An 1867 Matthew Arnold poem, Dover Beach, speaks of being "on a darkling plain ... where ignorant armies clash by night." That might be a description of today's United States. Warring ideological factions are engaged in a tug of war that threatens to leave many casualties behind.
Ignore the political wars if you want, but consider these questions:
- Will you have a job a year from now?
- Will you still have health insurance next year?
- Will you be able to keep up your mortgage payments? What if the income tax deduction for mortgage interest goes away?
- Will you be able to invest safely for retirement? How much will your savings earn?
There has probably not been a more unsettling time to be an American in recent memory. Striving and planning for a secure future seems impossible when warring political factions compete to see who can cause more disruption. You can blame it on Donald Trump or say that he is simply the end result of worsening political dysfunction, but regardless of who or what is to blame, we live in perilous times. Getting through them requires that we take a hard look at our prospects for our home, health, and pocketbook.
They're not issuing crystal balls anymore, but here are some factors to consider as you prepare for what could be a pretty rocky period.
Employment comes in many forms
Trump has pledged to bring jobs back to the coal mines and Rust Belt, but giving up your job as a solar panel installer to seek a job digging coal may not be the way to go. There is serious doubt that Trump's programs will work. Coal is not exactly in high demand these days and the skilled factory jobs aren't likely to return to the upper Midwest anytime soon, if ever.
In fact, restrictions on immigration and tariffs to block foreign-made goods may, at least in the short term, do more harm than good, possibly costing jobs as American companies run short of skilled technical personnel (who are now often immigrants) and abandon businesses suddenly made unprofitable by tariffs.
The short-term prospects for job-seekers are slightly better, with 22% of employers surveyed saying they plan to increase staff from April through June. The leisure and hospitality industry plans to expand by 28% – the most of any industry. Wholesale and retail trade expects to increase hiring by 21% and transportation and utilities by 20%.
That sounds good, but read it carefully. Leisure and hospitality jobs? Hotel maids and short-order cooks. Wholesale and retail trade? Working in an Amazon warehouse or at your local Walmart. High-wage jobs these aren't.
Where's the best place to find a job when Congress and the White House are busily deregulating everything in sight? The answer: make your own. As businesses are deregulated, entrepreneurial opportunities increase. Even the Federal Trade Commission is in a deregulatory mood, establishing an Economic Liberty Task Force to get rid of excessive licensing requirements for small business.
Sound far-fetched? Not necessarily. Performing a relatively low-level job for an employer may get you $10 or $12 an hour. Doing it as a business can get you three and four times that.
Example: A young Maryland woman we'll call Beth spent $300,000 and several years getting an MBA and graduating from veterinary school. But when she talked to young veterinarians who were working their first jobs, she found they were making only $40,000 or so a year working at animal hospitals and trying to save enough to open their own practice while paying down their massive student debts.
Meanwhile, she noticed, everyone was asking her advice about dog-training when they encountered her walking with her three large and very well-behaved dogs.
Beth opened her own dog-training business in Southern California. She charges $90 an hour and trains four to five dogs per day. You do the math. She is planning to hire an associate soon so she can take on more business.
The associate will be paid -- ready for this -- "oh, I don't know, maybe $15 an hour," Beth said.
Beth could have saddled herself with even more debt by buying a franchise, which would have provided her with marketing materials, but with her business degree, she was able to provide all of that herself at no cost, except in time and energy.
"I would be as miserable as all my friends from veterinary school if I were working in an animal hospital, giving dogs shots and watching the interest accumulate on my debt," said Beth. Instead, she has a growing business and gets to spend time with her favorite creatures, most of it outdoors in parks and backyards instead of in the back room of an animal hospital.
A retirement-age professional woman in the Washington, D.C., area found herself helping out friends by watching their homes when they fled South for the winter. She began charging $90 an hour and now employs a flexible corps of independent contractors, staffing up in the winter and slimming down in the summer.
A hard-working Hollywood actor and screen-writer walks dogs for $20 per hour and has more business than she can handle. It lets her go to last-minute auditions and hand off the hounds to her helpers when filming or hacking out a script. Four or five 30-minute walks each day pay the rent and take the place of expensive gym time.
