May 13th, 2015
in Op Ed
by Reverse Engineer, Doomstead Diner
Published on the Doomstead Diner on May 10, 2015
Discuss this article at the Medicine & Health Table inside the Diner
As I mentioned in my last article RE's Excellent Spinal Surgery Adventure, I am currently in the midst of a Health Catastrophe that only a very expensive surgery can hope to do anything to fix up. Bad as it is having to deal with that, you get an ancillary problem when one of these catastrophes strikes, you lose your income pretty much instantaneously if your income comes from having a Job, as most folks besides the Filthy Rich need for a source of income.
Generally speaking, people in the FSoA believe we have a Social Safety Net that keeps you from falling off the cliff right away if you can't work. Unemployment Insurance is supposed to cover you for 6 months to begin with, right? Wrong.
In order to be eligible for UI, you have to be READY, ABLE & WILLING to take a job. If you can't do that, you can't receive UI Bennies. So if say you were a Tree Trimmer and lost your arm in the Wood Chipper, obviously right after it occurs you're not going to be ready to work at ANYTHING for quite a while, and never Tree Trimming again. Once you get your prosthesis and heal up, you might be able to work as an IT Developer, but you don't have those skills or experience, so you're not going to get a job like that requiring only one good arm. So you don't get UI.
Clearly, you have become DISABLED, so you should be eligible for SSDI, Social Security Disability Insurance. However, it takes minimum 4-6 months for Social Security to determine whether to hand you those Bennies, and this is only if you do all the filing correctly and quickly, which you probably don't do right away because you're too busy getting your medical problems fixed up. After this 4-6 month waiting period, SS approves currently around 40% of the applications the first go round, and another 40% on a second go round, which of course takes an appeal and a few more months to finally get it if you're not one of the 20% that get left twisting in the wind in perpetuity.
Now, for the Wood Chipper, if his accident happened on the job, in theory he should be eligible for Workman's Compensation. This assuming he is not Self-Employed and has an Employer to file a Workman's Comp claim against. Employers have Insurance Companies that get called in when a WC claim drops in, and of course they don't want to pay up unless they absolutely have to, which brings in the State Labor department when they "Contravert" the claim, which basically is for some reason they deny the responsibility to pay up. This then goes into an arbitration proceedure, and you better have a good Lawyer to represent you for that one. Even with a real good case like the Wood Chipper probably has here, you don't even get your fist Pre-Hearing for 6 weeks, and then it is another 6 before the first Hearing, and meanwhile you are twisting in the wind and racking up the medical bills too.
So basically, far as a Social Safety Net goes, there really isn't one that is effective if you get hurt or have a medical problem that keeps you from taking a job, even temporarily, which is in many senses worse than a problem which makes you permanently disabled. If you're permanently disabled, at least after 6 months you should start receiving your SSDI bennies. Calling this an "Entitlement" is absurd, you paid into this insurance fund for precisely such an occurence. If it was just a temporary problem, like say the Wood Chipper just broke his arm but didn't cut it off, he isn't eligible for SSDI once he heals up, which he does before SS even makes a determination on his condition. His employer replaced him while he was laid up, so now he needs to find a new Wood Chipping job. He IS now eligible for UI, but this will only last him 6 months once he finally gets it rolling, but if he didn't have at least enough savings to carry him through the 6 weeks or so while his arm was healing he may already be Homeless, his Cell Phone cut off and living in his car. Even if there are any other Wood Chipper jobs available, it's tough to get a job when you have fallen this far off the cliff.
So, how much Emergency Savings do you really need? Here's some estimates from Business Insider on what your Emergency Savings Fund should be:
Your emergency fund is the cash you have set aside in case of - you guessed it - an emergency.
Ideally, you're storing this cash in a separate savings account, in order to draw a mental and logistical barrier between this money and your other savings, so you don't accidentally spend it on a trip to Aruba or a comfy new mattress.
This money is specifically for emergency situations, like a medical emergency, a death in the family, or to cover your living expenses should you lose your job and income. "If you also have an investment portfolio, you don't want to have to liquidate things at an inopportune time to raise a little money," explains Jonathan Meaney, a certified financial planner. "It's good to have some cash on hand that's not exposed to the ups and downs of the market."
But how much, exactly?
Emergency savings aren't usually measured in terms of dollars - rather, it's months of living expenses that money could cover. For that reason, everyone will have a different dollar amount, and everyone will have a different need.
The most basic emergency fund, for a healthy person without dependents who lives well within their means, is three months of living expenses.
"If you lost your job, you could presumably find another one within this window," explains Meaney. "Although in the current job market, it's been a bit of a challenge."
Dual-income families, people with dependents, or individuals with variable or commission-based income might want to think more in terms of having at least six months of living expenses stored in their emergency savings.
Some experts even recommend that every person blow straight past three months, and sock away at least six months' worth of savings no matter their situation.
Again, the amount of savings you need is highly personal. "What does your overhead look like? Are your only expenses every month your utilities, or do you also have a $600 car note?" Meaney asks.
