One year into my Whole Life policy

Last month I coughed up my 2nd annual premium, which I set at a level I could sustain paying even if my income took a 10% hit. Sadly, that decision was made just weeks before the Manic Money Panic (my infinitely more accurate term than “economic downturn”) struck. No, this is not another post bleating about my change in circumstances and overreaching – it’s about the silver lining despite the 30% hit my income has taken.

I recently got a check from my whole life provider for a dozen bagels shy of $400. It was sent in error – I had set the policy up to reinvest…ugh, what do they call them, bonuses? dividends? Before you think I’m a complete moron for not knowing something so basic about something I’m putting so much money into, I’m just getting the terminology a bit garbled because I know this product better in its British form, where it’s referred to as a “With Profits Endowment” and is often used to pay the principle in conjunction with an interest-only mortgage. Not sure if that’s still the case today though, my info and bi-dialectalism is a decade old. Anyway, the point is that in addition to its modest guaranteed rate of growth, it earned an additional $400 based on the company’s performance. That’s a return, for lack of a better word, of 4.36%. Of course, this is all fairly irrelevant because the policy has a cash value of about $0 for the first couple of years and isn’t even worth what I put into it for the first 10-13 years. I do, however, get to see the future minimum value change as well as the increased death benefit. Of course, that only happens if the $400 is re-invested as intended, so I sent the check back and had my adviser/agent rectify the admin error that resulted in a tempting (but taxable) check.

If I’m still having difficulty meeting the premium next year, I’ll ask if my dividend/profit/return/bonus can count as part of that premium. After all, my advisor said that by the time the policy is worth the same as my deposits, the bonus will be approximately equal to the premium and can pay for itself if I so choose. So why not before that, if necessary? I hope it’s not, but I like having options.

Yes, I know Suze Orman doesn’t like this financial instrument – it’s not suitable for everyone, but I chose it for reasons I’d rather not share, pretty much all related to being self-employed. And as much as I currently regret the amount I selected to pay into it, I’m otherwise reasonably happy with the home my retirement money has found.

Stock market: If you had the guts…

… what would you do with the cash sitting in your brokerage account?

I maxed out my Roth IRA (TDAmeritrade account) back in April, and have just let the money sit idle. Anytime I mention this to someone in the investment biz, they say “Good!”  Current stock market fluctuations make absolutely no sense to me, and I don’t trust the Dow to stay be this unjustifiably buoyant for much longer. If I really wanted to put my money where my mouth is, I’d pick a stock to short – but I’ve never shorted.

So what’s a MoneyMate to do with cash that’s locked up for at least another 20 years? Do I start researching stocks to buy? Is there even a point do to doing that? Do I continue to sit and wait? Do I pick a mutual fund?

What are you all doing with your money in the market?

Mom: “You can’t repay me with coupons!”

I decided to handle my $9K whole life premium as an annual payment, due next week, and borrowed the $2K shortfall from my mother rather than use my emergency fund (sorry, I’m not sharing the reasoning behind this). My mother, the Blond-Blue Dimpled DEVIL had a good giggle about role reversal – this is the first time ever that she would be loaning me money. Oh yes, there’s a very loooong history of me lending money to my parents, but never the other way around.

Sometimes we get goofy about bits and pieces of cash, and it goes a little like this:

Mom:  You paid for dinner, which was $10 more than the lunch tab I picked up. That’s not equal.
MMK:  I make 20% more than you, so it’s fair.
Mom:  Your rent is 130% more than mine, so no it’s not.
MMK:  Fine, then you pick up the sales tax and leftover bits on our CVS transactions.
Mom:  (after CVS) That was only $5.30. I still owe you.
[Mom now dramatically pulls out wallet and starts holding up coins to the light, squinting with one eye]
MMK:  (with ostentatious magnanimity) Keep it – chauffeur fees, for carting my ass around to 3 different stores today.
Mom:  Okay! [Puts money away in her most miserly manner, then cocks one eyebrow and sticks her hand out] Gas money is extra.