The lesson? Do what you're really good at. Most entrepreneurs start out devoting nights and weekends to their dream job, then quit the day job when revenue begins to climb (or when their boss finds out what they're doing and fires them).
Beth's not very concerned about the political situation. "People will always have dogs," she said. "Somebody's got to train them."
Compare that to being a coal miner. When the mine closes, your skills aren't in demand. Maybe miners should be spending nights and weekends learning about wind turbines and solar panels. Throw in satellite dishes and there'll always be something someone wants you to install for them.
What if you get sick?
Perhaps the biggest barricade to the economic liberty the FTC now talks about is the health insurance situation. Prior to the Affordable Care Act (a/k/a Obamacare), self-employed people had a very hard time getting health insurance. It was expensive, didn't cover much, and nearly always excluded pre-existing conditions.
Anyone with a family had to think twice about giving up their employer's health benefits. Today, the situation is becoming wobbly again as the White House and Congress try to find an alternative to Obamacare. If they do, and if it provides affordable coverage for everyone, fine. If not, the wily consumer will have to do some serious strategizing.
The most obvious solution for a couple is for one of the partners to have a fulltime job -- any job -- that provides health benefits. The other can then pursue entrepreneurial ventures, go back to school to learn a new skill, or both.
If that doesn't work, one answer is a high-deductible health plan. Think of it as catastrophic insurance -- something you'll use only if you get really sick or injured. Major insurers like Kaiser Permanente, Blue Cros s and UnitedHealthcare offer these plans in many states. For a relatively low premium, you can get the coverage you'll need if you or someone in your family develops cancer, heart disease, or another serious condition.
The downside is that you pay for day-to-day expenses out of your pocket. This is really not so bad if you look at how much you would be paying for a full-service policy, and many doctors will negotiate a reasonable fee if you explain that you are self-insuring. They appreciate your recognizining that they are professionals who should be paid for their work.
The problem, say many experts, is that Americans have decided they should not have to pay out of their pocket for healthcare, even though they do so for just about everything else. Adjust your thinking a little and you can save big bucks and, depending on which whim Congress follows when it starts fiddling with taxes, you may get a big tax deduction. Don't count on it though.
Hanging onto your home
Besides an occupation and healthcare, you need a place to live. This is not as simple as it used to be. Rents are rising because so many consumers are unable to buy a home or simply choose not to. Meanwhile, mortgage rates are near all-time lows.
What is wrong with this picture? There are many theories. Some say the mortgage industry is over-regulated and all the rules imposed by the Dodd-Frank Act make it nearly impossible to approve many trustworthy mortgage applications.
Others say consumers are afraid to stick their necks out by taking out a 30-year loan on a house in a city that may become a ghost town, or that they're afraid they'll lose their job and be unable to keep up the mortgage payments.
Well, just add to that the fear that when Congress gets around to reworking the tax code, it may take away the home mortgage interest deduction, described by friend and foe alike as the biggest middle-class subsidy of them all.
"The impact could be a lower homeownership rate, reduced home prices, fewer new construction starts, and ultimately harm to the broader economy," the Community Home Lenders Association said in a letter to Congressional committees studying tax reform.
Real estate interests are horrified and are arming for a battle but you never know, it could happen. If it does, Congress would perhaps have the sense to phase it in over a lengthy period of time, to avoid being scalped by constituents.
But even with some breathing room, homeowners will be stuck with properties they will have a hard time unloading at a decent price if mortgage interest is no longer deductible. Keep in mind that most consumers look at their home as an investment -- they expect it to increase in value over time while providing a risk-free tax break. In effect, it's a nest egg they hope will contribute to their retirement.
Live rent-free, or nearly so
There's not much any of us can do individually to influence Congress, but there are ways to hedge our bets. The simplest is that old standby -- the duplex. They're not called that much anymore, but the concept remains -- it's housing that you occupy while also renting out a portion of the property.
Sometimes, it's a sort of extended ranch-style house, other times it's a two-story house. In either case, the plan is that the rent your tenant pays you also pays a good chunk of the monthly mortgage payment. Since it's income property, the tax code lets you deduct not only some of the mortgage interest, but you can also take a deduction for depreciation, upkeep, maintenance, and so forth.
