While the wealthy don’t get much sympathy on this website, the restructuring of the economy to save the banks at the expense of pretty much everyone else has hurt some former members of the top 1% and even the 0.1%. And it’s also worth mentioning that some of the former members of the top echelon occupied it when the distance between the rich and everyone else was much narrower than it is now.
The fact that economic distress has moved pretty high up the food chain is a sign that this recovery isn’t all that it is cracked up to be. Even though the media is awash in stories of how much stronger the economy is getting, I see all sorts of counter-indicators locally: more restaurant and retail store closures than during or at any point after the crisis (and pretty long store vacancies), reports from my hair salon that business is not all that great, and my gym offering hefty discounts on renewals for the first time. Perhaps NYC is in a mini-downdraft, but that would be the reverse of the pattern in recent years, where thanks to the tender ministrations of the Fed and Treasury, the city has weathered the downturn better than most of the US.
A cohort that is in quiet distress is women who were divorced 15 or more years ago. Conventional wisdom is that London is a great city for woman to go through divorce, and New York is a lousy one. I have no basis for validating that statement. But regardless, the assumptions in handing out settlements back then, that the ex wife would be able to earn a decent return on her investments and land at least an adequately paid job when she was done receiving alimony, are out the window now. So women who thought they’d gotten enough to be able to raise their kids and live comfortably, or at least adequately, are now scrambling in their mid 50s to mid 60s to figure out how to survive, when reinventing yourself at that age is an against-the-odds proposition.
Here’s a story from someone I’ve known for the past three or so years (details disguised). We’ll call her Karen. She is from a wealthy family, sent to private school in Europe, attended an Ivy League college in the mid 1970s and got a graduate degree in math from one of the top programs in America. She married someone also from a wealthy family who is now a billionaire. Karen wound up inheriting almost nothing because the very successful manufacturing business that her grandfather built was run into the ground by her father.
Karen got divorced in her late 30s, which was about 20 years ago. She gave up a lot in the settlement to get custody of her children (long shaggy story as to why that was the case). She moved into a modest apartment and now is in an even more modest apartment (and it’s rent stabilized, so it is also cheap for what it is). She got another graduate degree (not an MBA, a useful one) that with her math/statistical chops should have positioned her well to get work when she was done raising her kids and the ailmony ran out.
She found, when she hit the job market in 2009, that no one would hire her for sort of positions that her training qualified her for. It was not clear how much of that was due to age discrimination or just the hyper-competitive state of the market. She managed to get herself hired by a series of new or newish ventures. The compensation either had a large sales component or “on the come” component. She wound up leaving each one, and even though she’d be the last to put it this way, having heard these situations evolve, in each case it was about an ethical issue. For instance, in one she was asked to misrepresent the company’s services to prospective customers. She tried hard squaring that circle and was still meeting her sales targets but the owner took umbrage at her refusal to adhere closely to his basically dishonest sales pitch. For another, she was working on the FDA process, and disagreed with management’s approach of marketing to the FDA as opposed to complying with the data disclosure requirements.
After each of these jobs fell apart, and she was getting near the end of the alimony runway, she was panicked. She also supports her brother (she pays the taxes and maintenance on her half of a house they inherited without charing him rent). She was seriously looking into cleaning apartments.
To her surprise, her ex-husband did not cut her off completely; he’s paying her a greatly reduced amount. And she has landed a job as an adjunct professor teaching calculus at a local school. She says matter of factly, “I thought with my two graduate degrees I’d be able to earn $80,000 a year. My market value is between $23,000 and $30,000.” Keep in mind that what she makes as an adjunct is what she’d make cleaning five Manhattan apartments a week.*
So with her bargain basement rental and the stipend from her ex, she has enough to get by and enjoy some small luxuries, like going to London once a year to see her daughter who is in school there.** But the adjunct job is no party. Some of the students are openly hostile to taking math from an older woman, and last term, when one of the instructors pulled out of teaching a course, she got bagged to take on far more in the way of teaching (as in both number of lectures and number of students) than goes with her pay.
