Blindsided by Your Own Retirement Account

 

Perhaps the first lesson I learned as an In-Plan Specialist (read: 401k Account Specialist) at an investment firm some years ago is that these employer-sponsored retirement savings plans are not created equal.  Far from it. 

There were the obvious differences, such as how much of the employees’ contributions the employer would match or how long it took to become vested in the employer contributions.  But beyond that there were differences in whether the plans allowed loans to be taken from the accounts; which categories of employees could participate in the plan; how many loans were allowed; whether they accepted transfers of funds from an employee’s previous employer’s 401(k); whether withdrawals could be made for non-emergency needs, and how much.  It was amazing to read through the plan documents and see the range of differences.  In fact, the documents were so long and complex that it was not a rarity for us representatives to field questions from a caller and, while under pressure to resolve matters quickly and get to the next caller, misinform the caller due to missing some detail while we hurriedly scanned the plan paperwork. 

There is a key takeaway from this for owners of 401(k) accounts.  You probably want to double-check what the rep from the account custodian or your human resources department tells you about your 401(k) plan.  You can best accomplish this by obtaining a copy of the plan documents for yourself.  I recommend that because reading through it—boring as it may be—can raise questions you never thought to ask.

One such question is “how are withdrawals made?”  You might assume that you can designate the mutual fund (and it’s not unusual to have several within your 401k: stocks, bonds, cash) from which you want the funds withdrawn.  Or you might think you can simply ask the funds be withdrawn proportionately from the various mutual funds in your account.  But neither may be true for your 401(k).  One unlucky former employee of the Wall Street Journal requested a pro rata partial distribution from his account.  What happened instead was that all the money was withdrawn from the most conservative fund in his account.  So while he probably owned some stock funds and bond funds, the custodian (Fidelity) took all the money from something like a money market cash account.

Do not blame Fidelity, at least not wholly.  The employer is largely responsible for setting the rules of the company 401(k) plan.  And I would venture to guess that their intent with this rule of withdrawing first from the most conservative fund was to keep people aggressively invested for growth so they will have a higher balance at retirement.  But suppose the employee is already retired and wants to reduce his portfolio risk profile by cashing in some of the riskier stock funds he owns?  Too bad.  He would first have to sell some of the stocks within the account to transfer the proceeds to the money market fund and then make his withdrawal.  But unless he knew that beforehand, he would be blindsided by this rule.

So make a note to yourself to request your 401(k) plan documents from HR.  There may not be any surprises there, but it’s best to be sure.

Until next time,

Roger

“When the king heard the words of the Book of the Law, he tore his robes.  He gave these orders….Go and inquire of the LORD for me and for the people…about what is written in this book that has been found.” 2 Kings 22:11-13 NIV*

*Scripture quotations taken from the Holy Bible, New International Version® NIV® Copyright © 1973,   1978, 1984, 2011 by Biblica, Inc.™  Used by permission.  All rights reserved worldwide.

Running Out of Money Can Scare You to Death

 

What is your greatest fear?  I’ve read that public speaking tops the list for a large percentage—perhaps even a majority—of people.  Now a survey by Allianz Life of U.S. adults age 25 and older with annual incomes of at least $50,000 reports that a majority of people fear running out of money more than they fear death.  Generation X’ers, people born between 1965 and 1980, the oldest of whom are swiftly approaching retirement, seem to be the most fearful, with 70% expressing that fear.  Baby Boomers, born between 1946 and 1964, and who are mostly retired already, followed close behind at 61%. 

With other surveys showing that on average we believe it will take well over a million dollars to retire financially secure, but the median amount saved for retirement is only $87,000, I suppose the fear of running out of money is very real. 

But scarier than death?  I believe most mature adults think about death at one time or another or even have come face to face with it in some fashion.  And I can think of only a couple of factors that feed that fear: uncertainty about the state of death, the potential pain of death (which is, technically, fear of the process of dying and not fear of death itself), and concern for those we would leave behind. Religious teaching and beliefs mitigate that for many people of faith.  How does the fear of running out of money exceed those fears, and does it have a similar means of mitigation? 

What happens when we have no money?  We cannot buy food, secure a place to live, pay for health care; and those deficiencies will impact our life expectancy.  But that seems more like a fear of death, our ending.  Do we, rather, fear the process of being poor, not its eventual outcome?  Will we miss the perks of having money: traveling, good food, decent health care…respect?

And perhaps it does come down to status.  We measure things and people by money, and without money we are tempted to feel worthless.  The stigma of poverty is a heavy burden.  And what can relieve it?  Social safety nets and others’ charity can do that to some extent.  But it seems we have lost faith in those remedies, especially as we see some government programs being ravaged by proposed budget cuts.  It is tempting to picture ourselves back in a Dickensian society, and that might be the driving factor in the findings of Allianz Life survey.

We have to fight that on two fronts.  First, we must focus on our own financial health, saving for the future and not spending every dollar we have or expect to have.  But equally important is the need to be generous to others, to give attention to our society’s safety net programs, to include charity in our personal budgeting: giving to the local food bank or free clinic; supporting a church’s giving projects; helping family members who might be struggling.  And being a kind, generous person who cares for others has its own rewards, both for the physical well-being of the beneficiaries and for the mental well-being of the giver.  Be that generous person.

Until next time,

Roger

“Religion that God our Father accepts as pure and faultless is this: to look after orphans and widows in their distress and to keep oneself from being polluted by the world.”  James 1:27 NIV®*

 

*Scripture quotations taken from the Holy Bible, New International Version® NIV®

Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™

I'm Going to Miss Joann (Really, Dear!)

 

The bankruptcy and closing of Circuit City stores some years ago still sticks in my mind for business analysts’ brutal assessment of the cause of its demise: poor customer service.  Commentators contrasted customers’ consistently poor experience at Circuit City with the more welcoming environment at competitors’ stores.

