Occam's Razor

You’ve probably heard that the pandemic has made the wealthy wealthier and the poor poorer, at least here in the United States. The U.S. gross domestic product actually fell in 2020, but according to Quicken our net worth shot up 17% in what seemed like the worst year of our lifetimes.

Just four years ago we went through the expense of getting estate plans done. Here in Massachusetts, if you die with over $2M in assets, you are subject to estate taxes, unless you create estate plans that effectively shield a lot of money from estate taxes. Since the state does not index the amount for inflation, it seemed a sensible thing to do. I remember telling the missus, “It looks like our net worth is likely to be over two million dollars before we die.” Four years later, we’re nearly there.

Should I be thanking the coronavirus? Maybe I should be thanking the Fed (Federal Reserve). When the coronavirus hit and markets tanked they went to work pumping up the economy with lots of newly created money. Fortunately, it used the money to buy assets, so it’s not like they threw the money down the drain.

Crazily, it worked, at least for keeping the stock market overvalued, where we had plenty of investments. Nationally our economy otherwise collapsed. The stimulus intermittently doled out by our government helped some, but it’s clear that all this wasn’t enough for most people who live paycheck to paycheck. In many cases, there was no paycheck. Unemployment benefits sweetened by Uncle Sam helped. For most working folk at best it kept them from collapsing into debt and homelessness. The latter is largely a result of federal legislation that makes it hard for landlords to kick out many tenants.

Then there’s the undeserving: me and those of us who weren’t hurting to begin with. We got stimulus too: $2400 in the first tranche, $1200 in the most recent one and possibly more with the new bill going through Congress. Having nowhere to spend it we did what most of the rest of the reasonably well moneyed did: saved it or bought more stocks with it. Being retired with no mortgage or any debts, and with the pensions coming in monthly plus selling some of our retirement portfolio, and being unable to spend most of what was coming in, we were effectively saving 25% of our income.

And although neither of us has to work, I still do some consulting. And crazily 2020 was a banner year too, netting me nearly twice the income from it than it did in 2019, thanks mostly to one new client. There is no chance of contracting covid-19 from this work. It’s done in my upstairs office over the Internet. We went to the store maybe once a week at off hours, heavily masked but that was as much risk of catching covid-19 as we bore. In reality, covid-19 was never really a threat to us. No one came to visit. We had nowhere to go. One of the few things we spent more money on was services like Netflix. There was a lot of time to kill. Stuff we needed mostly got delivered.

All this while the effects of the pandemic were quite obvious. There’s a public middle school next to us. You would see a handful of cars in the lot, but no children noisily screaming or school buses going in and out. Those who weren’t masked more often looked like they were hit by a bus. All this plus Donald Trump was making everything exponentially worse; hospitals and ERs were overflowing and people were dying, about 450,000 of us last I checked.

I’d like to credit all this to my brilliant financial talents. But really I did nothing out of the ordinary. I just stayed home, deposited those pensions checks regularly and spent a whole lot less. The only pangs of regret I felt is that we couldn’t get on a cruise ship or take an exotic vacation. All that was in our budget. (We actually did take a cruise in early March 2020, came back okay, but it was scary. It had been paid for in a pre-pandemic world, and it was nonrefundable.)

Through my career I felt like I had earned my salary and then some, so there was no reason to feel guilty living a cushy retirement. But I often do anyhow. I didn’t realize until fairly recently just how big an advantage it was to be male and white, which I was. At the time I didn’t feel like it meant much, but now I see friends who are people of color generally dealing with an entirely different reality.

So as much as I’d like to think I rose on my own talents, in reality I was lofted at least in part on an unseen rising tide of white privilege. Not all my white male peers were so lucky, of course. Some really got the short end of the stick. Heck, my wife got downsized in the early 2000s and never recovered her previous salary, despite doing similar work. But she could ride on my income and prosperity.

In retirement I am finding the ways to squeeze a nickel even harder without trying very hard. The tactics have changed since the days of my parents, who lived through a Great Depression. Rather than darning socks, I find new income in the darnedest places, like a 2% cash back no annual fee credit card. I went on a savings hunt and found, at least for a while, that I could lock in a 2.5% APR CD at an online bank. We also get income from our solar panels, about $2000 a year, paid by companies that use our green offset to pollute. And really, we save money because we are taxed too little. We could and should be paying more in income taxes, but Republicans have decided we shouldn’t have to. The only tax that increased this year was our real estate taxes, now nearly $10K a year. A city assessor came through the neighborhood. On the plus side, he reassessed the value of our house upward by $76,000. Add that to our net worth.

And we’re trying new things. We let go our old financial planner and found one closer to home, with an interesting model. They find out portfolios that match our risk tolerance and add their fees to that. When I mentioned I could no longer get a 2.5% APR CD, they suggested a bond fund that would likely beat that. No, it’s not FDIC insured, but it’s very low risk, and we should be able to net at least that for our cash assets.

We probably won’t be buying a second home or time shares, but I’m wondering if this is how someone like Mitt Romney spends his free time. Income just seems to keep compounding. I used to struggle to put aside a little money with each paycheck, now I don’t know quite to do with it all. It seems surreal and wrong somehow, particularly when so many are suffering.

Yes, we have given more to charity, quite a bit more this year, and helped bail out a few friends who were seriously struggling. Even four years ago when we were putting together our wills, we decided that we were unduly fortunate. When we depart this world, about half of our estate redirects money to charitable causes.

Half of my side of the estate is currently earmarked for scholarships for people of color, to be handled by the estate manager. At least in death I can partially rectify my white privilege and help elevate those who were denied it.