Thursday, March 28, 2013

TING AND I, Money, Medical Care, Retirement

“Love of money is the root of evil.” But how about just liking it?

For my first twenty years, my family was frequently short of money. A paramount factor in many decisions was, “How much will it cost?” There were four children, and a fifth much later. Though “Papa” had a law degree, he preferred to be a salesman, despite its ups and downs. I remember in the late 1950s helping him one Christmas Eve to install an aluminum storm door for a customer, in the bitter cold. Not long after that, he went back into law, going through a partnership or two, getting a position with New York City in a Kingston, NY, branch, making a bit of additional money with a part-time office in downtown Rosendale, NY, population a few thousand. I knew I was never going to be in sales, nor in law. I decided I would look for something in the white-collar professions that would bring in at least a middle-class income without drama.

Money narrowed my choices of college to attend. Applying was expensive for us. I would need a scholarship. M.I.T. required the scholarship application to be in a month earlier than the regular application for admission. I was accepted to M.I.T. but applied a few days after the scholarship deadline and therefore would have to wait a year before becoming eligible for the scholarship aid I would have otherwise been very likely to get. That taught me that deadlines can be crucial. At the interview for Cal Tech, I was told I was likely to be admitted if I did not need scholarship aid to attend, but not likely if I did need it. I was not admitted. Tuition and some expenses were covered for Cornell, so I went there.

Money influenced my decision not to join a fraternity, though it was not the sole factor. My job at the Cornell dining hall was low status, with whatever consequences that involved. That was not a big issue for me. If it is not what you know, but whom you know, my contacts there were of little future value.

The time away from studying or playing was regretted. I obtained a better part-time job, through physics friends, at the cyclotron, which eased money worries considerably and often gave me quiet study time while there.

My dear Tina was not interested in me for my money, clearly. I always remembered that. When my first marriage and a subsequent engagement did not work out, I knew that if Tina still loved me, it would not be for my floor-through condominium apartment in Boston’s Back Bay, nor my faculty position at Harvard, nor my media appearances. Tina had loved me when I had nothing other than myself.

When I decided no longer to be a millionaire, meaning no longer to be married to C, I wondered how many other people would have made the same decision. Was it foolishness to toss away being rich?

A year or two after the marriage broke up, say mid-1982, I knew for sure that I could no longer afford to live where I was living. Slowly my bank balance was going down. As a single person with a 2,200-square-foot apartment on Marlborough Street, I was losing ground. Harvard support personnel once complained, “We can’t eat prestige” in their campaign to get higher wages.

I understood. Some of my faculty colleagues came from moneyed families and their salaries were not key for them. While married to C, I had been in much the same position.

Although some professors developed lucrative consulting businesses, I had not. My associate professorship was barely adequate for a married person with a small family living in the suburbs and inadequate if one wanted to live nearer and send the kids to decent schools. If I were to remarry, it would mean moving. Once Tina and I decided to marry, early in 1983, I started to look for a new position. Eventually, I received offers of full professorships at the Illinois Institute of Technology and the University of Cincinnati and a research position at IBM’s Watson Research Center at Yorktown Heights, NY.

Any of these would provide an adequate standard of living. It would put us close to Ted and to Tina’s ex, one advantage and one disadvantage. Cincinnati was part-way there, while IBM seemed most likely to be willing and able to afford the kind of crushing medical expenses sometimes associated with multiple sclerosis, where the patients live a long time and need a lot of care. That’s just how it worked out, and we thank IBM for its generous policies.

Waste not,

Want not.

Make do.

Do without.

This old New England advice fit Tina’s temperament and mine.

Warren Buffett emphasizes living below your income, as we did. Our cars were usually second-hand or bought at the end of the model year. No expensive vacations, no second homes, no smoking or drinking or gambling. No expensive hobbies or tastes.

We had a head start with the money I made on selling the Back Bay condo, and we used that to buy our Bedford Hills, NY, condo for cash. We sold that at a profit and bought the Millwood, NY (Ledgewood Commons) condo, also for cash. We sold that at a near break-even price and then bought the Ramsey, NJ (Jean Street), home for a lot of cash and a mortgage that we paid off in a few years. We sold the Ramsey house at a profit and paid cash for the Lake Osiris property, at a substantially lower price than we’d been paid for the Ramsey home. We improved the insulation at the Lake Osiris house and eventually put in vinyl siding. One of our house transformations caused a neighbor to ask, “Did the bank approve of your doing that?” Paraphrasing Louis XIV of France, I was happy to reply, “I am the bank.”

Years later, I read the book, The Millionaire Next Door, which recommended a lifestyle we had already adopted.