When I read about a store or chain of stores closing, especially if they have an outlet near me, I have a twinge of guilt that maybe I should have shopped there more.  But sometimes they just don’t sell what I want (Forever 21, comes to mind), and maybe they just don’t deserve the business because of their poor treatment of customers.  But upon learning that Joann Fabrics is soon closing all its 800+ stores, I had to think about that one.  No, I’m not a crafter; but my wife is, and I remember her excitement over shopping at a Joann store.  She’d rummage through bolt after bolt of fabric, asking my opinion of the design or material.  A very tedious experience for me, as I'm sure she noticed, but I had to admire the workers there because they seemed to love their job and be crafters themselves because they invariably would ask what my wife was making, share hints, and tell stories of their own similar projects.  That’s high-end customer service.

So where did Joann go wrong? 

It started, sadly but predictably, with debt.  In 2011 a Los Angeles-based private equity firm converted the chain in a leveraged buyout, putting the company $1.6 billion in debt and obligating it to pay exorbitant management fees.  Nevertheless, the company surged during the pandemic.  But owners assumed the boom would continue, and failed to adjust to competition—except in one notable way: they cut staff.  This caught up with them as customers experienced wait times of 45 minutes or more to have their fabric measured and cut.  I’ve been with my wife when she bought what she needed for a project.  It entailed having a clerk measure and cut from as many as half a dozen bolts of fabric; Joann is a high-touch, service-intensive business.

And perhaps that is the moral of the Joann story.  Business does not have time for customer service.  Management evaluates a grocery clerk by how fast she can check out a customer.  The call center operator’s efficiency is measured by how many calls he completes in an hour.  A doctor needs to meet standards of patient turnover during her day while also meeting clinical standards of care.  Does management really think we don’t notice this? 

Customer service is not (or shouldn’t be) a department, it’s everyone’s job at a business.  Can’t we take a few minutes to be personable?  Can’t we practice the Golden Rule?  Can’t we, as customers, smile at the worker assisting us?  Complain as we might about large, impersonal corporations taking over the world, we should practice virtue at our own level, both as employees and customers.  And let’s shop where we are welcomed, locally.

Until next time,

Roger

“Treat other people exactly as you would like to be treated by them—this is the meaning of the Law and the Prophets.” Matthew 7:12 Phillips

Generation [La] Z [y] Moves into the Workplace

 

From Fortune magazine: “Bosses are firing Gen Z grads just months after hiring them”

Generally identified as people born between 1997 and 2012, Generation Z is starting to move into the workplace, and it’s not going well.  On one level, this is quite surprising.  Reared on (if not by) the internet and advanced technology, one would think they would be the perfect fit for the high-tech workplace of today.  After all, isn’t that what public policy has aimed for, to train the tech-savvy, ready-to-hit-the-ground workforce of the future?

Then again, it’s not all that surprising.  American public education seems intent on producing a single-size widget, graduates who skillfully navigate the tech world but are aliens to a fundamental requirement of nearly every place of employment: interpersonal skills.

Other specific complaints of their (former) employers are that Gen Z’ers lack motivation or initiative (cited by 50% of the leaders who had sacked a Gen Z hire), dress inappropriately for the office, show up late or not at all for scheduled meetings, are unorganized, use language not suited for the work space, and are poor communicators.  Broadly speaking, these are all interpersonal skills; and having been weaned on screens Gen Z’ers have not mastered them.  More than half of hiring managers have concluded these college graduates are unprepared for the workaday world.  

But (hallelujah!!!) Michigan State University is stepping into the void and, according to Fortune, “is teaching students how to handle a networking conversation, including how to look for signs that the other party is starting to get bored and that it’s time to move on.”

Oh, please.  Were these students so oblivious in their social interactions from age 0 to 18 that they didn’t learn that already?  Even newborns can read human emotions and facial clues.  All that screen time must have fried their brains. 

I have previously expressed my hope that today’s students are learning some basic financial skills in school.  But perhaps that should not be my main concern.  If Gen Z lacks the ability to hold down a job—and 20% of hiring managers judge them to be incapable of handling the workload—then knowing how to save and invest wisely will prove to be useless if they haven’t earned any money to invest. 

The season for high school seniors to declare their choice of college to attend this autumn is approaching.  In my opinion, our institutions of higher education are failing us by giving more attention to entertaining students than educating them; protecting them from supposedly offensive ideas instead of teaching them the world is full of people who disagree with them and they better learn to get along.  No wonder Gen Z can’t navigate the workplace.

 If you are a parent of a Gen Z’er, and you haven’t already given them the social skills to succeed (yes, that is largely your responsibility, too) at least help direct them to a place of real learning, one that doesn’t, for example, tout the climbing wall in the student center over the percentage of their students in successful internships.  Send them off without a car or a wad of cash or wallet full of credit cards; don’t let them drown in a sea of student loans; tell them they need to get a part-time job during the school year to cover costs.  I’m not so pessimistic to believe that Gen Z is a lost generation.  But they need some guidance, and employers don’t have the time to give it—not if their new hires come in without the most basic of human skills.

Until next time,

Roger

“Having a lazy person on the job is like a mouth full of vinegar or smoke in your eyes.” Proverbs 10:26 CEV

Are You Doomed Because You Don't Have a Roth Account?

 

In my last post I lamented the confusing and often contradictory personal financial advice being handed out over the media and online.  But one piece of advice seems to be consistent across all sources: It is better to have a Roth account than a non-Roth retirement account.  In fact, if you don't have one, you are advised to start moving your money into one right away.

But is it REALLY better?

There’s no doubt a Roth account has some advantages.  In these retirement accounts one deposits money that has already been taxed and which—upon withdrawal—will not be taxed again, nor will the interest/investment gains that have accumulated in it.  In a non-Roth account the deposits are not taxed upfront, but both the deposits and the accumulated growth in the account are taxed upon withdrawal. The difference between a Roth and a non-Roth account has been likened to paying tax on a bag of seeds as opposed to paying tax on the entire harvest. 

If you start socking money away in a Roth account early in life, then you would have decades of accumulated wealth by the time retirement rolls around that you could withdraw without paying tax on it.  The rationale for opening a non-Roth account has been that it is better to have the upfront tax deduction when you are more likely to be in a higher tax bracket than you will be in retirement.  But in recent years, given the growing national deficit, the lower-tax-rates-in-retirement assumption has fallen out of favor and experts have leaned into Roth accounts as the best alternative for retirement saving.

