz's is from the perspective of staff and my comments are once again in orange. Also an interesting trip into the minds of school administrative staff.

Post 2

My earlier comments were written from a parent's perspective, having heard almost all of what I wrote in conversations with parents over the past year or two.

Personally, I feel many teachers (and I am lucky to count many of them on my staff) are selfless in their devotion to their students. They do not know the meaning of punching a clock. Many are the graduates of JEC that still call their rebbeim and other teachers, at times even late at night, to discuss life's important decisions. There is no way to put a dollar figure to what that is worth.

But that does not mean that parents are not reaching a breaking point. And my post was intended to express that concern, from their point of view. We, as educators, must understand their perspective, because they are the purchasers of the service we provide. The consumers of our service, our students, probably do not stop to consider a cost/benefit analysis, but the purchasers certainly do. And they want to buy our product, but we might be placing it out of their reach.

So much for the parents' perspective.

There is a significant flaw in that outlook. And it is a challenge that extends to the entire spectrum of Jewish living, as well as the greater world around us.

We live in a world of entitlement. Everyone feels they have things coming to them. The sense of sacrifice has mostly been lost. Yes, there are remarkable example of the opposite, but by and large, people today expect to have without having to give up to have it. [Rabbi Teitz is certainly not the first to say that parents are unwilling to sacrifice today. Rav Schachter, RY of REITS, made the same point a few months back. But I just can't agree].

Sleep away camp has gone from being a luxury to a necessity [Guess who marketed such as a necessity? Try this post for an answer]. Pesach at a hotel. Winter vacation at Disney. Summer vacation on top of that, for those who can manage the days away. High-six and seven digit 401Ks and IRAs. A fully vested college fund. [I don't even know how 401ks and college funds can be put in the same sentence as Pesach and Disney vacations. Old age (let's stop calling it retirement) requires money and likely lots of it. Should schools give limited financial aid to those with substaintial retirement accounts? I don't believe they do, so it seems like a non-issue. If anything, we should be begging people to put away what they can while they can because if they don't it will be the next "crisis."]

With all of these absolute, indispensable necessities where is there room for tuition?

People purchase houses and calculate how they can manage their mortgage payments without taking into account that there are tuition payments as well. No one forgets to calculate the bite taxes take out of income in calculating available income for mortgage payments. But tuition, there's always a scholarship for that. [Perhaps those who bought at the top of the market can be blamed for paying too much. But you could also yell at families that did not scrimp and save to buy a home and now have rent that is double the mortgage of a similarly aged counterpart].

In past years, people worked two jobs to pay their educational obligations. Many of us took out loans to get through college. Today's parents won't hear of it. Let the day schools carry me so I can put money away for my child's college. Or, more accurately, let the day school raise tzedaka to pay for my child's college education. [Many people still work more than one job. I'm always amazed just how many members of the klal are trying to sell something on the side. As for college, student debt isn't "free" to the klal either, it is just a matter of timing].

Gone is the feeling that tuition assistance is actually a request for charity. If communal rabbis would only do one thing, it should be to stress that taking a scholarship in a situation where there was not absolute need is tantamount to stealing from tzedaka. [See where the calculation of tuition increase on a 3% tuition raise was made in Part I. This is one reason why tuition assistance is not always viewed as a request for charity. If a $300 per student salary raise translates into a $450 per student tuition increase, than those requesting a discount from $450 aren't asking for "charity" but rather equability].

The biggest difficulty with that message is that there are those who really do need the help and these very words might embarrass them into not asking, which would be criminal. For there is a real need in the community for help in paying tuition. The abusers of the system make it so much more difficult for those in true need. [True].

In the long run, though, we are reaching a tipping point. Three children in day school can, and in some communities does, cost upwards of $50,000. That is, to most families, the single largest expense in their budget. And they are collapsing under the strain. And there is no end in sight. I was at a meeting the other night where the tuition crisis was discussed. One person asked that there be some sort of formula so that he would know that with an income of $150,000 there would be some maximum bill to pay for education. It is a reasonable request. Problem is, it can't be done. Because one family earning $150,000 might be able to put away $25,000 annually into a retirement fund (I have yet to see teachers be able to put that much away regardless of their pay[why in the world not if the pay is high?]), while another family has unreimbursed medical expenses of $15,000. There is no valid basis for comparison based solely on the bottom line. So we can not give that relief.

