holy excrement, I win!

So BOTH convention hotels were full in DC.  I dreaded the thought of finding another hotel and going over my proposed budget.

I feel like I hit the total jackpot ‘cuz I found an awesome Bed and Breakfast through tripadvisor.com.

And it was the same price or less than the convention hotel, as well as being only half a mile away (which hopefully is a lovely walk in the early summer morning right past the national zoo and not too hot yet, I hope!).

I WIN!!!!!!!!!!!

tripadvisor.com is my new BFF, sorry #2.
What do you all use to help plan trips?

Ask the grumpies: worth fighting insurance company?

L asks:

My employer switched health insurance companies/networks recently and a service that used to cost $75 with the old network’s discounts now costs $175 with the new network, apparently there is no discounted price. It’s the exact same service and a month apart, so it’s not like prices went up in the meantime. I told the benefits department at my company this and they gave me a bunch of bullcrap about how the new network is supposed to save us money and unfortunately my case is one where it costs more than twice as much. There’s a distribution list and I asked and there are other people seeing similar increases in service costs.

While I can absorb this, it is rather annoying and I now have the high deductible plan, so it is 100% my cost. I did finally get the bill in the mail from the provider and sure enough, it is $175 like the insurance company’s website said it would be. Do you think that I can call the provider and try to negotiate my own discount since there was such a large discrepancy between back to back visits? I really wish my employer would do something like this since we as individuals have no pull with the insurance company, but they have enough employees that they probably would…

Sigh.

Thanks!

Well, the only time we’ve ever had luck negotiating with an insurance company is when we’ve been in the right. And even then it has sometimes taken multiple phone calls. Still, it’s always worth a shot, if you think your time is worth it– you can report back to us.

What do our readers think? Have you ever had any success negotiating with an insurance company? Any thoughts for L?

Stock investing: Focus on what you can control

With the market recovering, assorted PF bloggers are getting into the details of stock investing.  They all have some system that they think is going to beat the market.  Most of these systems take a lot of time, but they say the time expense is worth it if they can make higher returns than the market.

On average, once fees and transaction costs are considered, people who try to actively manage their portfolios make LESS than people who just stick money in diversified target-date funds and sit.

That means that the majority of people who sink time in with whatever system they’re following are making less money in the market than the people who just set and forget.  On top of that, they’re making less money than they would be if they were spending that time doing something that actually earns money.  (Cynically, some of these folks are getting advertising $ from their blogs for misleading people into becoming active investors.)

What can you control:

1.  The amount of money you put in
2.  The diversification mix of your portfolio
3.  The fees you pay

What can’t you control:

1.  Market returns
2.  The random walk down WallStreet

And what you might have difficulty controlling:

1.  Man’s (and to a much lesser extent, according to Greg O’Dean, Woman’s) tendency to trade too much and at exactly the wrong times

If you want to invest like Buffett, then buy some Berkshire Hathaway funds.

Even better, pick a target date and buy a Vanguard Target-date fund.  (If you’re not sure about when you’re going to retire, pick a late date.)

Recessions and health

Recessions can be good for your health.  Recessions can be bad for your health.  Apparently it depends on who you are.

Recessions seem to decrease the death rate among younger folks.  This has been attributed mainly to a decrease in automobile fatalities (see Christopher Ruhm’s work).  The thought is that during a recession there are fewer cars on the road, so folks are less likely to get into an automobile accident.

Oddly, recessions also seem to decrease the death rate among older folks.  Recent work on this finding (by Doug Miller and company) suggests that in a recession the quality of people working home health care jobs decreases the mortality of older peeps.

However, recessions aren’t all good.  A new paper by Courtney Coile, Phil Levine, and Robin McKnight finds a delayed penalty to hitting a recession (and losing your job) in your late 50s.  That’s the age when it’s hard to get a new job (because of things like age discrimination), but you were planning on several more years of highly paid (compared to your earlier years) work before hitting retirement, or at least before hitting the early social security claiming age of 62.  It is a difficult time to have to start spending down instead of bulking up.