Now comes a study from three finance professors at Providence College, published in the Journal of Wealth Management and reported by Marketwatch that claims to show most taxpayers would be better off with a traditional (non-Roth) account.  In fact, over a 45-year lifetime of saving the typical retiree will end up saving nearly 25% in tax liability by using a non-Roth account.  They even concluded “[t]hose who expect to have $1 million or less saved in retirement are not expected to pay taxes on their distributions.”

I tend to believe them (well, as much as I believe any “expert”, and only to an extent), especially given the current income tax structure in the United States and the prospect that it will continue as is for another four years. The bulk of my retirement money is in non-Roth accounts.  I’ve already withdrawn tens of thousands of dollars (hey, retirement bucket list travel, grandkids…..don’t judge me!) and have not paid any income tax on it.  And I’m not using any special tax breaks or elaborate strategies. It's the tax brackets and the historically high standard deduction.

We simply cannot know future tax rates or predict what legislation will be passed years in the future and plan our finances with any certainty about those factors.  We just do the best we can.

So once again, do not automatically accept the conventional wisdom.  Carefully consider your own situation.  And by all means do not feel you have made a mistake by stashing your retirement savings in a non-Roth account.  At least you saved for retirement, and that’s more than a lot of people can say.

Until next time,

Roger

“How do you know what will happen tomorrow?....As it is, you take a certain pride in planning with such confidence.  That sort of pride is all wrong.” James 4:14, 16 Phillips

Confused or Depressed? The State of Financial Advising

 Would you be completely baffled if you encountered this road sign while you were driving?  Would you know what to do, which way to go?

I can guess your answer, and that is why I chose this picture as a graphic illustration of today’s financial advice.  Listen to too many “experts,” read too many financial advice columns, and you will soon discover how confusing and even contradictory they can be.  Why is that so?  Why, for example, does one expert say you are financially secure in retirement if you start out with $500,000 while another says, oh no, you need $2 million?  Why does one source say you can safely withdraw/spend 8% of your retirement savings each year and still not outlive your savings, while another says 4% is the safest route, and yet another says 2.7% is the max you should be taking out annually if you want to be certain not to run out of money by the time you are age 95?

Part of the disparity is the assumptions from which each advisor works.  In the examples above, one advisor might assume that the retiree is invested more heavily in stocks than in bonds.  Another might project that the stock market will perform better than his peers would predict.  But I believe there’s more than just differing working assumptions causing the confusion.  I’m afraid that not everyone touting his financial credentials online, in print, on radio, or on television necessarily wants to give solid financial advice but is more interested in making money for himself.  And if he makes a bold prediction or goes against the flow of what most others say or foresee, he garners more attention, more television interviews, more clicks to his website because he stands out—even if what he says is absurd.  As long as he can throw some numbers around, cite some statistics, he can sound authoritative. 

This is more common that we might believe.  I read a lot of articles about personal finance, in print and online, but there are some sources I’ve simply stopped reading.  One preaches nonsense, another is transparently throwing out click-bait to make money.  What is the ordinary investor to do?

My suggestion: find a couple of reliable sources for your financial advice.  Don’t live in fear over your future financial situation.   It probably is not as dire as you are being told.  Take a moment, whatever advice you are listening to or reading, to evaluate what the source has to gain by directing you to take specific actions.  Sometimes, they just need an audience or an increase in the number of people going to their website.  But some advisors might stand to make big commissions if you do as they tell you to.  Not everyone is looking out purely for your interests.  Remembering that, having a spending plan (budget), saving regularly, and living within (preferably below) your means will be key to a secure future financially.

Until next time,

Roger

“To show partiality is not good—yet a person will do wrong for a piece of bread.” Proverbs 28:21 NIV®*

 

*Scripture quotations taken from the Holy Bible, New International Version® NIV®

Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™

 

[By the way, I took that picture on a rut-filled, unpaved mountain road to a lodge in Alaska.  It was a joke.  There was also a sign at the top of the hill that read, “Freeway Ends in 500 Feet.”]

Imperfect Though It Is

 

Oddly enough, introvert that I am, I’ve occasionally had a desire to join a book club.  I enjoy reading; and being able to share ideas and discuss with others what I have read—especially after having read a really interesting book—sometimes holds some appeal for me.

So when I was looking through the local Parks & Recreation department’s brochure of programs for this winter, I was intrigued to see they now have an active book club.  I read further.  Their reading list is novels and personal development/psychology books.  Okay, deep-six that idea.

Self-help books do not make my personal reading list.  The idea of reaching perfection in some area of life through a step-by-step process seems so formulaic, so unrealistic.  I’m human.  I’m imperfect.  And I don’t foresee that changing while I inhabit this earth.   I have as much disdain for this genre of books as I do for “Christmas letters.”

 I’m sorry if you are one who sends out such letters to your friends during the holidays and my sentiments on the subject offend you; but the brag-laden letters that are meant to pass for Christmas greetings just come across shallow and empty to me.  I’m pretty sure the last twelve months have not been the epitome of unmitigated happiness and uninterrupted success for the senders and their families that nearly every Christmas letter I’ve received portrays.  None tells about the heartache, pain, sickness, divorce, depression, financial struggle, addiction, or any of the other maladies that mar the human experience, including theirs. 

That is why I enjoy Kate Bowler’s writings.  Kate, an associate professor of the history of Christianity at Duke University Divinity School, was diagnosed at age 35 with a life-threatening cancer.  She has written about her struggle to conquer the dread disease and gone on to be a New York Times best-selling author: Everything Happens for a Reason and No Cure for Being Human.  You can tell just from the titles that she is on the other end of the spectrum from those pathway-to-perfection books.

This month I’m reading the devotional book she authored with Jessica Richie, Good Enough.  And for my Christmas post this year I share the “Blessing for a Joyfully Mediocre Journey” with which she opens the book.

Blessed are you

who realize there is simply not enough

--time, money, resources.

 

Blessed are you

who are tired of pretending that raw effort is the secret to perfection.