But we have to talk to the issue. With compassion. With understanding. And, true to our calling, with education. We must find a way to open the eyes of our community to our feelings of entitlement. Without defensiveness. With warmth. The message we have to give is not an easy one to accept. But if we are to change this one aspect of the culture of our community, we must be understanding of the other's perception and concern. We must also step outside ourselves and check what our feelings of entitlement are, because rare is the person who is totally selfless. We all have needs, but are some of our needs as necessary as we might like to think they are.

But even if the lesson will be learned, it will not solve the problem. We will only delay the day when parents will not be able to pay to educate their children. Large communal funds are not the panacea they seem. A well managed endowment with $100 million in it will spin off between $5 million to $7 million annually. How many donors will it take to get to the $100 million? And how many schools will get a piece of that pie? And in the era of Madoff, who will manage the fund, and how do we know it will be properly managed?

So I leave where I left last time.
Just as much worry and just as few answers.

Eliyahu Teitz

What Are Educators Saying About the Tuition Crisis? Part I


I was curious what educators might, or might not, be saying about the tuition issues facing schools and families today. So I headed over to Lookjed, a forum for Jewish educators. The subject of the proposed "no frills" school had come up, and it appears that not one educator thought that the idea was actually one that could be put into practice successfully. Reading the comments was interesting because it allowed me, as a parent, to look inside the mind of administrators/educators.

I picked out the following two posts from Rabbi Teitz of JEC in Elizabeth, NJ because I found them the most interesting/revealing. The first reads as a conversation between administration and parents. The second is the same administrator speaking from the perspective of staff. I will post that one shortly after I post this first comment. I have put a small number of comments in orange.

Post 1
Allow me to put the matter into very specific terms.

In my school we have around 900 students, preK-12. Our salary budget is around $10,000,000, or about 83% of our $12,000,000 budget. [Per student cost: approx. $13,333. Website gives no information that I can find on tuition schedules at JEC (Elizabeth, NJ).]

An across-the-board 3% increase in salary, which is hardly huge, translates into $300,000+ additional expense (the extra is the 7.65% FICA and Medicare tax, about $23,000, which is a hidden factor but adds up).

Assuming a balanced budget (and even if not balanced, the cash flow must be maintained), we need to find another ~$325,000 to cover the raise. [I believe a balanced budget is the only way to maintain cash flow unless there are significant reserves or taking on debt is a consideration].

Dividing that out over the 900 students means raising tuition by $360 per student. Factor in scholarships (and 20% scholarship is also not unheard of) and the real increase has to approach $450 per student. [I think that more than 1/2 the tuition issue can be summed up right here. Those who can carry are being asked to carry more and more. But, eventually some of those parents need carried too].

And this is just to give the teachers a 3% raise. [I'm a bit confused why a potential across-the-board raise is being discussed while the average parental income is falling].

We're not factoring in overhead, programs, etc. Cutting programs is enticing, as it can be lead to cutting staff positions. But as others have mentioned, do we cut our social worker or learning lab staff? The reality is that school staffs are significantly larger than they were even a decade or two ago. We hope that the additional staff improves our product. I would not risk cutting the programs to find out.

One suggestion that I heard was to not give across the board raises. There are certainly staff members, teachers and administrators, who are earning well above what our parents earn, especially when looked at on an hourly basis. Does everyone need an annual increase? While this is not as difficult a matter as merit pay, which has yet to find a way to judge the full value of a teacher's input into the growth of a student, one has to wonder how we would decide who needs the money most. Do we ask staff to justify their need for a raise, as we ask parents to justify their need for a scholarship? I'm sure many parents would see poetic justice in that arrangement - having teachers submit their income and expenses to a group of parents for them to divide the fixed pot of tuition dollars allocated to salaries. [Wages are normally set by the market, not by the "needs" of the employee. Merit pay is something difficult to determine in the education sector. But if pay is being set by an employee's needs, and in some Jewish organizations I believe it is, then it is no wonder that salaries are taking up more and more of the budget.]I'm sure there are some members of our staffs where only one spouse works. When looking at parental scholarship requests, we ask parents in similar situations why they expect the school to carry the burden of supporting such a life style; we expect that, barring exceptional situations, both parents will be gainfully employed. Parents can justifiably turn that back on us and our assumptions of fair salaries and the number of wage earners in a family. [Homemaking is really getting a bad rap lately. I guess it is an easy target].

One answer given to this challenge is to increase outside funding. That is easier said than done. Many donors are moving away from general donations, preferring targeted giving to specific programs. While this is wonderful for gaining gifts of equipment that are beyond our reach (could we really afford smartboards for all our classrooms at $4000-5000 a pop?), it does nothing to help the bottom line. And there is not an endless supply of outside donors either. Many of the biggest givers are hit up by a growing number of institutions, so that even if actual giving goes up, each school gets a smaller piece of the pie. [To say nothing of the growing number of institutions].

