65 % of americans not preparing for retirement.

[kennyp2339]

Estate planning is a very tricky and complex thing. I have a 2" thick book of planning estates written by a lawyer for lawyers doing estate planning.

Plenty of "free" seminars at the local Holiday Inn for planning seminars offered by lawyers. Anyone who goes to one gets a high pressure sales effort to pay for the privilege of stripping themselves or their parents of any asset and put them on "old peoples welfare", Medicaid. About the only thing they can take with them is prepaid burial insurance. With some luck one spouse can stay in the family home while the other one goes in a home but usually the state has the spouse living in the home sign it over to the state when the spouse in the home goes on Medicaid. There can be no binding legal attachments on the folks who get the parents assets, once they are handed over they can do what they want with them. Hopefully the benefactors were raised well and will use the transferred assets to take care of their parents but some folks figure out why not dump them on the state?.

The sad part is most states underreimburse nursing homes for Medicaid substantially, the facilities cannot operate solely on Medicaid patients, those that do have to cut a lot of corners or go out of business. Those residents on Medicaid are allowed to keep $40 a month for personal items and that includes personal items like diapers. Some states and counties try to give the residents a respectful old age but many do not.

The other thing rapidly coming to the fore is filial responsibility laws. Some states are dusting off the old laws and some are writing new ones. Pretty simply the state can go after the children of folks on Medicaid.

I think your reply has just helped a ton of us with planning, Many of us (almost all) will be forced into Medicaid in our later years, luckily for me if I do need long term care the state fire fighters association will cover everything without tapping into personal assets, that's the one great perk of being a exempt volunteer in NJ.

 

[Modenacart]

The other thing rapidly coming to the fore is filial responsibility laws. Some states are dusting off the old laws and some are writing new ones. Pretty simply the state can go after the children of folks on Medicaid.

The state can only collect from the estate of your parents not the children. The estate pays all bills before the children can collect. If the estate is not large enough then the collectors are out of luck. They will try to get the children to pay but they don’t have to. If states pass laws to change this, expect it to go to the Supreme Court.


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[peakbagger]

Be careful to check on what you post. Filial responsibility laws can kick in long before there is estate to worry about

http://graphics8.nytimes.com/packages/pdf/health/NOA/30states.pdf

Looks like North Carolina has a Filial responsibility law. Whether they care to enforce it is another story.

For profit nursing homes dont allow residents to run up bills, they make sure that either its private pay on the state pays via medicaid.

 

[Modenacart]

Be careful to check on what you post. Filial responsibility laws can kick in long before there is estate to worry about

http://graphics8.nytimes.com/packages/pdf/health/NOA/30states.pdf

Looks like North Carolina has a Filial responsibility law. Whether they care to enforce it is another story.

For profit nursing homes dont allow residents to run up bills, they make sure that either its private pay on the state pays via medicaid.

The way that reads is in the present tense, the parents still alive.


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[EatenByLimestone]

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[sportbikerider78]

Have to be careful with that one .If your going to divest to your kids you've got to do it long before you pass. Theres a time limit they can go back on.

This is a good reason not to have all of your assets in property and cash/investments. There are many ways you can pass wealth w/o anyone knowing. Worth thinking about as you retire and age w/kids.

 

[Ashful]

This is a good reason not to have all of your assets in property and cash/investments. There are many ways you can pass wealth w/o anyone knowing. Worth thinking about as you retire and age w/kids.

Please elaborate. And by “wealth”, I assume you’re talking about more than the $68k per year a pair of parents can gift to child and spouse without hitting quotas.

 

[sportbikerider78]

Please elaborate. And by “wealth”, I assume you’re talking about more than the $68k per year a pair of parents can gift to child and spouse without hitting quotas.

I am saying that you can keep anything of value "off the books" so as not to impact any sort of max value you can gift to anyone.

Would that child not have to report that as income?

 

[Ashful]

I am saying that you can keep anything of value "off the books" so as not to impact any sort of max value you can gift to anyone.

Would that child not have to report that as income?

Gifts are reported, but as long as you stay below quotas, do not become taxable. And my math was off a bit, I just checked it, and it’s $14k per parent per child, not the $17k I used above. Mixing up the 401k contribution limit with the gift limit, my fault.

The better news is that in December, Trump approved an increase in the estate limit, from $5M to $10M. This still leaves 1.5% of US households in the cross-hairs, but it’s still much better than the prior limit affecting more than 4% of the population, and waaayyy better than the reduced limits Hilary had listed as item #2 on her agenda.

We all attach our own ethics to these things, based on where we land on the spectrum, but Hilary’s proposal to reduce the death tax to $3.5M would have affected a lot of hard-working self-made folks who managed to build a successful business for their family. By taking it from $5M to $10M, we have managed to spare most of that class, pushing a bit more toward the rarefied air of “old money” estates.

What’s interesting is how this will scale with time. The Alternative Minimum Tax (and it’s predecessors) were not indexed to inflation from their inception 50 years ago, until 2013. This turned a tax aimed at millionaires (the upper 0.1% crowd in the 1960’s) into something affecting an ever-increasing number of middle-income households. I fear the same thing happening with the death tax, as $5M may not mean so much 20-30 years from today.