Take the case of Jon and Carol. Jon is a New York City attorney in private practice. He has a thriving practice working mostly with small businesses and entrepeneurs, but it's still in the hand-to-mouth phase, without a lot of excess income at the end of each month. His wife, Carol, works for a county agency in New Jersey (health benefits, remember?)
The two had been living in a high-rise apartment at a cost nearing $3,000 a month. A few years ago, with a little help from family, they bought a two-family, two-story house in Jersey City, across the river from New York. The mortgage and property tax payment is around $2,500 a month, which is about what the upstairs tenants pay in rent.
Law practices may come and go and county jobs can evaporate around election time, but whatever else happens, Jon and Carol have a roof over their head and they're hoping to buy another house in the same neighborhood in a year or two.
A rewrite of the tax code is unlikely to upset this little arrangement because, well, President Trump knows a little bit about real estate and the tax code and it's highly unlikely that anything in the new tax bill will make it less profitable to own rental housing.
Golden years looking a little tarnished
So let's say you manage to do all of the above. Eventually, you will wash up on the shores of retirement. Although most people say they plan to keep working past traditional retirement age, it often doesn't work out that way. Ill health, job loss, and family obligation can all interfere with what in some circles is known as the DOD (dead-on-desk) plan.
The key to surviving retirement, of course, is to have enough sources of income to keep you from winding up in a trailer down by the river. That isn't as easy as it used to be, unfortunateley, now that defined pension benefits have largely disappeared from the private sector (county job, remember?).
Social Security and Medicare are both endangered and Social Security was never intended to be the sole source of retirement income, although that is what it has turned into for millions of Americans. You can blame Trump and the GOP Congress, but the primary problem is that the average age in the U.S. is high and getting higher, as previous generations of immigrants forsake the large families of their homelands and begin having only one or two offspring.
Immigration largely kept our old-age programs solvent for the last century or so, but with immigration now regarded as anathema, the average age will continue climbing until we get close to one worker for each retiree instead of the 159 to 1 ratio we enjoyed in 1940.
So what can you do to improve your prospects for a prosperous old age? Here are a few modest suggestions, most of which will by now sound familiar to you:
Buy income-producing real estate and hang onto it. Using the Jon and Carol example above, you should be able to buy a two-family house every five years or so. Do that for 30 years and you'll own 12 rental units, producing $30,000 or so per month before expenses.
Forget the "dream house" that is the ruination of so many consumers. Live in one of the rental units yourself. If you need more space, go outside. Mow your own lawn.
Don't quit that county job too soon. Public employees are still getting pensions. How long that lasts is anybody's guess, but while you're out entrepreneuring, your spouse can be drinking coffee in the county building and stashing up credits in the public pension plan. It beats sitting around that cramped duplex.
Accept reasonable offers. Someone may come along someday and want to buy your solar-panel installation business. If the offer is reasonable and would give you a good chunk of OPM (other people's money) that you could use to implement your next bright idea, don't dismiss it out of hand. Who knows? If coal comes back, you'll wish you'd sold when you had the chance.
Find a competent, honest financial advisor. You can, and should, invest in a diversified portfolio of stocks, bonds, precious metals, real estate, REITS, and so forth. If you enjoy the tedious task of building and mantaining a diversified portfolio, fine, but for most of us, it's better to hire a financial advisor to do it for you. You want someone who is a CFP -- Certified Financial Planner -- and preferably one who works for a major firm like Ameriprise or Charles Schwab, not someone who has an "office" in his garage. Or at Starbucks.
Be realistic about investing. It's not what it used to be. Even experienced investors and professional money managers have trouble making more than 4% to 5% on their money. Some years things go south and your nest egg shrinks. Be ready for that and don't do anything rash when it happens. Savings accounts and money-market funds literally pay next to nothing, so don't stash too much there. There might come a time when you can sell your duplexes and retire, but don't count on it. Even investing a few million dollars doesn't produce all that much spendable cash anymore.
So, to extend the ignorant armies metaphor, be realistic, modest, and hard-working. And keep your head down. You'll make it.
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