Finding new donors is like searching for a needle in a haystack. If someone has enough money for a big gift, chances are others know about the person as well, or will in short order. And the really big gift takes years to cultivate; it is rare to get a letter in the mail from a lawyer with a multi-million dollar check from an unknown donor's estate. The larger the gift, the longer the development time, the more opportunity others have to approach the donor as well.

PEJE has tried to nudge schools into sharing costs where possible. I think that statistics bear out that most day schools have less than 100 students. Schools such as these might be able to find ways of sharing certain back office expenses: does each school need an executive director? can schools share office staff? But mid-size and larger schools have more than enough to maintain full-time executive directors, controllers, maintenance managers, technologists, and social workers. Joining with other schools just doesn't work. [I really don't think sharing resources should be dismissed as impossible. It would be nice is the suggestion of PEJE was at least given a fair trial in a pilot program. Many companies outsource certain functions because taking care of them in-house is far too pricey. At least in smaller (public) school districts, certain administrators/employees are shared by numerous schools].

The only real way to stop the inexorable creep of salaries is to cap them. That way we know that there is a maximum salary load that we will achieve, within reason. This does not address newly created positions to address student needs. But schools will set different caps, or they will lure away a prized teacher by making a salary cap exception. I am gaining a stronger appreciation for professional sports owners and their problems with run-away salaries. And our salaries are hardly exorbitant. Do we go to a system where we declare "franchise" teachers and any school poaching one has to pay a penalty or open its protected teachers to being approached by other schools in return? And how do we balance less affluent schools against the more affluent? And how do we decide on a cap- a per hour rate? What about positions that are harder to fill? Is there one rate for language arts teachers and another for science teachers? Do limudei kodesh teachers get a preferential rate? [Perhaps this is where combining resources can help. Salary ranges could be set in a "district," rather than in individual schools. As I understand, salaries have been driven up by the competition for prized staff.]

Reality also has to play a role. In searching for a new principal over the past few years, I was struck that a thirty-something applicant, without any experience as a principal, only some limited work as an assistant principal, expected to earn over $175,000 in salary and benefits.
Where does that leave a school moving forward? And the number of teachers we all have that are approaching or who have surpassed $100,000 annual salaries is increasing. [Perhaps promoting from within at lesser salaries, rather than trying to recruit principals from the outside that demand incredible salaries, despite inexperience, is a route that should be pursued. Who better to understand the inner workings of a school, the needs of the students, and the expectations of the parents body that someone who has already been in the trenches?]. In the real world, those salaries are not common. [Hear, hear!]

I am not advocating for salary caps. I am just at a loss looking to the future for a way to continue to make ends meet. The real world work force does not have automatic annual increases. They do not have a 10-month a year job structure. There is increased expectation that jobs are not 9 - 5 any more. People stay at work until the job is done, no matter how late it gets. And they give up weekends when needed. And there is no extra compensation for work that has to be taken home to be completed. And vacation days get eaten up by the chaggim. These are, increasingly, the realities faced by our parent body. And these have been the reasons we have given for justifying our salaries (teaching is more than just classroom time, we do research and prepare over the summer, etc.).

Charter schools, after-school programs and no-frills schools are not the answer. The first two will wilt as soon as final exams and other high stakes tests are encountered. Do we really expect the same effort from students who are in a program that does not affect their GPA when the SAT is a month away? We need to be realistic. No-frills schools have other, external costs, as has been discussed already. The system we have is the one with which we must work.

We need to be much more sensitive to parental fears. The current financial crisis has actually given us that opportunity. Cutting costs where possible, holding staff salaries in place, making a serious drive to increase gifts from donors, and a minimal increase in tuition shows that we are looking to spread the burden across all stakeholder groups. That worked this year.

My real worry is what to do if next year is equally economically dismal. Where will we cut then? I have no answer.

Not for 2010-11. Not for further down the line. [It is obvious to me that day schools don't really view themselves as part of a free market system, despite being funded directly through fees, rather than through taxes. If those running schools in this environment did relate to the free market, I believe they would be looking try new ideas.]

Eliyahu Teitz

Dealing With Reality Gracefully

I have three posts lined up about those unable to deal with reality, but I thought I would rather start with examples of two people who are dealing with reality because their stories are inspiring. Plus, a valued reader of this blog kindly suggested I try to lighten things up despite the seriousness of the subjects being addressed (as of late, I've perhaps made one too many tuition posts). With Adar in the wings, I want to try to keep things a bit lighter, so I am going to try to insert more informative posts and even inspiring posts with some heavier subject matter.