 

[Modenacart]

Gifts are reported, but as long as you stay below quotas, do not become taxable. And my math was off a bit, I just checked it, and it’s $14k per parent per child, not the $17k I used above. Mixing up the 401k contribution limit with the gift limit, my fault.

The better news is that in December, Trump approved an increase in the estate limit, from $5M to $10M. This still leaves 1.5% of US households in the cross-hairs, but it’s still much better than the prior limit affecting more than 4% of the population, and waaayyy better than the reduced limits Hilary had listed as item #2 on her agenda.

We all attach our own ethics to these things, based on where we land on the spectrum, but Hilary’s proposal to reduce the death tax to $3.5M would have affected a lot of hard-working self-made folks who managed to build a successful business for their family. By taking it from $5M to $10M, we have managed to spare most of that class, pushing a bit more toward the rarefied air of “old money” estates.

What’s interesting is how this will scale with time. The Alternative Minimum Tax (and it’s predecessors) were not indexed to inflation from their inception 50 years ago, until 2013. This turned a tax aimed at millionaires (the upper 0.1% crowd in the 1960’s) into something affecting an ever-increasing number of middle-income households. I fear the same thing happening with the death tax, as $5M may not mean so much 20-30 years from today.

At 3.5 million you are talking about the top 3-4 percent of all Americans. That is hardly “common” folk or middle class. Don’t get me wrong, I plan on being over that at retirement but 10 million as the threshold is the top 1 percent and is very generous and benefits almost no one.


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[Ashful]

At 3.5 million you are talking about the top 3-4 percent of all Americans. That is hardly “common” folk or middle class. Don’t get me wrong, I plan on being over that at retirement but 10 million as the threshold is the top 1 percent and is very generous and benefits almost no one.


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You and I have very different definitions of “almost no one”. Raising it from $5M to $10M takes it from the 3.5 percentile up to the 1 percentile level. That is saving maybe 7.5 million Americans from paying the “death tax”. These folks are overwhelmingly those hard-working self-made folks I mentioned in an earlier thread, such as doctors, restaurant owners, farmers, small business entrepreneurs, and anyone else who has worked hard to make a nice living for their family. You begrudge them for wanting to keep what they busted their ass to make, just because others didn’t do the same?

 

[Modenacart]

You and I have very different definitions of “almost no one”. Raising it from $5M to $10M takes it from the 3.5 percentile up to the 1 percentile level. That is saving maybe 7.5 million Americans from paying the “death tax”. These folks are overwhelmingly those hard-working self-made folks I mentioned in an earlier thread, such as doctors, restaurant owners, farmers, small business entrepreneurs, and anyone else who has worked hard to make a nice living for their family. You begrudge them for wanting to keep what they busted their ass to make, just because others didn’t do the same?

I am not begrudging anyone. I came from nothing and have more than I need. The idea that the 1 percent is self made is not true in the slightest. I would love if we got rid of all tax cuts and paid nothing but a percent of all of our income no matter where it came. Oh wait, the top earners wouldn’t like that because their percent would be almost nothing as a percent of their income. The people that pay almost all the taxes as a percent is the true middle and upper middle class which does not include the top five percent. If you want to talk flat tax, I am game but the top earners don’t want it because they would have to pay far more in taxes than they do now.


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[Ashful]

I am not begrudging anyone. I came from nothing and have more than I need. The idea that the 1 percent is self made is not true in the slightest.

I agree, many 1%'ers are not self-made, but I wasn't talking about them. I was talking about the 3%'ers who have been recently relieved of this atrocity. I thought that was pretty clear, but I apologize if it was not.

I completely agree on flat tax, it would benefit me enormously.

 

[sportbikerider78]

I agree with a flat income tax. 0% is flat, right?

 

[jharkin]

Wow… I go away for a year and it seems I missed all the fun. Is the ‘can back?

I read though the first 5-6 pages in detail but then zoned out. Even though we differ philosophically, as usual I agree with Ashful’s base conclusion: yet another round rehashing the same old arguments we have heard here over and over.

The problem is… A lot of the arguments in this thread are based off common misunderstandings of some of the fundamentals, so even though this is going to take me a bit of time I am going to spend some time point out a few things and giving you guys links to more detailed study.

I know some are going to call me a troll for some of this, but I really don’t care and it makes the discussion more productive for those who follow to reset a few things with corrected information. And especially help people who want to get on track for retirement get the right information.

This is going to be long, spent some time over the weekend prepping it and breaking it up into multiple posts…. Here goes.