It’s not.  And you know that now.

 

Blessed are you

who need a gentle reminder that

even now, even today,

God is here,

and somehow,

that is good enough.

 

Wherever you are in life’s journey, whatever hurdles have tripped you up in 2024, and no matter how many lie ahead—seen and unseen—may Christmas remind you that you are not alone.

Merry Christmas and Happy New Year, however imperfect each may be for you.

Roger

“They shall call his name Emmanuel, which being interpreted is, ‘God with us.’” Matthew 1:23

A Network of Blame?

 Can the internet bear one more commentary on the murder of United Healthcare (UHC) executive Brian Thompson?  Can the crime that launched 10,000 news articles and millions of social media posts be scrutinized in any fashion that hasn’t already been done by perhaps hundreds of others?  I ask because my perspective—which I’m certain is not completely unique—is one that I’ve not seen or read among the multitude of online reporting and musing on the subject.  You see, I was both employed by the health insurance industry and its victim, though not in that order.

For years I had the good fortune to have a job that provided fully employer-paid health insurance with a carrier that had a robust network of hospitals and other providers.  Coverage and in-network availability of care was never an issue.  But within a few months of leaving that employer I suffered a health episode that required an emergency room visit and follow-up procedure.  Without much thought I went to the nearest hospital, only to learn that it was out of network for my new insurance coverage.  Being in severe pain and in no state of mind to go looking for an in-network hospital (if there was even one in town, which I don’t think there was) I chose to continue treatment where I was.  The insurer paid a miniscule amount, and I ended up with a bill of several thousand dollars.  The insurer was UHC.

Interestingly, that underpaid claim years later entitled me to participate in a class-action lawsuit against UHC that netted me some money, but it was a small fraction of what I had to pay out of pocket.

Skip ahead ten years.  I accepted a job offer from a regional health plan (read: insurance company), working with the state’s Medicaid program.  If you’re not acquainted with that program, it is the state-paid health coverage for needy families.  One feature of that program is that participating providers cannot bill patients for services covered by Medicaid; they are wholly dependent on the insurance carriers for reimbursement for care rendered to Medicaid beneficiaries.  My role as a Provider Relations Representative was to assist providers in getting their claims paid.  And I was instrumental in recovering literally millions of dollars for the providers in my territory.  They only came to me when there was a claim problem to resolve—and I was constantly busy, so that should say something about the medical claims process.

Why were there so many claims problems?  I would chalk it up to

1)      The insanely complex process of coding claims, in which different insurance companies have different requirements in how to submit a claim for the identical service; even a single misplaced decimal in the procedure code can get the claim denied

2)      The correspondingly complex system of adjudicating those claims on the insurer’s side; not just any off-the-shelf software can handle the task adequately

3)      Deliberate efforts by insurance companies’ “cost containment” units to actively search for past supposed errors that their claims department had missed and then taking back from the providers the money paid in those claims; the most egregious example I encountered was a pediatric practice who had money deducted from their current claims’ payment for a 13-year-old error (You read that right: NOT an error on a 13-year-old’s medical claim but a claim that was itself 13 years old; I got their money back, in case you’re wondering)

4)      Insurance company incompetence.  Oh, ALL. THE. TIME.

 

But what about patients NOT enrolled in Medicaid who have their claims denied.  They ARE on the hook for the unpaid balance.  And they have no billing department, no denied claims appeal team to help them fight the denial.  They are pretty much on their own.  (I’ve addressed in previous posts how best to file an appeal in these cases.)

Can I say anything in defense of insurance companies?  Certainly.  Can you find anyone else who for a few thousand dollars a year would carry the risk you could become a million-dollar cost for them if you become very sick, as well as cover the many other routine costs of keeping you healthy?  Can you find anyone else that would take the risk your house could be lost to some unforeseen hazard and cost them hundreds of thousands of dollars to replace it for you? 

And of course no one would think of cheating the insurance company, right?  So do we really need the False Claims Act that Congress passed?  Or do the state police really need to run that ad on the radio offering rewards for those who turn in people committing insurance fraud?  The attitude of “They [the insurance companies] have plenty of money” is a dishonest excuse for a criminal act that hurts everyone.  Dishonesty in even a small matter is still dishonesty.   

We can lament the fact that for all our advanced care our health outcomes are not on par with other countries that spend much less on health care for their citizens, but there is no question we have top-tier medical technology and specialty care in the U.S.  But at what cost?  I came across a news item about a Reddit post sharing a picture of a hospital bill for the delivery of a baby in Kansas in December 1955.  The total for a three-day stay was under $60, including room & board and nursing service charges of $27.

So hospitals and doctors must be to blame for the hyper-inflationary price spiral that has driven up insurance costs.  Not so fast.  I’ve had occasion twice to be introduced socially to physicians.  When they ask me what I did before I retired, I’ll play coy and say that with their being a doctor I’m not sure I want to reveal what I used to do.  Both times their response was, “You must have been a lawyer.”

Medical professionals are wary of lawsuits and routinely practice defensive medicine, ordering tests and exams that are probably unnecessary, just to prevent someone suing them for negligence, for not foreseeing and eliminating every possible diagnosis—regardless of how unlikely it is.  And they have to pay for their health insurance like you do…AND liability insurance to protect against YOU suing them.    

So there’s plenty of blame to go around, as they say.  Is the American health care system broken?  Our opinions probably depend on our personal experience with providers and with health insurers.  But if we consider health care a right—and given that as a country we apparently do, at least for the poor, disabled, and elderly—entrusting it to marketplace forces, as we do for pricing commodities, doesn’t seem to be working.  What is the answer?

Until next time,

Roger

“Let the one among you who has never sinned throw the first stone.” John 8:7 Phillips

 

[Thank you to those who have viewed my blog and website from outside the United States.  I’m flattered to have an international readership!  I’ve left the Comments open for this post because if you are so inclined, I’d love to hear your perspective and your health care experience in your homeland and how it contrasts with the U.S.]

Five Years vs. One Million Dollars

 

I hate class reunions and school homecomings.  I hate homecomings, period.  Avoid them like COVID.  That might have something to do with my being an introvert, but I have another explanation: I don’t want to live in the past.