Worse than that is the loss of health insurance in the years before Medicare eligibility.  The authors suggest that this lack of health insurance is driving the negative results that they find.

How negative?  They find that a worker who loses hir job at 58 in a recession lives 3 fewer years than a comparable worker who does not lose hir job.

What can you do, besides marrying someone who can cover you with hir health insurance?  Well… probably not much.  You can save a lot while you’re young.  You can create side incomes.  You can build professional networks.  And you can support pushes for affordable universal health care coverage in your state.

Are you protecting yourself from job-loss in your 50s or beyond?  If so, how?

Ask the grumpies: 457 vs 403(b)

Viola asks:

I have access to both a 403b and a 457 retirement account at my new employment university (along with a mandatory retirement plant that I cannot increase or decrease my contributions to). I think that you contribute to both these types of accounts because you are super-awesome savers, but if I’m just going to do one, which should I do? A little background: the mandatory plan will take 5.5% of my yearly salary, and the uni will contribute 10% of my yearly salary to that plan as well. I can contribute whatever I want to the 403b or 457, but will not get a match. I’m 33 years old, and only started contributing to a retirement account about two years ago (~15%/year), because I have been financially idiotic for most of my life.

Well, gee.  There’s not a straight-out answer here.  It’s going to depend a lot on the characteristics of the two plans.  Most likely, it won’t matter too much which you choose, but here are some things to think about.

1.  What are your investment options for the 403(b) vs the 457?  Is Vanguard a choice for either?  In terms of investment options you want two things:

A.  Low fees
B.  The ability to have a diversified portfolio

The return that you get is going to depend a lot on these two options.  In my university, there are a lot of choices for the 403(b), but only one option for the 457.  We like the options in the 403(b) a little bit better, so that’s the way we’ve gone.  The fees were tough to compare between the two types of plans, but that should be changing soon with legislation to make comparisons clearer.  (I had to do some math to figure out what the step-function flat dollar fees for the 457 plan translated to compared to the straight percent for the 403(b).  At the amounts we were investing, the fees were about the same.)

2.  When do you plan on drawing down for retirement, and do you plan on leaving state employment, and if you do plan on leaving state employment, would you need to access that money?

The 403(b) has larger early withdrawal penalties, and if you leave state employment, you can roll it over into an IRA, but you pay a penalty to directly access that money.  With the 457 plan, you don’t have that penalty (note:  you can still roll over into an IRA upon leaving your job).  There are a few other small differences if you are older or need hardship withdrawals.  Also note that you can actually save in BOTH, if you have enough extra money floating around.

So if you want to make it more difficult to tap into your retirement money before you hit retirement age, go with the 403(b).  If you think you’ll need that money in case of job loss or leaving your job (or if worries about job loss are keeping you from contributing), then go with the 457.

Those seem to be the relevant points to consider to me.  What am I leaving out?  Has anybody in the Grumpy Nation made a decision between the two types of plans?

May Mortgage Update and housing’s effect on college choice

Last month (April):

Balance: $81,065.97
Years left: 6.5
P =$887.38, I = $327.03, Escrow = 621.66

This month (May):

Balance: $79,508.51
Years left: 6.333
P =$893.52, I = $320.89, Escrow = 613.58

One month’s prepayment savings:  $2.66

Our escrow dropped.  Yay.  (Though boo that’s because our property value continues to drop!) Also: Note we’re below 80K!

It turns out that your housing wealth affects your college choice.  A recent paper by Michael Lovenheim and Lockwood Reynolds finds that a 10K increase in housing wealth in the 4 years before a child goes to college increases the likelihood that the child attends a public flagship by 2 percent compared to less expensive public schools.

They found no relationship between housing wealth and where a student was accepted, and they suggest that the relationship comes between housing wealth and where students apply.

This effect of housing wealth on college choice was strongest for lower income families (under 75K, which isn’t actually low income, but it is generally eligible for financial aid at colleges).  For this group, a 10K increase in housing increased the probability of attending a flagship by 8.3 percent and decreased the probability of going to a community college by 3.8 percent.