I concur. This book should be required reading for all high school seniors -

https://www.amazon.com/dp/0140167153/?tag=hearthamazon-20

The very first thing that would benefit a lot of folks is reading to get a better foundation in personal finance. The book above is good, as are a few others…

• Anything by Jack Bogle, especially his Little book of common sense investing or if you have the appetite for a deep read Common Sense on Mutual Funds.
• The books put out by the Jack Bogle fan club, i.e. The Bogleheads Guide to Investing, The Bogleheads Guide to Retirement Planning.
• Burton Malkiel’s A Random Walk Down Wall St
• Stanley and Danko’s The Millionaire Next Door
• Rick Ferri ‘s All about Asset Allocation
• Anything by Warren Buffett

A nice organized list with Amazon links is here https://www.bogleheads.org/RecommendedReading.php

Dave Ramsey is good for beginners but mr money moustache is where the real stuff is.

Notice a trend in my recommendations above that there is nothing in there from over hyped pundits like Rich Dad Poor Dad, Dave Ramsey, Mad Money Jim Cramer etc. Those people do nothing but get you in trouble.

Dave Ramsey’s material on debt is good IF you have a problem with too much debt. But the rest of his advice, especially on investing is downright dangerous and set up to make profits for the wealth advisors he promotes.

Mr. Money Moustache has a good message on LBYM.. but like all those FIRE bloggers (Mad FIenntist, GoCurryCracker, and so on) he has a serious blind spot to the real reason his method works: he isn’t “retired” he is self employed with 6 figures worth of annual income from his blog and contracting gigs. Without that blog income most of these folks are just one recession away from total ruin, trying to live 60-70 years based on rules of thumb designed for a 25 year, SS supported retirement (the Trinity Study)

If you want to read financial blogs there are some good ones, just be vigilant for claims that are too good to be true and methods that only work for them because they have blog income. Some that ARE worth your precious free time are https://www.bogleheads.org, https://thefinancebuff.com/, https://www.whitecoatinvestor.com/, https://jlcollinsnh.com/, etc

For those just starting to make sense of it all – you will see thought this thread there are a lot of fans of Vanguard and Jock Bogle. There is good reason for that as “Saint Jack” has done more to help us everyday investors than anyone else in the industry. But his methods cover a lot more than the couple of soundbytes in this thread. If you are ready to learn, a good place to dive in is here:

https://www.bogleheads.org/wiki/Getting_started



Next part coming up…

 

[jharkin]

Part 2 – On Investing

Lots of commentary about investing approaches came up. There are a couple that I want to tackle briefly.

I'm being open here, not to gloat or tout my whistle, but to get input, am I balanced here, or is there work needed to be done.

Kenny you are doing great, and if this stuff really interests you you might want to go though the material I linked and get involved in a finance forum. I strongly recommend https://www.bogleheads.org/forum/index.php

You can sign up, and make a post asking for advice on next steps. Be away however that place can be a little intimidating, being investment focused the audience self select for folks with deep knowledge and a lot of assets so get ready to drink from the fire hose.

If you want investing advice, just buy Vanguard SP500 index funds. I am a single income household with two kids and a wife and in 14 years we now have over 600k saved. We were able to do the IRS max in my 401k about seven years ago and was able to add IRAs for my wife and I about three years ago. We have never owned a new car and our house has a base square footage of about 1400. We took our first vacation that didn’t revolve around my work travel for the first time three years ago.


Anyone can save if you want to. The way I look at it is if the SP500 tanks you need to be buying bullets, salt, and seed. Gold, and silver will have no value if the economy crashes. Individual stocks and precious metals are a fools game unless you just like gambling.

Wow… where to begin. You caught one small piece of Jack Bogles message but took it out of context. The idea was never “just put all your money in the S&P” The actual message was:

Cost matters

A long term buy and hold passive approach beats actively chasing returns

Costs matter

And did I mention costs?

The S&P was chosen for the first index fund because it was the most well known index that everything else gets compared to. But it can lose at times … sometimes loose big. If you keep all your money in the S&P you open yourself up to massive sequence of returns risk if you retire right into a period like 2008 or the great depression and need to pull money out at the bottom.

The answer to this as peakbagger and EBL hinted at is diversification and an asset allocation that fits your risk profile. Jack himself addressed this with his famous age in bonds glide path… that basically says as you get older you shift more money into bonds and fixed income to reduce volatility and provide an income stream.

https://www.bogleheads.org/wiki/Asset_allocation



Speaking of Peakbaggers comments he made some great ones worth repeating:

Everyone has a different risk tolerance, there are various quizzes folks can take but the reality if most folks are wired to believe the hype on the news. Cable TV and the internet all all desperate to get "eyeballs" and the way to get them is to make outrageous claims not backed up by any real truth. Investing in stocks need to be the long term, 5 plus years. If you are trying to invest for a shorter term, the investing shifts to gambling. Until an investor has actually gone through an investment cycle of a bear to a bull to bear market and seen the long term gain with lots of "noise" in between its easy to get sucked in by short term doom and gloom or hype. The other thing to realize is that there is no such thing as a "hot tip", 70% of the trades on the markets are computerized instantaneous transactions occurring in faster than blink of the eye that are factoring in any possible news, no way that an individual will ever get a jump on the computers. If its "hot tip" on an individual stock, ignore it and run away, if its truly inside information and someone trades on it, its illegal. Usually the "hot tip" is put out by folks who stand to gain doing something opposite of what they are telling other folks to do. Look up "pump and dump" or just watch the Wolf of Wall Street (a great movie bases on the penny stock market.