Along the way, from Cambridge to Lake Osiris, some interesting things happened, money-wise. An ex-girlfriend of mine solicited C and me to invest $5,000 in sugar futures, nearly a sure thing, she said. The amount was one month’s income, more or less, and we bought in, thinking we’d either make some dough or get this woman off our backs permanently. She made a 20 percent commission, we later learned, and we lost all the money when the price of sugar did not rise far enough, fast enough. She never called again, though. She later became a lawyer.

A financial advisor recommended South Shore Publishing, then the stock dawdled along doing nothing much for a few years. Suddenly, the executives of the company became eager to buy out the stockholders and take it private. Against strong share-holder resistance, the executives prevailed. Surprise, surprise: the next year the company began making substantially larger profits, greatly raising its value. Creative bookkeeping can cover a multitude of sins.

After I left Boston, the woman in the couple occupying one of the floors above us in the Back Bay was found to have embezzled a lot of money from her academic employers.

With the hubris of a physicist but the wariness of one who has at least felt poor, I looked into the various systems suggested for beating the stock market. Most did not hold up under scrutiny. John Casti’s book Searching for Uncertainty: What Scientists Can Know about the Future contained a captivating chapter, “Meanwhile at the Casino,” on efforts made to beat the market, generally without success. However, it showed that the top-rated 100 stocks (Group 1), of Value Line evaluations, produced truly remarkable gains from 1965 to 1989, the last year available. Plotting the performance of Groups 1 to 5 (highest=rated to lowest-rated segments of the market) produced graphs that looked like dose-response curves, with Group 1 doing much better than Group 2, which did better than Group 3 (roughly breaking even) which did better than Group 4 (losing) which did better than Group 5 (losing even more). The evidence seemed convincing.

I was persuaded. I put our “speculation money” (roughly 5 percent of our net worth) into ten or so of the Group 1 stocks. I then followed Value Line closely, sometimes having to change my investments because they fell out of Group 1. For whatever reason, as the investment disclaimers always note, the past did not necessarily predict the future; and for ten years or so, I did no better than did the Standard and Poor’s Index of the 500 largest-capitalization stocks. If you can’t beat ’em, join ’em. I got out of Group 1 and put that money into an S&P 500 Index Fund, where it sits today, almost unwatched. Diversify, diversify. Current thinking on investing emphasizes diversifying, as accurate prediction eludes all but a very few.

With Phil about to graduate from high school in June 2000, it was a logical time to make a move, retire early. Texwipe, the family-owned company for which I worked, was being sold to the conglomerate Illinois Tool Works. The new owners might or might not be emphasizing selling their products on the basis of the technical characteristics of their materials (they did not, as it turned out) and thus might or might not need a physics Ph.D. and statistical quality control guru as their Director of Contamination Control (they did not).

Did we have enough money for me to retire at 58? The advice we received was that one needed an income of about 80 percent of one’s pre-retirement wage, which we could almost do, and we might not need quite as much, as we were moving from more expensive Ramsey, NJ, to less expensive Walden, NY. Tina was paraplegic at this point. We had a home health aide 35-40 hours per week on the weekdays. I handled the evenings, overnights and weekends. Long-term care insurance, bought during an open-enrollment period at IBM (Hancock could not disqualify us because of MS), covered most of the aide’s salary. We could and did retire with minimal financial uncertainty.

At 62, in 2005, I took Social Security early. In case the rules would change, I wanted to be “grandfathered in.”

As mentioned above, Tina’s 100 days in and near the Critical Care Unit in 2004 cost about a half-million dollars, covered by IBM’s retiree medical insurance. Every year of our in-home nursing care since 2006 has cost about one-third of a million dollars, again covered by IBM. By now, without that coverage, we would have been devoid of savings, though our pensions (TIAA-CREF, Principal, Fidelity, Social Security) would have provided income. Despite the medical insurance coverage, the not-covered elements of Tina’s care have sometimes used half our annual income: deductibles, co-payments, disposables–for example, $1,500 per year for disposable diapers---and on and on. Sometimes the insurance reimbursements fell two to three months behind, amounting to $50,000-$75,000. What would people with less savings do? To its credit, our current provider, United Healthcare, has generally kept the delay to a month.

Now, because of our ages, Medicare covers much of the direct medical costs. If we became officially poor, Medicaid would provide some services, far fewer than we now have, only what they decide we should have. Some people have suggested to me various ploys, including divorce, to make Tina officially poor enough to get Medicaid. No. No. No.

The lesson: “Provide, provide” as a Frost poem urges. No one else is going to bail you out. Being on the public dole puts you at a big disadvantage. Even family members are not likely to help much.

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