Hat Tip: VIN. I really liked this CBS News Story. What a beautiful approach this elderly, but spry couple has to loosing it all: they deal with it with no shame! The 90 year old husband, who once had a business of his own, has come out of retirement to work for $10 an hour in a grocery store.

Another Madoff victim, 60 years old, from West Goshen Township, PA has started working as a maid and caretaker for an elderly friend's mother. She has some assets she is selling and is actively working to reduce her expenses. But at 60 years old she realizes she needs to rebuild and is taking on the challenge. I wish her much success in re-certifying as a registered nurse. I find both of these rebuilding stories inspiring.

I also recently read a story about older Americans, some who have lived through the depression, returning to work as their retirement assets are proving inadequate. One man told the reporter, "I'll take what I can get." I have a feeling this attitude will bring much success.

Update: Dave in DC these stories aren't happy, make you dance, but lately people and/or organizations dealing with reality, rather than trying to pretend it away makes me happy.

Too Cute

I don't feel like writing anything of substance right now. But I have to share a few 'Orthonomic' moments in our house that were just too cute:

Before Rosh Hashana, my son announces: "We need to buy a pomegranate even if it isn't on sale. It is ok to buy it even if it is not on sale because we need it for Rosh Hashana."

Today I was at the pharmacy and my not yet 2 year old who is also not so verbal got into my coupon pack. She starts pulling out coupons and yelling "free, free." Turns out she found a coupon for tissues that were on sale and we walked out of the pharmacy with free tissues. My word, a toddler who knows the purpose of a good coupon.

Last week I was going over the schedule with my kids. I mentioned Mommy had a stack of checks from clients and we were going to go to the bank. My son asks, "Mommy, are you going to put that money in the bank so you have it when you are too old to work." The moment was too funny.

The Answers to the Quiz

My commentors have all done a great job with the first set of quiz questions. I'm working to come up with some new questions which will be on a different note. It would be fun to make this a regular feature. I really loved seeing each and every comment.

1. This was a trick question of sorts, as we don't often think of paying off debt as an investment. But paying off debt will give you a large, non-taxable return. Paying off credit cards is basic common sense. I believe in paying down a mortgage earlier. However, I would fund an emergency fund of 3-6 months of necessary expenses first and a retirement account, at a minimum, prior to considering paying down a mortgage early.

2. Question 2 was for the accountants amongst us. In the second question I assumed that everything was equal (which we know it rarely is, but we can pretend for a moment) and that either the husband (current salary $75,000) or the wife (current salary $105,000) could take the job with no current or future affects. If the couple simply wants the most money in the present, the wife should take the job because she will not owe social security taxes on the $10,000 additional wages. I've noticed that many people forget about two types of taxes when making a budget:
A. Employment taxes (social security) and B. State/local taxes. Sometimes a reminder is good, especially at the end of the year when an employee's paycheck might increase. In the electronic world of finance, a person might think they got a small raise when in reality they really have just paid up the social security taxes. Check the paystub before banking on a raise.

3. The more I look at the budget presented, the more problems I see. However, the main problem I was driving at was that the income sources were not delineated as "primary" and "secondary," nor did the budget delineate what costs were associated with which sources of income. (Just a note: more than income can go into the decision of which income is primary and which is secondary, although income is often the most major factor).

Some of my readers took the question as a leading one, believing that I would reach the conclusion the wife should stay home. For all I know, the husband's income is the lower income and that he should be the more flexible one and explore his options. The options could range from shifting his work schedule to cut down on day care hours, to trying to telecommute if that is a possibility, to working a night shift if applicable, to leaving his work if that makes financial sense and he is in a field where you can return easily.

Please stay with me. Here is my theory on budgets on the brink (of course, not every possibility can be covered in one post):

When your ship is sinking, which I will loosely define as being in the red because expenses exceed take home income (i.e. they are depleting savings in your youth, or turning to debt financing), you must plug up the hole in the boat and plug it up fast. Usually plugging up a hole comes with a variety of solutions some long term (cost cutting) and some temporary (working different shifts, cutting/adding work hours). There is a time to think long term and a time to think short term. When things are going south budget wise, you just need to get above water quick.