I am buy and hold investor of no load mutual funds from Vanguard. Vanguard is the only investment firm not owned by shareholders. Vanguard's shareholders are the owners of the funds, thus there is no incentive for them to crank up the volume to pay a dividend to shareholder. Across the board they generally have the highest ranked funds and lowest expense ratios. Even though its pretty well proven by their founder, Jack Bogle, that index funds held long term is the best investment, they know folks are going to gamble their money trying to beat the market so they do offer managed funds and ETFs so their members don't have to go elsewhere. Remember in every transaction, for everyone that makes money, someone is losing money.


The other long term thing is folks don't realize that inflation eats your money long term so just keeping it in a bank account or CDs means they are losing money long term. The fed has been printing money since the last financial crisis and artificially keeping the inflation rate low for quite a few years and the result was anyone with money in bonds, or CDs which are tied to bonds have had artificially low returns. The only way to keep ahead of bonds is to buy and hold stock based index funds, yes the funds could lose money in the short term (less than 5 years) but in the long run their returns will exceed long term inflation. On the other hand, the worse investments are folks who are in and out of the market listening to the short term doom and gloom as most of the gains happen quickly and if they are out of the market they miss out.


If someone just cant ignore the news to buy and sell and are paranoid about the future there is already laddering CDs as an approach. There is no risk albeit crappy return that slowly gets eaten by inflation. Note there is risk to bond funds that a lot of folks don't realize, the return on bonds is tied to federal bond rate if the fed rate goes up, the bonds fund value drops as its holding lower interest rate funds. Once a bond fund starts to loose money many folks want to get out of it and that creates an even bigger drain on the fund. There is far less risk buying short term bond funds but lower returns.

Well said all of it.

One thing we should clarify for those that are not aware is that most of the Vanguard ETFs are Index Funds. An ETF is not a different class of investment, just a different way to buy and sell them, but one that does have some cost advantages over traditional funds. Vanguard is actually unique in that their ETFs are not separate vehicles but are actually just another share class of their existing mutual funds – they actually have a patent on this and it allows them to use the ETF class to help lower costs on the traditional fund classes.

For those who are interested in ETFs here is some good reading… but if you are an absolute beginner its better to first get the basics of mutual funds, asset allocation, etc first before looking at questions like mutual funds vs. ETFs.

https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

https://patents.google.com/patent/US6879964

I do agree about the DOW. Historic rates mean nothing, with the levels of debt piled up that will never be repaid, we are not in any previous historic situation. If we cant keep the bills paid while borrowing trillions,how will we ever survive while paying those same trillions back with interest.

The problem is, that’s been said before. After the great depression they said that , and while it took decades the market recovered and went up spectacularly. After 1987 they said that and in retrospect it was only a blip. After the dot com crash they said that, and guess what the market recovered. After the great recession they said it and guess what, the market has more than doubled.

Bogle has a phrase for this “nobody knows nothin”

https://www.marketwatch.com/story/t...-with-these-awful-correction-calls-2018-08-28


This time may actually be different, but the problems is we have no way of knowing for sure in advance. So the best you can do is stay the course.

 

[jharkin]

Part 3 – Investment vehicles

I talked a bit about investment types, but I also want to address investment vehicles. A couple of posts peaked my interst that merit more discussion…

Folks like to fondly remember defined benefit pension plans and think they were a panacea for all the current issues. It wasnt and was fundamentally flawed. For everyone who made it to retirement there was a large number of folks that never made it. Unlike IRAs they weren't portable, folks were stuck working for the same company for their entire career even if they hated the work as the plans were loaded to reward longevity. Contrary to popular belief the plans were not funded from past contributions by the company, the vast majority of the payouts for current retirees were from current profits. Fine if the company was growing and the the number of retirees was low compared to the employee base companies muddled through. It wasnt until after a string of high profile plans going bust that the government created the Pension Benefit Guarantee Corp to backstop the plans and required companies to meet reserve requirements. Unfortunately business had a lot of friends in congress and they were allowed to set unreasonably high investments returns to justify keeping low reserves. The result were companies decided defined benefit plans are a liability and have been dumping them on PBGC generally vastly underfunded so the whole defined benefit option is going belly up.

This one is tricky peak…. The problem is that finance and economics is complicated… REALLY complicated. I’ve spent probably years worth of my adult life reading a bunch of the books I mentioned above, studying, participating in finance forums and I still only scratch the surface (and based on your inputs to the thread I suspect you have studied just as much) – but most people don’t. Yet the move to 401k’s and self directed investing as the default options means that we all need to have some level of expertise at this to retire successfully.

The problem is that as a society we don’t educate people on these topics and leave them to navigate these complicated water blind. Defined benefit pensions, for all their faults, addressed this by taking that burden off the masses and transferring it to a small core of professionals – the staff actuaries, accountants and money managers that ran the pension funds.

Don't buy an annuity. They're horrible ideas, unless you're the one selling it.