When calculating your month's living expenses, you'll want to include costs like your child's tuition, any debt payments you need to make, or any other expenses you'd have to cover should your income be interrupted. The number you come up with shouldn't be a surprise, if you know how much you're spending every month. "You're starting from your budget," Meaney explains.
Single-income families, families with health problems, and older and/or retired people will most likely want more months' worth of cash stored away - at least eight months, or even an entire year.
While no one expects an emergency, those who are bringing in less income or who are at a higher risk for some sort of upset (like older individuals) will want to make sure they have enough money to cover them for a considerable period of time, or a series of very large bills.
It may sound like a lot of money, but amassing your emergency fund is just like saving for a vacation or a new car: Set up a regular auto-deposit from your paycheck into your emergency fund, and let it grow quietly in the background, hopefully never to be needed.
First off, the 3 month number is a JOKE. This isn't enough to carry you through the period it takes either to work through the SS Bureaucracy or to get a Workman's Compensation claim settled. 6 months is a BARE MINIMUM for this, and this is also assuming you are successful getting your Bennies on the first Go Round. Really, you better have 1 year at least of Savings that can carry you through this period, and it can go even longer than this.
You also have to remember that in the case of a Medical situation, your Bills aren't your regular bills, now you start accruing the inflated bills from the Sick Care industry as well. If you have some Med Insurance you can get in the door and get the work done, but you have to sign many statements saying that YOU will be responsible for any charges that your Insurance Company won't pick up. At the very least this will be your Deductible, but it often works up to much more than that, because insurance providers have schedules for payment on proceedures that don't match up with what the Docs and Hospitals actually write down as charges on the bill. The difference between them YOU are expected to pay.
So if you start paying these bills, what you thought was a 6 month buffer can be whittled in half or more in no time, depending on how serious your problem is and how much these folks start dropping on your tab. So the best thing here to do is to NOT pay it, delaying as long as you possibly can the bill collectors until you have burned through your savings, then declare Bankruptcy. This should get you out from under the bills, but of course you are still BROKE here with no source of income, so where did you get the money to pay a Bankruptcy Lawyer?
Anyhow, with decent luck if you do end up Approved by SSDI for those bennies, if you have VERY low monthly bills you probably can keep going. However, nobody who lives a Middle Class life can do that on SSDI. Remember, during your period of being without work and income, you burned through your savings, which includes that 401K that you were saving for your Retirement Nest Egg. Given how high medical bills can go, you need a very large nest egg indeed to be able to weather a storm like this and come out on the other side with still enough left over to keep that Middle Class lifestyle once your working career is finished.
So now let's get realistic here, how many people have these various levels of Emergency Savings to weather the storm, even assuming they meet all the requirements and get approved for SSDI? According to CNN Money:
Fewer than one in four Americans have enough money in their savings account to cover at least six months of expenses, enough to help cushion the blow of a job loss, medical emergency or some other unexpected event, according to the survey of 1,000 adults. Meanwhile, 50% of those surveyed have less than a three-month cushion and 27% had no savings at all.
They don't even pitch out a figure for what percentage have enough for a full year, but a good guess is less than 15%. This figure probably represents mostly upper income people, but not necessarily since high income people often have high expenses also. If your monthly nut has a $3000 mortgage, $500 in car payments, $2000 in medical insurance, Cable TV bills, Netflix Bills, Dance lessons for your daughter, karate lessons for your son yadda yadda, you're going to need a LOT bigger emergency stash to maintain your lifestyle than a single guy with no kids living in a single wide mobile home in Arkansas.
If your monthly nut is $10K, you're gonna need $60K for 6 months, whereas if your monthly nut is $2K, the 6 month figure is only $12K. It's not like you can downscale that rapidly either to conserve the funds, even if you could convince your wife that you need to move into a Trailer Home immediately. You can't unload the McMansion that quick; you can't unload the Mercedes that quick and what you will get for it on the used market is not what you still owe in payments on it either.
So you will burn through the money quite rapidly here, and on the other side of this after you have exhausted your 401K and finally do get your SSDI if you qualify, it's definitely not going to be enough to maintain this lifestyle. So even an Upper Middle Class person can be wiped out just about as fast as a Lower Middle Class person can be. The lower middle class person has less distance to fall here, so it's not quite so big an adustment, although in both cases once you are so far down you end up Homeless it's a huge adjustment to make, which few can make successfully.
Other than fairly well to do people though, most people at or below the Median Income simply can't afford to create an Emergency Savings Fund to begin with. They can't afford taking 5% of their take home pay every week and dropping it into a savings account for a rainy day. the Median Income basically represents precisely what it costs the Median Person in the society to maintain the Median Lifestyle. Only if you consistently live "poorer" than whatever your income is can you sock away savings like this. The less money you make, the less possible it becomes to live poorer than what that income will buy in terms of lifestyle.
In fact, most people live slightly BEYOND what their income can afford, and so end up accumulating more debt rather than savings. If this happens to be the case for you, basically you are up Shit's Creek without a Paddle when DISASTER strikes and you run into a medical issue that keeps you from working and "earning your keep" in the society. The Larger you Live, the more vulnerable you are to a big fall.