Anyone remember this upside down budget in the Yated: a kollel wife of 12 years and 6 children who does not want her husband to go out to work. Part of her fear is that they will loose all of their government benefits. I remember when I read this, I said to myself, the current solution to their issue might be for the husband to leave kollel and become a homemaker for the time being. They will keep their government benefits and eliminate their daycare expenses. At $20K in debt and approximately $20K in income, they are in deep trouble . What happens to this kollel family if/when the schools are no longer able to accommodate their children despite lack of payment? What happens when the grocery says he can't extend them more credit? I know it isn't socially acceptable to make a change like this, but the ship is sinking and my own opinion is that you jump for safety.

Some other budget issues (thanks commentors!) for the Imamother poster's budget:

A. It isn't all inclusive. She doesn't mention clothing expenses for one. This sticks out in my book. I try to spend as little as possible on consumer items, but we socks, shoes, and underwear seem to wear out in my world.
B. She doesn't indicate how many car payments remain. Perhaps the car is almost paid for, in which case the family might be pulling their heads above water soon.
C. Some expenses seem too high: cell phones of $125 a month (although an employer might require a cell phone and he/she might need a lot of minutes), cleaning help, food + baby necessities. Food alone of $600 seems quite reasonable for a dual income family, but when you add in $250 for baby expenses it seems a bit inflated.
D. As 'ramseyfan' pointed out, they are missing life insurance and retirement savings are low (perhaps they are even passing up company match?).

Take note, beginner budgeters: include every single expense in your budget down to the last penny. My guess is that the small shortfall the mother admits to is actually larger.

Sadly, this budget which is *not* overinflated across the board, underscores a very real problem, i.e. (full) tuition is out of range for many young families that are soon to enter schools and are still growing their families. Just makes you want to cry.

I Knew He Would Finally Ask

Yes, I've waited for my son to initiate this conversation for a long while. Not the one about where babies come from, mind you; the conversation about why we don't have a cleaning lady. Believe me, if you have told me growing up that I would be discussing cleaning ladies with my own children, I would never have believed you. I was unaware that people outside of some very, very wealthy neighborhoods hired maids to clean their homes. I thought maids were primarily for hotels. Now, I know better.

If there is one thing that we don't have a replacement or equivalent to, that my children are regularly exposed to, it is cleaning help. It seems everytime we are on a playdate, the cleaning lady is there. I was around 20 when I heard of a cleaning lady. My first knew this word by 2 years old.

Son: (Statement) Mommy, every house on our block has a cleaning lady.

Me: (Acknowledged this fact with a nod) Ah ha.

Son: (Statement) Mommy, we should get a cleaning lady.

Me: (Question) What would a cleaning lady do for us?

Son: We wouldn't have to clean.

Me: (Question) Really? But what would happen if someone made a spill like this morning. . . and the cleaning lady was gone?

Son: I guess we would have to clean it up then.

Me: (Redirecting) I think we handle cleaning just fine the way things are. We do it little by little.

Son: Yes.

Me: Cleaning help costs a lot of money. Do you think this would be a good way or a bad way for us to spend our money? I think we handle the cleaning just fine.

Son: No. It would be a bad way.

Me: Why?

Son: We can save our money for other things.

Me: (Breathing a sigh of relief that this went well).

I'm not here to make a judgment call about cleaning help. If I was working full time, I'd probably consider it. But, I'm primarily a homemaker in addition to some small clients and I seem to handle the rigors of cleaning without too much stress. I didn't grow up knowing anyone with cleaning help, save a few older ladies who had a nurse to help them. Cleaning was just an activity my sister and I did with my mother, so I'm used to it.

We all have to make choices in life about where to spend our money. Seems my children understand and accept that, based on this most recent conversations. Adding cleaning help to our budget would definitely hurt far more than I can see it helping. I'd rather save for retirement now and hire the help at that point. The messes sometimes do go untouched for too long. But, for the most part I can keep up (save some piles of paperwork and filing that I can't allow anyone to touch anyways).

I don't find cleaning takes nearly as much effort as others find it to be. Perhaps only I think my house is relatively clean? But, in really my house is pretty clean, although it is no museum. Regular and consistent little effort keep everything under control. I always like to know how others keep things under control. Here are a few of my own:

1) I always try to clean up spills immediately, or more acurately I hand the child who made the spill a towel and then touch up the job they do.
2) I sweep up after every meal/snack.
3) I involve the children in cleaning while I am working on a bigger cleaning task. My children have become actually learned to clean windows and walls in a somewhat acceptable manner. Unforuntately, they often get too excited by process and go overboard with the water, which necessitates handing them a towel. (See #1). While they are occupied, I'm usually able to tackle a bigger task quickly.
4) We bought a very large capacity washing machine. We bought it for the utility savings, but the side benefits is that the time it takes to do laundry has been slashed. I can wash twice as much and when it comes to putting it away, sometimes more is less.
5) I hang clothing up, rather than stack in drawers. I find it easier to inventory things and less stuff gets dumped on the floor.
6) I've trained my husband to help out more than he was expected to growing up.
7) I tackle large tasks in small increments. For example, when the kids bathroom needs cleaned, I will work on just one thing, like cleaning the counter top and later return to do something else. It seems to make the job much smoother and oftentimes I will end up tackling the whole task, but it is less intimidating.
8) I try really hard to keep the clutter that I'd like to get rid of in one single area (although I'm currently failing in this regard). I find clutter is more depressing than mess. Takes more effort to tackle and cleaning help can't deal with it.

I'd love to hear your tips and comments.

Retirement: Getting a Really Big Head Start

I have read numerous articles and even a few books directed at teaching children how to be responsible with money. One idea that has become somewhat popular is that of providing "matching funds" for children as it regards large purchases, such as a car. The kid works and saves and they parent fills in the gaps. I don't get too excited about many of these ideas. While I am not at all opposed to helping children get some financial footing in a tough world, you have to make sure you are helping them establish a solid foundation rather than feeding into consumerism and materialism.

However, a while back I read a matching funds idea that I really liked because it really captured the concepts of working, disciplined saving, and building wealth through long term investment. The idea presented involves offering a parent matching the savings of a working teen/young 20-something so long as they lock their saved earnings into a retirement account. 'Working,' of course refers to a teenager who is "on the books" either as an employee or by filing a schedule C.

Right now there are a number of teenagers working at summer jobs who are hopefully saving their money (a topic for another post, but I believe dependents who work should be expected to save part of their earnings). Now imagine the head start a child could get on retirement if he/she started funding their first IRA/ROTH IRA* while still young and the motivation he would have to continue to funding that IRA if he saw that reaching a benchmark or goal was manageable in both the short and long term.

Hopefully we all understand the time value of money and how a person who tries to save large amounts for retirement during their 40's or 50's may never catch up to a person who started saving for retirement in their teen's and 20's (and then stopped before the 40 year old got started). The time value of money is a wonder that never ceases to amaze me. And, there are a lot of online financial tools that can help one visualize the difference through graphs and charts.

The 2008 IRA limit is $5000. An individual can only fund their IRA up to the amount they earned. If we are in the position to do so when our teenagers start earning some of their own money, I will consider offering them a match for the amount of earnings they save and invest in an IRA. I think it would be a good investment, far better than the myriad of other ways parents "help" their children.

Given the current economic realities in the frum community, I would encourage parents to talk to their children when they start working about how important it is to save money for the future (be it for an emergency fund, a starter home, or retirement). Often there is only a limited period of time to build a healthy financial future. I see nothing wrong with showing a teenager it is do-able while the increments needed are far smaller.

*I recommend a ROTH IRA over an IRA, especially for teenagers who probably are not earning enough to take advantage of the present tax savings on an IRA anyways. If they aren't paying taxes as it is, it makes sense to use after-tax dollars and withdraw them tax free at 65+.

Building a House of Cards
alternatively, Tuition isn't the budget breaker in this budget!

Reading this letter in the newest Yated just hurts me. Budgets interest me and this budget is so overinflated, although the writer does not realize it, that it hurts. A family of six (four children) is spending a massive amount of money, and while she puts tuition as a primary issue in her letter. . . . . .tuition simply is NOT the reason their budget is literally out of control. Their costs are just simply out of control. I am literally picking up my jaw off my desk after reading this letter because I have a very solid idea of what the expenses for a family this size could be, and this is just shocking.

I hope the recent economic slowdown does not end up biting this family in the bottom. Household budgets is something I take great interest in (over the years, I've helped many people form a budget) and it is clear to me that this family has built themselves a house of cards. Their fixed costs are enormous, so much so that a turn for the worse in business or employment, could take them under, but not because they have an overinflated grocery budget (that could be changed with some hard work!), but because they have an overinflated mortgage and overinflated auto costs, etc. I've written so many posts about tackling the variable costs in a budget (food, utilities, consumer goods). But, if the obligations are massive (mortgages, car payments, students loans), cutting the food budget in half can't save you.

Presuming there are numerous families that have built a house of straw (and I'm certain there are), many families, and by extension the host communities, could be in for real problems if the big bad wolf starts to blow.