If only Bush was able to privatize the 3% (I think that was the number.)of contributions he wanted to with social security. The market has done nicely

Not so fast…. Annuities are mostly bad, with one exception – SPIAs (single premium immediate annuities). These vehicles are basically a way to “buy a pension” and are appropriate for some people… especially those who don’t want to assume the risk and burden of managing their own investments. Another poster in this thread was concerned about the complexity of their spouse/kids having to figure it all out when they are gone – that person might be a great candidate for a joint/survivor SPIA.

As far as the idea of privatizing SS…. There are so many was that can go wrong. First off, since current benefits are paid by current income, allowing people to opt out going forward is guaranteed to crash it.. And second you sre chasing returns based on the last few years of massive growth in the market. If this where 2009 I doubt you would be making the same claim.

Which is a great Segway to the next topic…social Security.

 

[jharkin]

Part 4 – On Social Security

The problem is not me or you or others that prepare. Its the millions that don't plan, thus putting the burden of those final years of support on the public at large. They must be forced to save and SS is just one way to do that

We already do have the option to do both. Most people get all their money back they paid in from SS in the first few years they start collecting. I know I will and ill be starting to collect in a few months, Iv been investing in alternative income sources my whole life which will provide the bulk of my support and I probably did as well as any 401k did. Plus if your chosen 401k contribution plan went south you would still have something to fall back on which is currently SS. What I don't like is the Govt raiding the ss fund and paying a paltry 2% or whatever back to the fund in exchange for squandering the funds. A much better return would be had from the stock market ,but then they (politicians)couldn't squander the money.

In doing the math i find that i will collect everything i paid in not including any interest in about 3 years. So yea, SS is woefully under funded. Perhaps when the entire economy collapses due to the National debt and we are all forced to live within our means and what we actually produce, not off borrowing for decades they will come up with a more sustainable plan or not. Until then its all about spreading around(borrowed) freebies to get reelected. None of its sustainable ,not health care,not the Debt,or deficit spending,unfunded pensions,welfare state ect.

Personally i do NOT want to opt out. If that were allowed the largest contributors would flee leaving an already underfunded insurance program to fail in freefall. Many of those if not most of those who save nothing for retirement will continue the same course and be 100% dependent on social services for 100% of their after retirement expenses. Living expenses not covered by retirees SS ultimately are all just shifted to another part of the govts liabilities.

SS is capped : Workers will contribute 6.2 percent of their earnings to Social Security until their income exceeds $128,700 in 2018. So higher wage earners aren't significantly encouraged to opt out. You can make the argument that if you make 125k, 100% of your income is subjected; if you make 10 million only 1% is...fair?

Lots of variables have changed which will gut the program ,the 2 most drastic ones are:

1.People living much longer.

2.Only a few contributors per retired person as boomers retire.


Another drain is people that never paid anything in such such as immigrants immigrating after retirement age ,though im not sure where that money comes out of, but it adds to the debt no doubt. I know of a few people(immigrants) who brought their parents after they became citizens. The govt makes them(citizens)sign an affidavit of support but certainly dont enforce it at all, so its meaningless.

I picked on a few quotes to illustrate a fundamental problem… few people really understand what social security is and how it works.

First off some basics:

#1 Social Security -the OASDI part – is technically an old age insurance policy. Its like a pension or annuity in that once you pay in you are guaranteed benefits for life no matter what happens and no matter how long you live. It was never intended to be anyone’s sole means of support, but it does serve a valuable role as mentioned to make sure that people who didn’t plan, or people who did but end up living to 110 years old by a fluke of genetics, don’t outlive their money and end up destitute.

#2 The government isn’t “raiding” the money and not missing out on the market. The FICA taxes we pay in go into a trust fund, and by law the government is supposed to invest that fund to get some return. But the law also prevents the government from speculating with the money on the stock market. So they do the only thing they can, the use the trust fund to but treasury bills. This is what the false “raiding the trust fund” argument is based on. But its not raided, just invested and in the coming years as benefits exceed revenue all those bills will be cashed out to cover the gap.

#3 Which leads to the solvency question. SS is never going to go away. Its too important and too many depend on it. What will happen around 2034 is the trust fund will run out and then the SSA will only have 70 cents on the dollar for benefits. About a month before that, as happened in the 1980s under Reagan, congress will push though an 11th hour fix. This could be further raising the FRA age, increasing the FICA tax, further taxing benefits, or some combination. These changes are natural, required and expected considering when the program was designed the average life expectancy was only 60-something.

#4 People get benefits in proportion to what they contribute. The formula is complicated however so there is a lot of confusion. Nobody is earing benefits without contributing the minimum 40 quarters (they might get SSI or welfare or something else, but they are not getting traditional SS). And its not “unfair” to the millionaire who earns 1 million and only pays FICA up to the $128k cap since he doesn’t get any more benefits then somebody who only earns 128k.

#5 The fact that some people will get more out of it then they ever put in is OK, because its balanced out by many people who get far less than they put in because they die before they can draw it all. The SSA has an army of actuaries who figured all this out and calculate all the benefits, bend points, adjustments for early and late claiming etc. so that as a group all the participants average out.