The deal we made was that I’ll pay her back in big fat chunks by the end of the year, but if at any point she needs it all back, I’ll pull it from my savings. Then, I swear, I could hear her eyes narrow in suspicion over the phone, as she added: “You can’t repay any of this with coupons, you know. Saving me $8 at the grocery store with your coupon shenanigans does not come off your bill!”  Oh, well, now – she just made it way too easy to tease and torment her for the next few months. Heh.

Whole life policy: Good or bad decision?

Last summer, my financial advisor talked me into a whole life policy with an annual premium of $9K. Two weeks after signing on the dotted line, Lehman crashed and the value of our country and planet spiraled. I have since been questioning my ability to keep up the payments, whether it’s the right product for me, the security of Mass Mutual, etc. I still don’t have a clue, but I have an odd source of perspective in my even odder personal history…

I’m thinking that it was a much better decision now than when I made it for a number of reasons, the first being that it has a guaranteed minimum appreciation. The main reason I went ahead with it despite not entirely understanding the nuances of how it works is that it’s nearly identical to a very popular mortgage-attached product in the UK called a “with profits endowment”, with which I have significant familiarity. In the UK, instead of having a traditional repayment mortgage, you could opt for an interest-only deal and the portion that would have gone towards the principle is invested in this product. However your ability to repay the mortgage in full at the end of the term hinged on whether that endowment achieved it’s projected value, not its guaranteed value. Bonuses to the policy’s value are locked in annually (again a feature of both the US and the UK products) and therefore protected from future market fluctuations. The worst that can happen is that the policy only increases by the guaranteed minimum. It seems that the UK product was heavily marketed as a mortgage alternative in the 80s and early 90s (possibly the 70s too, but I honestly don’t know), and there were all these delicious news stories  in the late 1990s about people who’d chosen the 15-year term option getting massive windfalls upon cashing in the policy. Think about where the Dow was in 1982 (800) v. 1997 (9000) and you’ll understand what I mean. No, people didn’t increase their wealth by a factor of 10, but it was extremely common to hear of people whose policy value exceeded the minimum value by 100% and their mortgage needs by 30-50% when the time came to cash it in. Now do the math based on a $100,000 mortgage.

Which brings me to my second reason for liking this Whole Life decision:  the economy is in the toilet. Anything, ANYTHING that Mass Mutual invests in was already down significantly when my money went in, and dropped further. I think that over the next few years, those locked-in policy bonuses will be rather sweet, since there’s so much room for rebound – which is a wonderful thing this early in the life of such an instrument…right? Or am I missing something?

The major hurdle for me is the monstrous premium. I based my level of savings/investment on my income not dropping more than 10% from its 2007 to mid-2008 levels, and it has dropped more like 25%. The premium will be due sometime in September, and right now I’ve got $5K out of the full $9K set aside. I thought I had two ways to make up the slack this year, but neither has come through – one being my brother’s huge bonus upon the sale of the company he works for (which fell through), the other being Bridezilla repaying a $6K car loan. She doesn’t start her first job as a nurse until August, is getting married in September…yeah, that’s not going to start coming through in time.

So here are my options for handling an anticipated shortfall of about $2500:

1. Pay the full annual premium, making up the amount I’m short from my savings account (emergency fund), and cross my fingers that this is the only year I’ll have to do such a thing.
    
2. Opt to pay in installments. The downside of this is that it’ll cost about 2-5% more because I’ll lose the little discount I get for paying up-front. The less frequent the installments, the smaller the extra amount. I could conceivably choose semi-annually with the next chunk due in March, but I really don’t like the proximity to tax time and IRA contribution deadlines.
3. Pay what I can, call that the new premium, have the policy value adjusted accordingly. I hate this one because I get no benefit from the difference between what I paid last year and what I pay this year; the money just goes poof.
4. Do 15 “naughty” massages in the next 10 weeks. Okay, that’s an absolute 100% joke – I just put that in there because this post needed something to wake you all up. And to shock any relatives who ignored my instructions from two posts ago to never ever visit my blog again. Heh. Serves you all right for ignoring my wishes.