They also found for lower income families that an increase in housing wealth decreased the amount that students worked outside of school and increased the probability of earning a BA rather than dropping out by 1.8 percent.

They found no effect of housing wealth on families earning more than 125K/year.

Do you think increases in your housing wealth would change your decisions about where you or your children could attend school?

Ordering replacement parts from the manufacturer

The handle on our crockpot lid broke.  DH jury-rigged a replacement handle with parts he found at Home Depot, but that, too, broke.

This time he went to the rival website and lo: they had replacement lids and other replacement parts for sale.  $10 plus shipping seemed kind of steep, especially if the lid was just going to break again, but after some thought and looking at replacing the crock-pot with a fancier model, we decided it was worth it.  But alas, there was no button to actually make a purchase on the website (DH saw that the source code has a note:  “put button here”).  So he called the company to make the purchase.

The nice lady on the other end asked how it had broken.  When DH said it had just fallen apart with regular use, she said they’d send him a new lid for free.  Yay.

And the moral of the story is that if part of something has broken, you can often get replacement parts direct from the manufacturer rather than replacing the entire thing.  And sometimes you can get those replacement parts for free!

Why I like stocks over real estate

There are two main reasons one might prefer stocks (and bonds) over real estate for the small time investor.

The first reason is diversification risk.  Houses are expensive, and unless you’re extremely leveraged, it is difficult to buy a lot of houses across a lot of different markets.  If your small area takes a hit or something goes wrong with your single rental, you don’t have a lot of other investments to balance that out.  It’s also more difficult to manage houses over a large number of markets than it is to just buy an index fund.

Now, you could just do a REIT, which is like stocks for real estate, but again, that’s focusing your money into one market.  Having some REIT makes sense as part of your portfolio if you don’t own your own house, or your own house is a tiny portion of your overall portfolio.  However, on average the REIT is going to match the stock market, so only focusing on real estate doesn’t trade off enough return for the lack of diversification.

The second reason is laziness.  It is easy to buy and sell index funds.  There’s always a buyer at market price.  If you need to unload stocks quickly by a certain date to turn into cash, you can.  You don’t need a good credit rating or the bank’s permission to do those kinds of things.  You just need money or stocks.

Directly managing real estate lowers those transaction costs that you have with longer-distance diversified real estate, but also adds more hassle.  You’re the one who has to deal with tenants, contractors, etc.  It’s a pain.

In addition, there’s a time factor.  Buying or selling an index fund takes no time at all.  Directly owning investment real estate can take hours.  Yes, your effort produces more value, but so would your effort in other directions.  Some people enjoy the small business aspect of real estate, but I do not.  I would rather earn more money through my day-job or other side projects.

Again, if you enjoy the process of buying and selling real estate, and you like dealing with repairs and tenants and so on, real estate investment can be a fun side project.  But if you don’t get utility from such actions, index funds are just as good on average and take a ton less time and emotional energy.

Have you ever dipped your toes into real estate investing?  Do you know anybody IRL who has done well with it?  Any horror stories?

On definitions: Retirement

In economics, “retirement” has no definition.  Or rather, it has several definitions, none of which are any good.

First off, there’s self-defined retirement.  When do people say they’re retired?  Turns out it depends, and it depends on a lot of things.  Women in certain cohorts, for example, will have their retirement status depend more on what their husbands are doing for work than what they’re doing.  Their self-defined status will also depend on whether or not they have children still living at home, and so on.  People can still be working and say they’re retired.  People can be out of work and say they’re not retired.  As people get older the lines between unemployment and retirement start to blur.

So then there’s working vs. not working, (sometimes not including those who self-identify as unemployed), but that doesn’t capture people who have ramped down considerably, now working a part-time job or a retirement job.  And, of course, how unemployed folks are treated matters as those lines between unemployment and not in the labor force start to blur when you’re open to new employment opportunities but you’re a discouraged worker.

Earlier versions of retired might include whether or not you’re receiving a pension or drawing down social security money.  Of course, with defined benefit pensions disappearing, that’s going to exclude a lot of people who aren’t taking social security just yet.  And there are plenty of folks who retire from a law enforcement kind of job in their 50s and go on to an entirely full-time new career following that.  And what about folks who never got to have a job that offers a pension?  Or who didn’t work long enough to vest?