Now my years in college were some of the most enjoyable of my life; so why wouldn’t I want to recall and re-live them with friends from that time in my life?  But a couple that my wife and I have known since college did prevail on us to attend the five-year reunion of our college class with them.  We all had a miserable time.  Even putting aside the alumni association’s appeal for money, there was little to enjoy.  An especially pathetic scene to behold (to me, at least) was the only other attendee from our class, a very smart young woman who was well on her way to a career as a physician, fruitlessly searching for people she knew.  We hardly knew her ourselves; we had run in different social circles back in the day.  But she gravitated to us in despair and even started taking our pictures with the camera with which she had hoped to capture some great memories.  I wonder if she still has our picture.

My philosophy has been that there is something better just around the corner.  I guess that makes me an optimist.  Why spend time reminiscing when I could spend that time discovering that new thing that awaits me?

You just know I’m going to make this about money, right?  I’m not here to just riff on reunions after all.  And here it is: A blurb in the latest issue of Kiplinger Personal Finance reported that a survey done by Edelman Financial Engines found that 51% of Americans would rather have $1 million added to their retirement account than have five healthy years added to their lives.

Really?!?  That is the answer I might expect from twenty-somethings struggling with finances (They would probably withdraw the million dollars from the retirement account, incurring taxes and a 10% penalty,) and who think they are immortal anyway.  For all the talk about eating right, exercising, and maintaining healthy habits, half of us would rather die five years before we have to than forego a million dollars.  (The same survey found that if the ante were upped to ten years of healthy life, 32% would still choose the money.)

To me the survey results say that half of us don’t appreciate what we have and are not optimistic for our future.  It is probably my age, but five more years of healthy life sounds appealing.  How many books could I read, how much quality time could I spend with family and good friends, and what new places could I visit in those five years?  I cannot envision a scenario in which I would trade away five years of life.  And I find it difficult to comprehend that 51% of Americans feel so poor that they would not feel the same way.

As we approach Thanksgiving Day, I pray that instead of longing for more—more money, more of whatever money can buy—we will cling to and hold precious the gift of life, which no amount of money can buy, and be thankful for what we have, even if it seems exceedingly small now.  A life of gratitude, a life of anticipation, is one worth living.

Happy Thanksgiving, friends.

Roger

“If you love money and wealth, you will never be satisfied with what you have.” Ecclesiastes 5:10 CEV

“Enter into His gates with thanksgiving, and into His courts with praise; be thankful unto Him, and bless His name.” Psalm 100:4 KJV

Hurry Up and.....Do Nothing

After a record-breaking run of the U.S. stock market, the major market indices (Dow Jones Industrial Average, S&P 500, etc.) not only took a pause, they went backward for a few days.  The Dow losing a thousand points in a day can be unsettling; and it didn’t seem to take much to make it and the broader market reverse course.  The Federal Reserve decided not to cut interest rates just yet, probably waiting until its September meeting; and that was followed with some weak quarterly reports from a couple of big companies; someone said the word “recession.”  And suddenly the stock market drops by the hundreds of points.

What did YOU do in response?  If you answered, “I got out of stocks and put the money in a safer investment” then I have to give you an “F” in investment strategy.

Consider this analogy.  During a recession it is not only stocks that lose value; very likely your house goes down in market value.  What should you do then with your house?  If you sold your house because you were afraid it would continue to lose value, then it is possible you will have received less for it than you actually paid for it originally.  AND you would have to find a new place to live.  But if you held onto your house, you would still have a roof over your head and the loss in value would only be on paper.  It would eventually go back up in value.

It is much the same with your Individual Retirement Account, 401(k), or other account where you hold stocks and bonds.  In the context of deciding what to do when the stock market takes a dramatic downturn, it is a mistake to look at that account as a pot of money.  Instead, see it as a collection of shares.  Shares of a company, shares of a mutual fund.  Now those shares are worth less, but you still have the same number of shares.  If you start selling them because you are afraid of losing more money, then you are selling them when they are worth less—possibly less than you paid for them when you invested.  And when the market turns back and starts gaining again, if you decide to jump back in then you will have to purchase those shares at a higher price than when you sold them.  So if you received $1000 for those 100 shares you sold and now you want to reinvest that $1000, you may only be able to get 80 shares.  And it is the number of shares that is critical to your investment.  Your investment account grows in value because the individual shares in it become more valuable.  And dividends are paid on a per share basis.  The more shares you own, the bigger your dividend.

In short, by panicking and selling whenever the stock market declines and waiting for a recovery to reinvest, then you are selling low and buying high.  It’s like waiting until a sale ends to go purchase your new sofa—the exact opposite of what you should do.

Naturally, investment decisions must be made within each person’s personal context of risk tolerance, when the invested money is needed, age, and other factors.  I only speak in generalities here and cannot tell you what you should or should not do today with your invested money.  But I can say that, generally speaking, panic selling is probably the biggest mistake most investors make, whether they are rookies or veterans.

Until next time,

Roger

“The plans of the diligent lead to profit as surely as haste leads to poverty.” Proverbs 21:5 NIV*

*Scripture quotations taken from the Holy Bible, New International Version® NIV® Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™ Used by permission.  All rights reserved worldwide 

Who, Exactly, Is Being Influenced?

Anyone my age would likely tell you if you asked (or even if you didn’t ask) that they grew up in a much simpler age.  For my television viewing as a kid I had three stations from which to choose, and one of those was mostly “snow.”  Internet?  Cable TV?  Career choice?  Oh, sure, doctor, lawyer, nurse, teacher, fireman, policeman, butcher, baker, or candlestick maker.  Huh?  What’s a systems analyst?  Or a software engineer?  Or a chief information officer?  Or IT security specialist?

And an “influencer” was someone who could manipulate others.  Perhaps a salesman.