Read on [my notes in orange]:

LIFE IS UNAFFORDABLE
Dear Editor,
Today, after finally getting my kids back to school and catching up at work for the time I missed over Yom Tov, I opened up the four weeks of mail sitting at home. Maybe it was the timing that set me off, but when I opened my tuition bill for next year, I flipped.

Now, don’t get me wrong. As parents, we have committed ourselves for our children’s education to be top priority. That bill will, iy”H, be paid in full by hook or by crook. The teachers and the school staff members deserve decent salaries. But for three children, my bill was well over $20,000 [high, but it could easily be double]. What is so bothersome is that in this particular school, the tuition came out to be $8,000 per child and it goes up every year, yet the children get off every year more and more. This tuition is supposed to cover 10 months of the year. When you go through the calendar, you’ll see that it actually covers less than 8 months, which brings it to over $1,000 a month per child.

This led me to go through my expenses for the year and see exactly what my necessary living costs are and what I can cut out.

Truthfully, I am not sure how people survive. We have three kids in school and one baby at home.

Tuition is $24,000 (this includes the extra book charges, dinner charges, and the building fund fee, which we are required to pay).

Camp costs $4,000 for 3 children. One child goes to sleep-away camp. [Having seen what many camps charge, I believe cost is on the low end for camps, especially since the child in sleep-away camp is being fed].

Our mortgage, together with our homeowner’s insurance, is $48,000 a year [$4,000 a month] (and we bought our home before the prices got out of hand. Our property, even in today’s slumping market, is worth double what we paid for it). [I assume this includes tax also, but I'm told property tax is not overinflated in the boroughs. So, even if the property is worth more---which in my opinion is only meaningful if you go to sell it--$48,000 is an incredible amount of be paying on a mortgage].

$30,000 is spent annually on groceries [$2,500 a month]. This includes Yom Tov and extra shopping for the baby. [You have got to be kidding me!!!!].

Utilities cost $32,000 [$2667 per month]. [Once again, you have got to be kidding me!!!! Having been involved with shul budgets, I know you can heat and air condition a fairly large building on $32,000 a year. This is ludicrous].

$17,000 is spent on health/dental insurance. (If not for dental insurance, I would be including $20,000 on procedures done last year on my husband and two daughters). [$1416 per month. I don't know what private insurance runs. It seems overinflated to me. But, perhaps it is not so]. $16,000 is spent annually on car expenses, car insurance, and gas (since we both work and need to drive a lot). [$1,333 per month. A lot of money, but perhaps this part of the budget is the first reasonable line item].

This adds up to $123,000. This means that before taxes and maaser, we need to make a minimum of $170,000. In most cases, this requires both parents to kick in financially. [I don't dare open up this discussion again :)].

Therefore, we also need someone to watch our baby and need to hire help to make sure that the housework is done. In addition, for 2 of the 10 months that our children are home from school due to days off, we have to spend extra money to entertain them [the word "entertain" makes my skin crawl, but that is a subject for another post]- through school sponsored programs or other programs - since my husband and I cannot take off (our jobs don’t give us off for 2 months a year). This costs approximately $50 a day, which comes out to $2,000 a year. Our household help costs $22,000. This brings the family income to $194,000.

For the summer, we move upstate for income purposes. We spend an additional $10,000 on a bungalow and expenses. This brings the number up to a minimum of 204,000- and at that point taxes increase and so does maaser [I start my budget not from what we have to earn, but from what we have to spend from the primary income earner's budget after saving a set amount. Just noting this because this method of laying out a budget is strange to me]...

Remember, this is a 6-member family and we try very hard to monitor our expenses [whatever you say. . . .your food and utility budget would eat through our entire take home pay]. However, often, time is more valuable and we have to spend more on food so that we can spend more time with our children; we might shop at a more expensive local store than run around to cheaper stores. In this cheshbon, I did not mention clothing and other items such as Chol Hamoed trips, Afikoman and birthday presents [thank G-d. I think I'd faint if the cheshbon included those numbers], etc., but I think you get the picture. [Nor do you mention life insurance or retirement savings which is an absolute MUST, especially for a family spending like this].

After making this calculation, I started wondering. My spouse and I both work full time. We both try to make sure that when the kids are home from school - on school days - one of us is home with them. Sometimes it works and sometimes it doesn’t. We saved money when the going was extremely good. We also bought our house before the market exploded, so our mortgage is pretty reasonable for our neighborhood. But there is a whole generation that is graduating school now. They need to be able to live. Something in our society is going to have to give. We may have to create a secluded culture where we are all committed to hiring from within, but then we also need to make sure that our boys and girls are qualified to perform these jobs [I'd say a large part of the spending/budgeting issues just might be the already secluded society. Unfortunately, it is an uphill battle to educate about a different way when there is little to no exposure to it. And, yet, the spending habits I've highlighted on this blog erode the financial foundation of so many that I can't help but to try to be a small voice out there].