Finally there’s all sorts of hybrid definitions that researchers use.  Working at a “career job” for at least 10 years, then stopping working at that job and now working fewer than 30 hours per week or less at a different job (or at no job) or moving from working for an employer to self-employment.  And variations on that theme.

Anyhow, this is all to say that we at grumpy rumblings think it is lame when early retirement bloggers argue about what the definition of retirement is.  There is no technical definition.  They don’t own the term.  Nobody really does.  Except, of course, the self-defined version, and we social scientists know that the self-defined term means different things to different people.

And that’s ok.

(Seriously folks, the term “financially independent” was invented for a reason.  It fills that void.  It’s not a dirty word.)

When will you consider yourself retired?

April Mortgage Update: Still wrestling with next year’s money goals

Last month (March):

Balance: $82,617.28
Years left: 6.666666667
P =$881.26, I = $333.14, Escrow = 621.66

This month (April):

Balance: $81,065.97
Years left: 6.5
P =$887.38, I = $327.03, Escrow = 621.66

One month’s prepayment savings:  $2.62

So, as we’ve discussed, this past year we’ve been contributing $500/month to each of the DCs’ 529 funds.   DH and I have been contributing to various forms of IRAs (now all Roths) since we graduated from college.  We’ve been putting money in 403(b)s and 457s as well, and are now pretty much caught up to where we should have been retirement-wise had we not wasted our youth frittering away our time in graduate school.  We’ve also been paying around $600 extra each month on the mortgage (though that varies with our escrow).

All of that is going to stop being automatic next year, other than my mandatory 403(b) contributions (~12% of my salary if you include the match).

We will have some extra money on top of our emergency fund at the end of the summer because (in theory) I’m getting summer salary.  This will be somewhere between 18K and another number (depending on things like emergencies, whether/when DH gets consulting, and so on).

Last semester when DH was thinking about quitting his job, we wrote out a list of priorities of what to do with extra money above and beyond our emergency savings.  #1 was 529 plans.  #2 was DH’s Roth IRA, #3 was my Roth IRA, and so-on.

Now I’m questioning the wisdom of putting money in the 529 plans before funding the IRAs.  On our current path, our children may very well get financial aid, which is something we hadn’t been planning on when we started the 529 saving.  Mint tells me that DC1 has over 40K at this point and DC2 has over 4K.  Do we really need to keep putting 12K/year away in these funds?

Earlier when I talked about this, I suggested filling up DC1′s 529 and not doing much with DC2′s, even though we are planning on paying for four years of college for each.  The reason would be that if DC1 doesn’t use all of hir money, it could easily be transferred to DC2 and we could stop saving for DC2.   People didn’t like that because they didn’t want DC2 to feel like a lesser loved child.  I want to emphasize that we will be paying the full college tuition for both children to the schools of their choices, even if 529 pots are unequal sizes (which they will be, even if we contribute the same amount just because of the vaguaries of the stock market).

Also, I would love to just put money into the Roth IRAs now, but there’s always the chance that DH will make a full salary before the next fiscal year is out and push us over the limit.  Undoing that sounds like a hassle.  Though maybe that’s too unlikely a proposition to keep us from waiting until January.

Anyhow, here’s our dream list of savings:

$12K/year in 529 plans (6K/kid)
DH Roth IRA (5.5K)
My Roth IRA (5.5K)
Mortgage prepayment (up to the amount left)
My additional 403(b) (17.5K/year)
My 457 (17.5K/year)
A SEPA or other self-employment retirement vehicle for DH (up to the amount he earns or 51K whichever is smaller)
Taxable stocks (infinity!)

Keeping in mind that I already must contribute 12%  to my 403(b), that we’ve caught up with where we should be an our ages and income on retirement, that our mortgage is as described above, we want to pay full tuition to college for two children, we’re in the 25% tax bracket (we were also in that bracket before DH left his job), and we have a healthy emergency fund in cash, In what order would you put extra money and why?