For more than you ever wanted to know, here is some reading.

SS 101

https://en.wikipedia.org/wiki/Social_Security_(United_States)

https://en.wikipedia.org/wiki/Social_Security_Trust_Fund

https://www.ssa.gov/OP_Home/handbook/handbook.html

https://www.investopedia.com/articles/retirement/06/socialsecurity.asp


SS201

If you get though all that and want to know more read about the bend points, tax issues, claiming strategies, etc

https://www.bogleheads.org/wiki/Social_Security

https://www.bogleheads.org/wiki/Taxation_of_Social_Security_benefits

https://www.bogleheads.org/wiki/Social_Security_tax_impact_calculator


Your SS301 homework is to find and use some of the SS benefit optimization calculators that optimize the best time to draw. Bedrock Capital used to have a great free one called SSAnalyse but there are tons of them. Use your GoogleFu.

One new one I just found: https://opensocialsecurity.com/

 

[jharkin]

Part 5 – On income inequality, interest rates, inflation, money creation and other macro topics

The US was actually closing in on zeroing out the deficit around the year 2000 under Bill Clinton. Economists were getting worried as the Feds control of the economy was by controlling the interest date on the debt. With far reduced government lending, they could potentially lose control of setting rates. It wasn't until the Bush came in and did another tax cut that the deficit started climbing.

I was talking about historic INTEREST rates. The interest rate now paid on the National debt is at abnormally low rates.Once these rates adjust back to historic norms the Govt will be bankrupt. Which is why they will have to keep Interest rates low at all costs.Interest on the debt will crowd out all other federal spending. As far as rentals ,100% of my income comes from rentals an purchase contract payments. These will disappear quickly when tenants and buyers lose jobs and income. Rentals are far from bulletproof income. The only bulletproof investment that i can think of is a farm. Ask the amish. Im not sure what to do as i dont have plans to buy or ability to operate a farm.

OK, I should stipulate that here we are getting into macro economics and this is there I get out of my depth. But again, this stuff is a LOT more complicated than some of the discussion in thread would imply. Again, I’m just using a couple choice posts as examples. I highly encourage you to read and research on your own.

First off, the Government does not ‘control the economy with the deficit’. The government has lots of methods at its disposal but one of the most used is central bank control of interest rates – in our case the Federal Reserve. But the fed doesn’t do this by setting rates on the national debt (T-bills), what the fed sets rates on is the overnight lending to large commercial banks. This drives the spread of what banks charge in interest to business and commercial borrows and together with market demand and mandated reserve ratios affects how much money is created and injected into the economy.

The fed rate setting is only indirectly tied to the deficit, and in fact going to no deficit is bad but for a less direct reason than cited above. When the government is borrowing heavily they have to attract buyers for T-bills and they do that by paying a premium to prevailing rates (driven by the fed). If the government doesn’t borrow, then this extra effect propping up market rates goes away, and when people cant get good rates on debt (and remember bonds, CDs, etc are essentially investing in debt) then they start piling money under the matress and the whole engine of the economy slows down.

The solution to income distributions is not more taxes. It is less taxes.


More money for the rich does not mean less money for everyone else. This is bad economics. There is no fixed amount of revenue or income generation. Wealth is created every day. There is no 1 pot of money and everyone has to fight for a share.

Rich people have effectively low tax rates because they have investments like rental properties, businesses and others (giving some away) that reduce their effective tax rate. You can take advantage of those just like a rich person. I'm looking at a rental properties to do exactly the same thing. It is smart tax avoidance and perfectly legal.

The rich start big businesses. I work for a rich guy and I'm super glad he is rich. He is generous to us employees and does his best to make us as wealthy as possible. He is probably in a 2%'er. He is not some super bad guy, he is a hard working American that deserves every dollar he made.

This victimization of the rich as if they are 'putting it to the little guy' is laughable.

The corporate tax breaks he just got under the new tax plan are getting reinvested back into the business in the form of hiring new people and building a new building! That's awesome!


When rich people put their money away in a bank and save it, it naturally reduces the interest rate for the rest of us. The bank now has more money to loan out to everyone. This is a good thing. This spurs capital investment and drives the economy forward because capital is cheap.


As little guys, what we should be united in fighting against is why $100k today is worth very little 30 years from now. It is absurd that our money loses its value like it does. That is the single biggest thing that hurts saving. If we can agree on one thing, let's agree on keeping the hard earned money we work for.

That’s not how it works sportrider… Some rich guy putting his money in the bank doesn’t reduce our interest or create money that you and I can borrow. It was that way back in the days of hard currency and the gold standard, but not now. In the modern system of fractional reserve banking, when big commercial banks lend they are actually creating money… literally out of thin air. The interst rate is a spread over their borrowing rate (the fed funds rate), and how much they can lend is driven by reserve ratio requirements.. Then when they make the loan they actually create money by simultaneously adding some zeros to your (borrowers) account and a matching amount to their receivables (assets) on the balance sheet.