I’ve been thinking a lot about that this week as two news/feature articles came to my attention.  In the first one, from the Wall Street Journal, an anonymous mother was interviewed about the social media account she and her young teenaged daughter set up during the pandemic to share with family and fellow dance students pictures and videos of the girl’s dancing.  It was also a means for the mother and daughter to pass time and bond during a socially restrictive time.  The mother soon began to notice a disturbing trend in the data on the account dashboard.  Yes, they were—much to their delight and surprise—getting offers of free apparel and sponsorships.  But 92% of the account’s followers were adult men, and some of them were starting to send inappropriate messages and pictures.

The mother blocked as many of the inappropriate users as she could keep up with.  But she felt that she faced a dilemma.  The particular social media platform she was using promotes content based on engagement from the audience, and the men she was blocking tended to be the ones who lingered the longest on the pictures and responded online.  How would her daughter ever become a social media influencer, earning tens of thousands of dollars a year, paying her way through college, and in the process losing this opportunity for mother-daughter bonding if mom continued blocking all these men?

Her eventual response was, “You have to accept it.”  I don’t think you’ll need a WSJ subscription to access the sad, disgusting, disappointing story at this link.

On the heels of reading that article, I saw in multiple news outlets that the surgeon general is “demanding” warning labels be placed on social media apps due to the risks they pose to young children and teenagers: depression, social isolation (ironically), potential for sexual abuse, and suicide.  Use of social media is nearly universal in this age group, and according to one Gallup poll they spend about five hours daily on these sites.

I am not going to engage in a debate about appropriate levels of government oversight of social media platforms, free speech, etc.  What I will say is that there is no cure for stupid and only very tough cures for greed.  And I’m not talking about the minors, I’m referring to the adults.  Are we selling our souls and our children’s safety for thirty pieces of silver?  Where is the conscience?  What happened to our moral compass?  Yes, the men ogling the young girl’s pictures are monsters.  Will we sacrifice to them that which should be most precious in life to us?

Until next time,

Roger

“They built high places for Baal in the Valley of Ben Hinnom to sacrifice their sons and daughters to Molech, though I never commanded—nor did it enter My mind—that they should do such a detestable thing." Jeremiah 32:35 NIV*

*Scripture quotations taken from the Holy Bible, New International Version® NIV® Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™ Used by permission.  All rights reserved worldwide.

BOGO....and Go into Debt

 

The term “spaving” is new to me.  I just learned that it means “spending more to save more,” and with that concept I am very much acquainted.  It’s like a “buy 3 for $5” sale when the regular price is $1.99 each.  So you would save 97 cents if you purchased three of whatever is on sale; and that seems to be the default action by most people.  But if you bought just one you would still save 32 cents: one-third the savings for only buying one-third the merchandise.  And that would make a lot more sense if you don’t need three of the item or if it is unlikely you would use three within a reasonable amount of time.  (Always read the fine print on a sale; sometimes it will indicate that you must buy the full quantity to get the sale price.)

As reported by CNBC, financial experts warn that falling for these sales, buying more than what is needed, purchasing unneeded items in order to reach minimum purchase requirements or free shipping thresholds, or “BOGO” deals can lead to overspending, deeper credit card debt, and financial stress.

So how to fight the urge to “save more”?  Some suggestions are to pay in cash (studies show we spend about 15% less when we pay with cash versus credit card), make online shopping harder by not allowing merchants where you commonly shop to store your credit card number (it’s also a good security measure), and avoiding vendors who are always advertising “limited time offers.”

But my favorite tool: math.  Do you really save more per item by purchasing more items?  And is the savings worth the extra expense?  Use a calculator if you must.  There’s probably one on your phone.  

How many people were taken in by this “sale"?

 

Really?  Four cents per plant?  That’s less than a one percent discount.  So if you load up with a dozen plants, you save less than half a dollar and probably don’t have room in the garden for them all anyway, if you even have a garden.  But at least you saved 48 cents.

Until next time,

Roger

"God blesses everyone who has wisdom and common sense." Proverbs 3:13 (CEV)

Couples Do This Eighteen Times a Month

 

When teaching money management classes, I often cite statistics from authoritative sources such as Psychology Today and American Association for Marriage and Family Therapists indicating that arguments about money are responsible for more couples breaking up than even infidelity.

I may have to modify my presentations.  According to studies cited in the Wall Street Journal, the average American household has 18 arguments a month over…dishes; “from leaving them in the sink to who should empty the dishwasher.”  The paper even interviewed couples about the subject and referred to an interview with the prime minister of Great Britain that touched on the subject of how he and his wife differ on how to load a dishwasher.

Eighteen arguments a month.  More than one every two days.  That very well may supersede money as to frequency, if not in intensity, as a subject for marital fighting.  But it got me to thinking about how the matter of dishwashing has evolved between my wife and me.  Our first house did not have a dishwasher, and that in itself led to some “discussions” about prioritizing home improvements or listing desirable features to have in our second house.  But for years now we’ve had a dishwasher, and it is almost never a subject of discussion.  How did we get there?

Neither of us had a dishwasher in our childhood homes; so when we finally purchased one as adults, there was a bit of a learning curve.  Rinse before loading?  How to load?  Who empties it?  Who washes what could not go in the dishwasher?  My only “lesson” in dishwasher science came from my brother who worked for a while in a college cafeteria to earn his way through school.  He would come home and tell the family how the workers there packed the silverware so tightly together in the dishwasher that he could not fathom how they possibly got clean.  I think he started packing his own plasticware when he ate there.  So my take-away?  Load the dishwasher strategically to maximize water flow and promote thorough cleaning.  Unfortunately, I didn’t explain this very well to my wife, and she did not appreciate my undoing her machine-loading job to re-organize the dishes and utensils.  But I still don’t think we argued 18 times every month.  In fact, my insistence on there being a correct way to stack the dishes eventually led her to just leave the whole task to me.  So now nearly always (like 99 times out of 100) I load and unload the dishwasher and handwash what I choose not to cram into the machine.  I won that battle, huh?