My Micro-economy: The Good, The Bad, The Ugly

I’m in a little bit of a tizzy this morning (see The Ugly below), but yesterday I reviewed my income and investments so far this year and, I don’t know about the future, but the present is a little less bleak. I gave up two things – haircuts and travel – which, taking into account some sublet income, would have cost me $3500. And that is just about the sum total of…

THE GOOD

There’s a certain amount of money I need to make every week to cover all of my essential personal/business expenses – rent, health insurance, cell/internet/web hosting, food, laundry, etc. Four out of the first nineteen weeks of 2009, I failed to hit that number, while three of those weeks I exceeded that minimum by at least 75%. To put real numbers to this, I exceeded my survival-level income over those 19 weeks by $5000. So where is that money now?

–  $1000 finished off my 2008 Roth IRA contribution on April 1
–  $600 for the replacement laptop
–  $200 wasted on application fees for the apartment I decided not to take
–  $750 for professional services – accountant, doctor bills, 1 Rolfing session
–  $3000 is earmarked for my Whole Life policy premium due in September
–  $1350 “extra” sitting in my accounts waiting for me to do something with it

Umm…that adds up to $6900, not $5000. I’m doing something right and I have NO idea what. I might have to revisit my concept of survival-level expenses and see where I’m saving, like, $100/week. My income is down 20%, but I was worried it was going to be more like 40%, so this indeed all good news relative to the current environment.

Also, I’ll be making a passive $75-125/month handling the sublet of my soldier-friend’s apartment. I’ve already got two potential tenants lined up for viewing with the current sublettor, who it turns out gave the place a fresh coat of paint when he moved in. Assuming it’s not a bizarre color…phew! I’d have painted it, but didn’t really want to. Apparently the owner refuses to fix some constantly-running water problem in the bathtub, but I would gladly sacrifice some of my little side income to pay a plumber to take care of it. Heck, maybe I could hire one of my building’s maintenance men to do it on the side – I trust them.

THE BAD

My investments are still down about 40%, though my recent stock purchases are faring way better (one is down 17%, the other is up 360%). Despite the “leftover” money, I’m going to struggle to accomplish what I want to this year – $5K Roth IRA, $9K whole life, unknown amount towards tuition for Rolfing course (anticipating $3-4K). It’s killing me not to travel, but I can put that on the back burner for one year. I just can’t let it go on longer than that or else I start acting all nutso.

THE UGLY

Hoping it’s a minor obstacle, but since I’ve only known about it for a matter of hours, I don’t know yet. Although I wish it weren’t the case, I get most of my business through Craigslist – of all the places to look online or off for an independent massage therapist, this is the most high-profile site out there. I’m on others, but they’re only worth about 10% of my business. Yes, it’s that unbalanced.

I may have mentioned that since CL started charging to post in the Erotic (recently relabelled “Adult”) section last fall, the Therapeutic board has been swamped with massage parlor, escort and brothel spam. Traffic quadrupled overnight. Just to keep an ad in the first 200 (2 pages), you need to post every 45 mins. I technically break the rules by top-posting, but it’s really freaking minor compared to what everyone else is doing – seriously , is 175 live ads in a week not worse?? Well, in its unfathomable wisdom, CL decided to suspend two of my five accounts, and their help page pretty much said I had a snowball’s chance of getting it reinstated. Amazingly, in the midst of blogging, the ban was lifted on the one I emailed about, just hours after reminding them that they really need a lot more ads like mine, not less. Still, I’m quite sure this is only the beginning of the fallout from the Craigslist Killer and the ensuing negative press. It’s particularly ironic to be dumped on like this today – I got a thank-you note from a squash-playing doctor who came to me two hours before his tournament final last night a completely cramped up mess; he was an underdog, he won, and he was giving me some of the credit. And tonight I’m working on a high-profile retired 4-star general who, yes, found me on craigslist after sifting through about 60 pages of shady ladies. Bring on the ugliness…