In her circle, which I infer consists of people she kept in contact with from her school days, plus people she met through her children’s schools, she says she knows of no one who is not in worse shape than they were a few years ago (this includes her billionaire ex) and many are in moderate to acute stress. For the other divorced women she knows, even if they aren’t in trouble now, they can see that their assets won’t last them the 20 to 40 years of life expectancy they have, and they see no way out of their box. One of her other friends who isn’t as educated and resourceful as Karen needs to send more money to her mother and was making a serious effort to get apartment cleaning work. Another has a house she was renting out for income, but the local market changed and she was suffering a lot of vacancies. She’s been refusing to sell the house because “she can’t afford to take the loss” which really means psychologically she can’t face up to the idea that she has less in the way of assets than she thought she had.
A sign that of broader underlying stress among the supposedly well off: those in Karen’s circle say that the word in the charity circuit is that donations are down this year.
The problems that Karen and her friends face isn’t their fault. Just as it’s easy to demonize the poor who don’t have jobs as deserving of their fate, when most of them want to work and many had good records before the economy was rearchitected to remove a lot of decent jobs and leave people scrambling for those who remain, so to it is easy to demonize the better off who similarly had the rules changed on them when it is too late for them to do much to change course. Just as many of the people who are desperate for work made choices that seemed sound, or defensible mistakes, so Karen and her friends weren’t profligates. They got what should have been enough for them to live on if they didn’t overspend. And Karen is quick to decry women who partied too much or lived too high, so for the most part, that isn’t a big driver of the quiet panic around her.
Thanks to ZIRP and QE, these women face the same problem as retirees, just at a somewhat higher starting point. The equation among the downwardly mobile wealthy was that if you had more than a million dollars, you could put it in muni bonds, earn 3-5% after tax, and that plus Social Security and a paid-for house meant you had nothing to worry about unless you got a really costly ailment. So allowing for personal risks and the possibility of needing to support family members, a couple of million dollars would be ample to live off your income and not touch your principal, which also meant you could leave an inheritance to your kids.
No longer. Now to get 2% in munis, you have to go out to a ten-year maturity, which means you are taking real interest rate risk. And if you are no longer able to earn enough income off your principal, you either have to cut way down to live off what it yields now, or if that is still not enough, to chip away at your principal. That means you are faced with the underlying terror of the real odds of being peniless in your old age. Those who are still in the labor force and have lousy personal balance sheets can keep that eventuality at bay by virtue of how just getting through the day occupies the mind plus the belief, whether true or not, that they can keep working until they drop. Retirees and the de facto retired, like these divorced women, have the high odds of an eventual financial train wreck much more in their faces. And with our society becoming more mercenary and callous, they are unlikely to be able to rely on the charity of others if that occurs.
So as much as many of you will probably see these women as undeserving of sympathy, their story is the same as that of many middle aged and elderly people: not enough in the way of assets to see them through their likely lifespan, with their problem due largely to the inability to earn a decent income from savings under ZIRP. The fact that there are many people who are desperate now does not lessen the plight of those who are long financial distress futures. Everybody has his own personal rate of financial decomposition. The case studies in this post have the time and financial savvy to see their decay profile and its implications earlier than many others do.
* Going rate is $100 to $150 for a one-bedroom, depending on size of apartment and how much the cleaning person does (a big variable is whether laundry and pressing included; ones with more bedrooms and more than one bath obviously command higher rates). Conservatively allowing for $120 an apartment, 48 weeks a year, and no Christmas bonus (pretty much everyone does give a bonus, generally an extra session’s pay) is $28,800 a year. But the work is not as steady as a day job.
** Before you start moralizing that she should leave NYC, she is keen to get out but it is unlikely to get her overhead down much. The cost of owning and operating a car is a big offset to the savings on housing.