I know that this letter will probably have people writing in about how I could save money here and how I could save some money there. (I know I could. I could also move out of Brooklyn to Eretz Yisroel.) But the reality is that, boruch Hashem, I can afford to pay more than maaser, and I can afford to pay more than the tuition bill. As I see it, however, there are more of us who can’t afford basic expenses and these numbers increase daily. Our school system may need restructuring [darn right!], food prices have to come down [they are going up], our baalei battim may have to commit to hiring only frum people [they have bills to pay to, nu?], and other things have to be done [like a complete economic overhaul?]. But we need to start making changes and we need to start making them quickly. The economy is definitely not working in our favor. I hope to hear positive feedback.
C. K.

P.S. Check out some of the comments on ProfK's post, New York the center of the World. . . Not" written by those who left or want to leave NY and the parents/in-laws are hot under the collar about it. Yes, as the letter writer says, "we need to start making changes" and "something in our society has to give." Living in Brooklyn (or anywhere else that housing costs are out of this world) is something that will have to give.

Choosing an Accountant

I like varied projects, and the very, very part time freelancing I do provides me with quite a bit of variety. This week, I met with someone who needed to get his accounting system in order for his small business to have his taxes prepared. He showed me an old return. The others are sitting in the IRS office under audit. After seeing the current return, it was no mystery why he was flagged for audit. It was obvious that the former accountant pulled numbers out of a hat. Worse yet, the accountant didn't even use the correct forms. Nor did he advise this client of 3 years regarding what expenses were deductible and which were not. Unfortunately, this man was under the impression that buying himself a burger from McDonalds while on the job qualified as deduction, since he was self-employed (ouch!). Plus (I kid you not), the form was handwritten. I've worked with a handful of people who have small business and work as consultants and I'm always saddened when previous accountants have never given them proper guidance.

So, here are a few tips if you are choosing an accountant:

1. Software: This might seem obvious as it is 2008, but the accountant you go to for any service should use software. The handwritten return filled out by a CPA is not the 1st return I've seen where software was not used. Another case I saw was a CPA who typed up a 1040 and missed a basic tax credit. One look at the form told me software was not used because software automatically ties up certain loose ends. Another mistake I saw recently, a W-2 with the incorrect amounts paid to social security and medicare. If you are paying for a service, make sure the professional uses software.

2. Garbage In, Garbage Out: I have seen tax returns where no expenses were taken for a contractor. I find it hard to believe there were no expenses. But, I do believe that no personal attention was given. Anyone with self-employment income should be looking for some personal attention because that additional 7.65% in FICA hurts badly. If the accountant can't prep you on record keeping and bookkeeping, you might want to keep looking.

3. Long Term View: There are some accountants out there who I am convinced just want to make sure that the clients pays as little taxes and/or receives as big a refund back so they client will feel good about the work they paid for. But, the idea of being in business is to maximize profit. If a business is growing and the proprietor has cash flow, the proprietor should look for an accountant who is forward thinking. There is nothing worse than seeing equipment expensed to the max in year 1 and nothing left to expense when the tax bill is going through the roof. Of course, a person could always re-file, but if you are paying for a service, you should only have to pay once.

4. Added Value: One of the accounting publications I receive addresses the subject of keeping the client's overall financial picture in mind. An accountant that has more than your refund on his mind, but can help point you towards financial tools that might be of interest to you (Retirement accounts, Coverdells or 529 plans) will prove far more valuable. While it is fair to charge a fee for time, you probably don't want someone who is going to nickel and dime you, like a friend's former accountant.

5. Yashrut: You have probably seen or heard advertisements lately for certain tax services. One ad claims that this company finds a large amount of missed deductions on average for previous forms brought in. One should know that not every mistake is worth fixing and in tax $1000 might not equal $1000. Don't get taken for a ride if an accountant recommends amending a return. If you pay $200 to get back an additional $100, you are now $100 poorer. Know what to ask. In addition, I've unfortunately seen reconciliations, general ledgers, taxes, etc, where it is clear that numbers were pulled out of a hat. Financial professionals are not magicians. If something doesn't seem right, it may not be. And, if you don't recognize a number, ask.