Reading the Wall Street Journal article left me pondering whether there might be lessons in all this for how to handle arguments about money—which I am still convinced are generally much more serious than proper dishwasher loading.  But if there are any lessons that carry over, they are lessons in what NOT to do.  For example, neither partner in a couple should throw up his/her hands and turn over all financial matters to the other, just to avoid fights.  First, it just won’t work.  Attitudes and emotional reactions, learned in childhood from our own parents’ relationship with money, are woven too tightly into money matters to just surrender control to someone else without some resentment creeping in.  And second, if that partner dies, becomes disabled, or just leaves, the other will be hobbled by not having been involved in financial affairs and may even be unable to handle them alone.  It has become a problem for both widows and widowers and the survivors of gray divorce especially.

So you can cede control of the dishwasher or the remote to your partner, but insist on being involved in financial decision-making.

 

Until next time,

Roger

“Behold, how great a matter a little fire kindles!” James 3:5 KJV

Why Fred and Barney are at Knee Level

 I changed grocery stores.

For years I have been shopping primarily at a national chain grocery store, being pleased with their dedication to lower prices and decent quality.  But then they re-arranged their store.  I went in to shop one day and there was a team of contract workers who were moving merchandise en masse from shelf to shelf.  When I went back a week or two later, their task accomplished, I found….no, that’s the wrong verb.  I didn’t “find” anything.  Nothing was in the place to which I had become accustomed over the years.  Paper towels in an aisle opposite frozen food?  I literally spent double the normal amount of time doing the grocery shopping that day.  And I haven’t been back since.

Perhaps if that store had done some other things right I’d still shop there.  But of late even during busy hours they had at most two cashiers working.  The largest part of the checkout area was devoted to self-checkout machines.  And I often found mistakes on their pricing at the checkout.  (Yes, I admit it; I do check the receipt for mistakes and have been amply rewarded.  I’ve been refunded more than enough to pay for a nice restaurant meal in the last year or two and have received some merchandise for free for catching their errors.)

So I have started shopping at a smaller chain grocery store, as well as at a specialty local grocer, and am very pleased.  I’m saving money, which I did not expect.  The stores are cleaner, brighter, and less congested, and there are enough cashiers all the time such that I’m never more than third in line, and am usually first or second.  And there’s no self-checkout area.  Mistakes on their receipts?  Non-existent.  If the shelf or weekly circular advertises a sale, that sale price invariably comes up at checkout.

Thinking about this experience, I thought it might be a good time to review some grocery store tricks for getting you to spend more money, because that shuffling of goods that turned me against the one chain is a frequently used ploy; if you are having to wander the store looking for what is on your list, you will be exposed to more items, more temptations to buy stuff not on your list and not really needed.  But how about these tricks:

·         Placing higher priced goods at eye level, lower priced goods on the top or bottom shelves

·         Large shopping carts, to induce us to fill them (this works like a charm on my neighbor)

·         Cartoon character-themed goods placed at children’s eye level

·         Music playing to both keep you in a good mood and slow down your shopping experience so you purchase more (Then, once you are in the checkout line, the cashier rushes you through; one even told me they are evaluated on how quickly they move customers through the line.  No chit-chat, please.  Very impersonal.)

·         Essential and often-purchased items placed in the back of the store or the middle aisles, forcing shoppers to pass more shelves and hopefully purchase more non-essential items

 

And of course, don’t go to the store hungry.  It’s tempting to go to Costco to get a light, free lunch from all the samples, but that only whets your appetite and causes you to spend more, not to mention the temptation to actually purchase a box of those Girl Scout-style chocolate mint cookies being sampled just feet from the checkout area.  You get an A+ for your grocery shopping if you’ve ever resisted that pitch.

Until next time 

Roger

 “Don’t let anyone trick you with foolish talk.” Ephesians 5:6 CEV

Fifty Thousand Regrets and One Important Lesson

 

Do you recognize the name Charlotte Cowles?  No?  Then maybe you know her instead for what she did.  She is the financial-advice journalist—of all things—that fell for a scam that led her to hand over a shoebox full of cash—$50,000 of her own money—to a stranger.

There can be two basic reactions to that story: “What an idiot she is!  How could she let that happen?”  Or a more empathetic “I feel so bad for her.  Could that happen to me?”  And Ms. Cowles has had plenty of both on social media. 

I tend to fall into the latter group.  There are so many sophisticated methods that scammers can use, and so much personal information compromised through computer hacking of companies we legitimately deal with every day, from your bank to the local hospital to your own employer, that those who would steal your money stealthily seem to have all the advantages.  In Ms. Cowles’s case, someone posing as an employee of Amazon phoned her, transferred her to someone else posing as a worker at the Federal Trade Commission, and eventually even had a third person pretending to be a CIA employee involved.

But look at that sequence again.  She likely orders from Amazon (and by the way, evidence seems to indicate I’m the only person in the United States never to have ordered from Amazon; contact me if you know differently) so it was reasonable to assume Amazon might have reason to call her about an identity theft issue, especially if the caller had any personal information about her that he could cite.  The Federal Trade Commission is the agency to contact about identity theft scams, so that seemed like a reasonable next step to be handed off to them.  And if she were told that the identity thieves were based overseas and the victim is convinced she is part of a plan to help trap them, wouldn’t she do anything she could to help out?  Including handing over some bait money for safe keeping or to lure them into the trap?

Now that part about the CIA agent does seem far-fetched until we realize what happened in steps one and two.  Ms. Cowles’s defense mechanisms were turned off by inducing her fear response.  She was convinced her identity, bank accounts, reputation, and even her freedom (think: jail time for fraud) were in danger so instead of thinking rationally she went into panic mode, didn’t question what she was told, and simply followed the scammers’ directions.  And it is this aspect of the scam that causes me to empathize with the victim.  If a scammer hits just the right nerve, just the right fear and dread of the intended victim, then the path to a successful theft is paved for him.  A doting grandparent is told his grandchild is in jail unjustly in another state, wire some money to him.  A retiree is told that his Social Security account has been compromised and she could lose her benefits unless she can verify her direct deposit information.  Anyone can fall for it.  You can.  I can.

I salute Ms. Cowles for coming forward to admit her failing.  Her experience should teach us that anyone can fall for a clever scam and that these are not backstreet muggers trying to take our money.  These are organized criminals who can make a phone call look like it’s coming from a legitimate known business.  Who can use artificial intelligence to mimic a loved one’s voice.  Who are stealing billions of dollars every year from Americans.