Its really complicated voodoo like weirdness but that’s how it works.

Yes, there is some influence on inflation since the act of parking cash shows growth, and that cash adds some assets to the banks reserves they can multiply… but it’s not nearly as direct as you implied.

See:

https://en.wikipedia.org/wiki/Money_creation

https://en.wikipedia.org/wiki/Money_multiplier

https://en.wikipedia.org/wiki/Money_supply

This idea that giving tax breaks to the rich creates jobs has been proven wrong so many times its hardly worth arguing. Lots of data shows that most of what the recent tax breaks gave to business is just sitting on the sidelines in cash or being used to fund massive stock buybacks. Many of the business that the president promoted went on to close plants and eliminate jobs anyway. Very few used the money to give bonuses or hire, beyond what plans where already baked in.

http://time.com/money/5267940/companies-spending-trump-tax-cuts-stock-buybacks/

No doubt about it. Much of it is because our dollar is worth much less than it has been. Inflation is a killer. Real inflation as seen by the CPI not just the value of a dollar because the federal reserve prints trillions in cahoots with congress/banks.

(the fact you were responding to BeGreens comments on income inequality got cut off)

Ok, this comment just makes no sense. Inflation reduces the value of the dollars I earn in the exact same way it reduces the value of Bill Gates dollars. I have no clue where you got the idea that inflation causes inequality…

 

[jharkin]

Part 6 Tax Topics

Just a few quick clarifications…

Kind of a misnomer. Income earned from sources other than a job or salary are sometimes called unearned although they are of course earned. Would include Interest,Dividends,capitol gains ect. To put it simply ,the dividend checks surpassed the paychecks a long time ago.

It’s not a misnomer at all. “unearned income” is an official IRS term with a clear definition for tax purposes. Its all income not earned as the result of work – investment income, passive business earnings, capital gains, etc. This was created as a bucket to separate it out from earned income – which is everything else, basically all W2 and 1099-misc wages. These buckets where created to separate out the different classes of income for calculating their different tax treatment and eligibility for various deductions and credits.

There is a lot of overlap to the more generic terms of active and passive income. I get active income in my paycheck every 2 weeks. My IRA earns passive income all the time (well, when its not earning passive losses at least ) even if I’m sitting on the couch

You and I have very different definitions of “almost no one”. Raising it from $5M to $10M takes it from the 3.5 percentile up to the 1 percentile level. That is saving maybe 7.5 million Americans from paying the “death tax”. These folks are overwhelmingly those hard-working self-made folks I mentioned in an earlier thread, such as doctors, restaurant owners, farmers, small business entrepreneurs, and anyone else who has worked hard to make a nice living for their family. You begrudge them for wanting to keep what they busted their ass to make, just because others didn’t do the same?

Haven’t we had this discussion before, multiple times? This whole concept of the estate tax “penalizing hard working farmers” has been disproven many many many times, but it’s a feel good soundbite that just won’t die because so many people want to believe they actually have the opportunity to BE that wealthy someday.

https://www.politifact.com/truth-o-...-trumps-pants-fire-claim-about-estate-tax-sm/

The fact is the estate tax actually has a very noble purpose – to prevent the rise of the sort of landed gentry that closes the door on opportunity for the rest of us that was so common in old Eurpoe. I don’t know about you but I don’t want to be a serf.

 

[jharkin]

Part 7 Insurance

And close it out with some thoughts on insurance questions….

That's a pretty good deal. I doubt if that would cover Healthcare alone here. My Health insurance (2 people) is $30K a year alone.

Oak, have you done research to see what you can qualify for on the health exchanges? I realize you have some serious health issues, but one of the big changes in ACA was elimination of pre-existing condition clauses, so if anything it should be easier for you to get insurance that before not harder.

Now granted, many states have tried to gut ACA on purpose to make it fail… and if you live in one of those states I feel for ya.

No they haven't. Costs and care aren't great in many countries.

When you pass laws like Obamacare that say everyone has to have insurance for a silly amount of care they don't need, the demand goes up and so does the price.

Sorry, sport but it sounds like you just don’t understand the concept of insurance. Insurance' purpose is to create a shared risk pool and make costs manageable for all participants. Catastrophic health problems are expensive. Heart attacks can cost 6 figures, cancer treatment can cost millions. If the only people who bought coverage for those conditions where sick people than the program would not be able to absorb the costs and care would be unaffordable.

In other words, insurance is pointless if only sick people buy it.

And before you say “I’m young and healthy I don’t need” BS… someday you will. And there might be no advance warning. You have a 1 in 2 lifetime chance of getting some form of cancer or being closely related to somebody who does. I lived through four (4) immediate family cancer diagnoses this year alone – its part of why I’ve been gone from here. I can tell you that without health insurance coverage we would have been bankrupted, and I would have attended more than one funeral.[/QUOTE]

 

[Seasoned Oak]

The problem is, that’s been said before. After the great depression they said that , and while it took decades the market recovered and went up spectacularly. After 1987 they said that and in retrospect it was only a blip. After the dot com crash they said that, and guess what the market recovered. After the great recession they said it and guess what, the market has more than doubled.