State of the MMK Union

According to the talking heads at CNBC (my commercial break channel surfing destination of choice before 4pm), that whole downturn thing is over and happy days are here again. So let’s pretend for a moment that I believe them and look at how it has affected my year thus far, as I sit here on the eve of my 39th birthday…

Income:  My income has taken a 20% hit, based on a year-on-year comparison for the Jan-April period. I predicted a percentage closer to 50%, so this is GREAT!!! I suspect it would have been higher if Feb 2008 hadn’t been so frighteningly dire in the immediate aftermath of the Bear Stearns collapse. Anyway, this means I’m making my expenses and a bit more, but not a whole lot more. And I’m hoarding it.

Career:  Looks like there will be a 2-day Rolfing workshop in June. Given the complexity of Rolfing, I suspect it’s an intro deal to market the big 300+ hour course, which bodes well for my financial future!

Investments:  GE is down 30% since I purchased it, and AIG is up 180%. And if business continues to show recovery, I just might be able to make that Whole Life premium in September (I’ll go monthly if I have to, but I feel like that’s just postponing the inevitable).

Health:  Still fighting to get my minor vascular procedure done – pain in the ass doctor won’t schedule a surgery date (it’s not just me). My weight is way up but, I think, no longer increasing…with Bridezilla’s big day looming, I really need to re-establish my good habits pronto. And thank whatever powers that be, I finally resolved the neck-shoulder-elbow pain in February…ahhh!

Home:  Re-upped in March for 18 months at an acceptable rent. In retrospect, I wish I’d shot for 20-24 months, ugh, what was I thinking. I do need to replace some dying items in here though, like a shelf unit that’s getting awfully rickety. But I tend not to get around to such things until they completely fall to pieces, which is really not a great plan when clients come to your home.

Travel:  No plans in the making, except for the non-negotiable trip to Colorado in September for the wedding. I really should do something the first week of July though, because I know I’ll be wasting my time waiting around for clients to call.

Charity::  I’ve funded several microloans at Kiva with money that had been repaid from other loans. I’ve made weekly deliveries of cereal, dairy products, condiments, toiletries and first aid items to a teen shelter and also cooked dinner there twice. My new shopping-for-free hobby has been fantastic in this respect! I’ve made one delivery, with another in preparation, of toiletries and beauty products to Bottomless Closet. I’ve done 4 ThaiForGood massages for $$ for my little charity projects. I sent a check for $80 to Thai Freedom House in February, with plans to send another $50 within the next 10 days.

CONCLUSION:  Despite the year’s craziness on a macro level (volatile markets, new president, Craigslist Killer, swine flu panic, etc), I’m doing just fine on a micro level. And you too can come to this conclusion if you restrict your news viewing to Comedy Central 🙂

Monday Migraine edition

Business picked up for me these last few days – and I find myself slammed with migraines, hence the lack of posts over the last week. I worked through Thursday’s pain, had a “headache hangover” on Friday and even a bit on Satuday. Along comes Monday and I get another monster migraine — all the free Excedrin in my stockpile didn’t make one bit of difference.

On Friday, I transferred the final $1K of my 2008 Roth IRA allowance into my account — haven’t decided what to buy, and will wait for another dip in the Dow before buying anyway. What can I say, I don’t buy into the “happy days are here again” nonsense on CNBC. I personally don’t take any encouragement in hearing that the market just had its best week or month since 1933. Ahem, there was more Great Depression ahead of that moment than behind it.

My $400 Bonus from AIG

A month or so ago, I blogged about picking up 1000 shares of AIG @ $.517. It’s now trading at .93, which puts me a dime away from doubling my dough. However, it’s got to make it to ~$1.40 to make up for my piece of the $170 billion bailout pie – which works out to about $900 per tax-paying American. However, it doesn’t make up for the biggest chunk of my non-Roth IRA portfolio that just went Chapter 11. That alone is worth nearly 4 years of tax write-offs.

Hey, do you think the government will increase that $3K tax deductible loss limit to help us out? Hah, joke – we know all too well that they need all the tax dollars they can get their grubby little hands on. Too bad – I think it would be a fairly minor concession in light of their porky stimulus packages and mismanaged bailouts.