I repeat here what I’ve said before: Stop.  Think.  Slow down the process if it seems you are being pulled into a similar situation.  You are not going imminently to jail.  Social Security does not phone you to tell you that you will lose your benefits.  No government agency accepts Walmart gift cards as a method of payment.  If ANYTHING seems the slightest bit off, call a halt.  Hang up, then look up online the real number of the alleged legitimate party that was calling (Amazon, Social Security, the FTC, etc.) and call them to ask if something really is wrong.  The same is true for e-mails or any other form of communication that seems strange and even slightly suspicious.  Keep your emotions in check, as hard as that might be. 

And have some empathy for Ms. Cowles.  You’d want the same for yourself if you fell victim.

Until next time,

Roger

 

“I see violence and strife in the city….and mischief and trouble are within it…oppression and fraud do not depart from its marketplace.” Psalm 55:9-11 RSV

Another Brilliant Idea from the "Experts"

 

I took one semester of economics as a senior in high school.  And though I enjoyed it, I am glad I never took an economics class in college or pursued a career in that field because some of the zaniest ideas about personal finance seem to originate with economists.  I wrote about one a year ago (see “Spend Now, Save Later?  What?!?!”), but now I’ve got a new one to share with you.

As reported by USA Today, two economists wrote a “research brief” last month arguing that the federal government should no longer allow pre-tax contributions to retirement accounts.   (Pre-tax means the money deposited is not taxed before it goes into the account.  If you earn, for example, $1000 but put $200 of that into a pre-tax account 401(k) plan you would only pay tax on $800 of your earnings.)

The rationale for their proposal: the current policy favors the rich, has not substantially increased retirement savings, and the savings reaped by changing the policy should be redistributed to others.  They cited statistics that show households in the top 10% by income have a median amount of $559,000 in retirement accounts in 2022.  By contrast, those in the 40^th to 60^th percentile by income had just $39,000 in such accounts.

By not allowing the tax deduction for contributions to retirement accounts, these two economists figure the government would increase its income by $185 billion per year, and that could go to shore up the Social Security system and increase benefits for those receiving checks from Social Security. 

Let me set aside my gut reaction to what amounts to a redistribution of wealth and the fact that I and millions of other middle-Americans DO (and did) benefit from the retirement account tax benefits and would suffer harm to our retirement planning and living if they were abolished.  Let’s look at some other statistics and facts, keeping in mind that there can be sizable variations in individual cases; these are averages.

According to the U.S. Bureau of Labor Statistics, workers at the 40^th percentile of income in 2022 made $54,945 per year.  Interestingly, with wage inflation being what it is, the average income that year for someone aged 25-34 was about the same, at $52,936.  So we can reasonably deduce that many or most of the people at the 40^th percentile are younger workers.  And how much should someone aged 30 have saved for retirement?  According to investment firm Fidelity, a 30-year-old should have saved one times his annual salary.  Okay, at the $39,000 figure cited by the economists, they are a little behind—but not that much, really. 

In short, the disparity between “rich and poor” as cited by these two economists does not take into account age differences.  Obviously, older workers will for the most part be making more money (i.e. be at the higher end of the household income scale and be in the middle of their peak earning years) and would have also had more time to build up their retirement savings.

And that $185 billion in savings?  That is about 12% of what Social Security doles out each year in benefits.  Can retirees use that additional money?  Absolutely.  But increasing the monthly check by 12% would hardly replace the income that would be lost from having even a modest balance in a 401(k) or IRA.  Moreover, it is disingenuous to claim that the $185 billion per year would “shore up” the Social Security system, certainly not if the money is used to increase benefits, which is what these economists advocate.  The whole problem with the system is that it lacks the income long-term to pay the benefits it already promises.  And now we’re going to promise beneficiaries MORE money?

The research paper also ignores the benefits that retirement accounts offer lower income workers.  For example, there is the Retirement Savings Contribution Credit on the federal tax return.  This credit gives low- and middle-income workers a credit of up to 50% of the first $2000 (or $4000 for a joint return) deposited to a retirement account.  That is a credit, not a deduction; it comes directly off the bottom line of what is owed Uncle Sam.  And while many financial planners decried the fact that workers were raiding their 401(k)’s during the recent runup in inflation (and in past recessions, too) just to cover living expenses, what would have happened if there were no 401(k)’s to raid?  Instead, that $185 billion would be waiting for the hapless 30-year-old victims of inflation thirty-seven years down the road when they finally qualify for Social Security.  Small comfort now.  Retirement accounts for many people living on the edge are a lifeline when they face a financial crisis many years before retirement.  Disincentivizing saving in those accounts would do a disservice to the very people that policy purports to help.

I could go on, but let me close by pointing out that the federal government does get its share of taxes from these pre-tax retirement accounts.  They may not tax the money when it goes into the account,  but they tax that money—and all the interest and appreciation it accrued over the years—when it is withdrawn.  And retirement savers DO have to withdraw it eventually.  Required minimum distributions begin at age 73 now.  Those withdrawals increase many retirees’ income to the point that it makes their Social Security benefits taxable, too.  And those taxes DO go to shore up the Social Security system.

The exception, of course, is Roth accounts which are post-tax.  In other words, money deposited into Roth retirement accounts is taxed before it goes in but is NOT taxed when it is withdrawn after age 59 and a half—nor is any of the years of interest and appreciation it accrued taxed.  It’s a bargain for people saving for their golden years.  But frankly, I hardly put any money into a Roth account over the years.  In the back of my head I always thought that it was such good deal that one day the feds would wake up and take away the benefit; and I would end up getting taxed on the money when I put it in and taxed again when I took it out.  And if Congress listens to bird brains like these two economists, it might just happen. 

Until next time,

Roger

 

“Suppose one of you wants to build a tower.  What is the first thing you will do?  Won’t you first sit down and figure out how much it will cost and if you have enough money to pay for it?  Otherwise, you will start building the tower but not be able to finish.  Then everyone will laugh at you.”  Luke 14:28, 29 CEV