Bogle has a phrase for this “nobody knows nothin”


https://pbs.twimg.com/media/DloRqfCW4AE6EZs.jpg:large

https://www.marketwatch.com/story/t...-with-these-awful-correction-calls-2018-08-28


This time may actually be different, but the problems is we have no way of knowing for sure in advance. So the best you can do is stay the course.

I was referring to the accumulated debt of 21Trillion ,and the prospects of paying it back.. Has nothing to do with the stock market.

 

[sportbikerider78]

That’s not how it works sportrider… Some rich guy putting his money in the bank doesn’t reduce our interest or create money that you and I can borrow. It was that way back in the days of hard currency and the gold standard, but not now. In the modern system of fractional reserve banking, when big commercial banks lend they are actually creating money… literally out of thin air. The interst rate is a spread over their borrowing rate (the fed funds rate), and how much they can lend is driven by reserve ratio requirements.. Then when they make the loan they actually create money by simultaneously adding some zeros to your (borrowers) account and a matching amount to their receivables (assets) on the balance sheet.

Its really complicated voodoo like weirdness but that’s how it works.

Yes, there is some influence on inflation since the act of parking cash shows growth, and that cash adds some assets to the banks reserves they can multiply… but it’s not nearly as direct as you implied.

See:

https://en.wikipedia.org/wiki/Money_creation

https://en.wikipedia.org/wiki/Money_multiplier

https://en.wikipedia.org/wiki/Money_supply

This idea that giving tax breaks to the rich creates jobs has been proven wrong so many times its hardly worth arguing. Lots of data shows that most of what the recent tax breaks gave to business is just sitting on the sidelines in cash or being used to fund massive stock buybacks. Many of the business that the president promoted went on to close plants and eliminate jobs anyway. Very few used the money to give bonuses or hire, beyond what plans where already baked in.

http://time.com/money/5267940/companies-spending-trump-tax-cuts-stock-buybacks/



(the fact you were responding to BeGreens comments on income inequality got cut off)

Ok, this comment just makes no sense. Inflation reduces the value of the dollars I earn in the exact same way it reduces the value of Bill Gates dollars. I have no clue where you got the idea that inflation causes inequality…

Sure it is. The more money in the banks the more money can get lent out at better rates. It works that way AND it works in the way you described with the Fed Reserve.

We agree on inflation..with a little clarity on the last point.
If the fed prints $1T tomorrow the entire market has not seen the inflation on that new fresh currency till it is used, spent, borrowed...ect. This gives the first user all the benefits of fresh, uninflated cash..and that is the banking institutions. The rest of us eat that inflation while the banks get to use it first..because of the Fed.
I didn't go into detail on that in this post,,but that is where I was coming from.

Who cares what rich, poor, middle class...ect do with their tax breaks. It is their money. Story after story about companies giving bonuses, raises, capital investments...ect. Quite common. My company is hiring another sales associate. We are a small private company.
Maybe I should explain to Time magazine that what is good for investors is good for employees.

(late edit)

Perhaps what we can agree on is the we (as in, jokers like you and I) should control the value of money instead of a few very powerful bankers, congress and the federal reserve.

 

[sportbikerider78]

Sorry, sport but it sounds like you just don’t understand the concept of insurance. Insurance' purpose is to create a shared risk pool and make costs manageable for all participants. Catastrophic health problems are expensive. Heart attacks can cost 6 figures, cancer treatment can cost millions. If the only people who bought coverage for those conditions where sick people than the program would not be able to absorb the costs and care would be unaffordable.

In other words, insurance is pointless if only sick people buy it.

And before you say “I’m young and healthy I don’t need” BS… someday you will. And there might be no advance warning. You have a 1 in 2 lifetime chance of getting some form of cancer or being closely related to somebody who does. I lived through four (4) immediate family cancer diagnoses this year alone – its part of why I’ve been gone from here. I can tell you that without health insurance coverage we would have been bankrupted, and I would have attended more than one funeral.

[/QUOTE]

You don't understand what Obamacare did. Insurance already provided care for those serious conditions you listed.

 

[peakbagger]

Wow looks like most of my prior comments passed muster. In the last month of so there have been multiple articles about the financial crisis of 10 years ago (2008). The summary of the impacts was those who were in a broadly diversified portfolio who stayed in the market survived and even thrived, those who got out of the market mistimed when to get back in and lost money. Luckily I took advantage of the low and converted a few IRAs to Roth's when the market was low and saved a bundle of future taxes plus shifted the profits when they went back up again to non taxable. I also stayed in the market and came out pretty well on it 10 years out.

My big project now is moving things around and coming up with a plan for an early retirement. The bull market is peaking and a "black swan" (most likely with orange hair and small hands) is looking to land so hopefully I have the time to get at least some of the investments realigned to ride out the next one a bit more conservatively.

A more succinct method of investing was spoken by John Goodman in the movie the Gambler. If is full of expletives so be careful if you play the video with the volume turned up.

http://www.mymoneyblog.com/f-you-money-gambler-movie.html