Better Living through Unemployment

My wife has been out of a job since the end of October 2004. When she was fully employed she worked on a help desk, solved mysterious Windows problems and made around $50K a year. Then her employer decided to outsource her department. She got a very nice severance check and was let go.

Fortunately there was my income to fall back on. Since I made about twice what she was making there was no looming financial catastrophe. The last six months have proven that our lifestyle has not changed much. We’ve avoided a regular trip to New York City and we also eat out a bit less. But otherwise our lifestyle seems largely unchanged. Still, it seems counterintuitive to me that our income could be cut by a third and we’d not notice it that much.

It helps to be fairly liquid. We have never been people to live beyond our means. Our house is modest. We have two cars, one paid for, the other half paid for. Our only other real debt is our mortgage. Since our house was purchased twelve years ago for less than half what it is now worth, and the principle is about $130,000 or so, our mortgage payment is easily doable. It’s about what most people pay for decent two bedroom apartments in our zip code today.

And technically my wife is not unemployed. She is now “self employed”. She is very self employed. This is to say she picks up a few greenbacks here and there fixing and building computers for friends and for clients. She does not market herself. She will also teach a class at a local community college starting next month. Adjunct teaching pays slave wages. From the 12-week course she will likely bring home about $1300. I expect that by the end of the year she will have earned at most one tenth of what she made in 2004.

Whatever time she has left over is hers to use as she wishes. She is having no problem keeping busy. She loves writing and now has the time to immerse herself into it. She has submitted one story and will be submitting others. She also critiques others stories in an online writer’s workshop. She occasionally meets friends for lunch. She has projects around the house she can pick up or leave as whim dictates. And she can sleep in late most mornings. She is not a morning person, so she now usually crawls into bed sometime after midnight when I have been asleep for a few hours. Her unemployment seems ideally timed. For example she was able to transport my father for some outpatient surgery while I worked a full day. She can also transport our daughter to her various activities without me leaving early from work to do it, which was often the case in the past.

While I am still a bit skittish about how this loss of income will work out in the long run, I am a lot less skittish than I was. One reason is that I’ve discovered that living on one income can pay a dividend. Last year with our dual incomes, even after healthy deductions and credits, we paid close to $19,000 in federal income taxes. This year I project we’ll pay about $8300 in federal income taxes. The change in our job situations caused me to look at my withholding. At my old withholding rate (Married – 0 dependents) I was withholding about $13,800 annually from my wages. Now I need to withhold $5500 less. Since I am paid biweekly this effectively means I can take home $211 more every two weeks. This can pay a few bills. But we’re already paying all the bills, still going out to dinner regularly and not going in the hole. So in a way this money feels like a windfall.

I realize that most families in this situation would not be as fortunate. My job also comes with good benefits, like health insurance. I also realize that there are some other costs to my wife’s unemployment. She is not racking up social security credits, and must pay the employer’s portion of her Social Security and Medicare taxes for her meager self-employment earnings. She is not putting money into a 401-K, so those potential earnings will not be accruing in the future. Since we are doing fine perhaps the best use of the extra $211 a pay period be to put the money into an IRA.

Still, our situation seems counterintuitive to me. Until recently living on one income was out of the question. It seems odd that we can reduce our income by a third and feel so little pain. This was simply not an option before. Unemployment for any sustained period of time would have meant major changes in our lifestyle. We would have been looking for the next job the day we knew our job was ending. My steadily advancing career explains part of our good fortune. Part of it is also explained by not living beyond our means. But part of it is also due to our progressive income tax system.

Our tax system is often maligned but now it is a blessing. The flat rate tax favored by some people would have worked to our disadvantage. Instead we paid proportionately more as we made more income. The flip side is we pay proportionately less when we earn less. If you ask me this is a very sweet system. Each according to his means may strike some as socialism, but to me it seems eminently fair. I didn’t begrudge the $19,000 we paid in income tax last year. I felt fortunate that we were in a position where we could contribute so bountifully to the commonwealth and still live so expansively. Of course since we were doing so well we should be asked to contribute more toward the cost of society’s upkeep.

At 45 my wife is probably too young to retire permanently. But it seems like if she wanted to take the rest of her life off from the grind of a 9-5 job she could. I just hope that I don’t find myself on the receiving end of a pink slip before I retire.

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