Meeting with My Money Man

Last night, my financial adviser met up with me at a diner nearby to discuss changing a few things over a plate of curly fries…

Health insurance
I told him I was thinking of switching to FreelancersUnion.org insurance, but he went right to the crux of what’s wrong with those plans – and I felt pretty good that it was the same point that was causing me to hesitate (hospital deductible/co-pay). He says that since I have no real health problems or family history of anything pending in the next few years, he thinks I should get in on a “cheap” HMO for $315/month (which is $110 less than my current plan and has better coverage though fewer doctors in Manhattan). He made an interesting point that I would have come up with eventually: isn’t it worth $4 in subway fares to travel to Queens to see a gynecologist or whatever and save myself $1300+ a year? And the best hospital in the city is in-network. Anyway, he’s on this plan himself and he used to run hospital admin – any problems I have getting things done with the insurance company, I drop him a line and he sorts it out. Apparently I should have done this all along, like when I wanted to know in advance how much a procedure was going to cost and no one could answer that – not the insurance company, not the doctor’s office, not the pre-cert folks, no one. Very off-pissing. I anticipate switching May 1, after I get one thing out of the way that I suspect a cheap HMO won’t give a stamp of approval, especially not for a brand new member.

Whole Life
He wants me to not make any decisions about reducing my premium because:
(a) Even before the stock market crash, my retirement savings were way behind for my age.
(b) Our new president is going to find ways to tax investments left right and center, but this sort of instrument is considered family-oriented and classified as insurance, so it’s unlikely to be affected.
(c) My problem with the policy is my drastic drop in income, not the suitability of the product. Here’s where it gets interesting…

Business Plan
He had a lot of ideas on how to increase my business. Some of them aren’t relevant to massage (he was describing how a client of his ran his personal training biz), and others involve, ahem, communication skills I don’t have but can develop. Specifically, he thinks I should go to the tradeshows at hotels nearby, wear a t-shirt or something announcing that I’m a massage therapist, and hand out my card. The most likely for me to attempt, at least initially, was having him hook me up with a friend/client who runs a bike org that meets nearby – I’d show up once a week at the same time and pass out my card to new members. That one I like, because cyclists and runners are my biggest fans thanks to my fancy Thai moves for their legs and hips. He also wants to figure out a way to get me in with the rich geriatric crowd. Which reminds me, I need to renew my CPR certification… Anyway, the overall picture is that we need to get me through the next year until I can start and complete my structural integration training, which will change my financial picture completely.

Apartment
My Money Man has lots of clients with apartments all over the city that they rent out, and called me at one point before our meeting to ask where I wanted to live and my price range. He said they all think I have a great deal where I am, and that I should continue paying my rent and living here even after my lease expires because it will take them 6 months to kick me out. This shocked me, but I’m left wondering how in-touch they are with what has happened to the rental market in the last 2 months. However, I firmly believe that this is the best possible time for me to upgrade to a one-bedroom (ideally) or an even larger studio – there are some that are “2-room studios”, which I don’t entirely understand…think it has something with doors or windows or where the bathroom is located. Anyway, what I took away from that discussion is that if I don’t find the perfect place by the 31st, don’t sweat it.

I like my financial adviser a lot … his approach is to build the success of his smaller clients so that down the line, they’ll become bigger clients. Beats the pants off the first adviser I tried – he just tried to milk me for contacts and sounded like he had memorized a sales pitch.

I was in a gambling mood this morning

Complete novice idiot that I am (though I’d like to prove my own self-deprecating assessment wrong!), I decided to pick up 1000 shares of AIG this morning @ 51.7 cents a share.  It’s a gamble I’ve been contemplating for a few months, actually, on the basis that the government has proven that they will not let AIG go under and is pretty heavily invested in its resurrection. I said I’d wait until the Dow hit a scary low number, and today was that day. I’m ambivalent about whether I hold in long- or short-term. My last choice has already bombed out (GE @ $17).