Friday, January 30, 2009

AOL offers major financial planner's ten major retirement planning tips

Daniel Sorkin has a telling list of ten retirement tips on AOL today.

He starts by talking about the goal of retiring on 75% of income, and says that the conventional wisdom of saving 15%, including employer match, assumes good return on investments, something not happening today. He suggests a Target Retirement Fund. He considers annuities redundant if one already has a tax-deferred 401K plan. One of his answers explains how a Roth IRA (which not everyone can get) differs from a traditional 401K or IRA; a Roth is “tax avoidance”, he says. He also tells people not to invest in company stock (remember Enron?)

The basic reference on “” is here. His full "essay" answers are on “Bloggingstocks”, for example, this is tip 1.

Sorkin is author of “The Smartest 401k Book You'll Ever Read: Maximize Your Retirement Savings...the Smart Way!” From Peregee Trade (June 2008, before the crash, though).

Tuesday, January 27, 2009

Retirement overseas is a mixed bag: low assisted living costs; what about social security, Medicare?

ABC World News Tonight on Jan. 27 reported that many retirees are going to Mexico and Central America for lower cost of living.

The segment showed an assisted living facility being built in Sam Miguel, with rent less than a third of what is typical in the US. Home health care is also much less expensive. The news story is by Jeffrey Kofman, title “Retirees Flock South of the Border for Savings; Mexico Offers Full-Time Assisted Living Developments at Half the Price”, link here.

About a year ago, the media reported a retirement condominium boom in Panama, with health care costs lower.

However, Americans who retire overseas are often denied Medicare. See the AARO, Association of Americans Retired Overseas, with writeup on Medicare here. There are some complications regarding social security covered here. There are issues with pension from foreign sources and the Windfall Elimination Provision Offset.

Saturday, January 24, 2009

NCPSSM executive clarifies numbers of social security; it's a "moral" rather than actuarial problem

There is an organization and a website for NCPSSM, the National Committee to Preserve Social Security and Medicare, link here. The home page bears some investigation, with banner stories like “Congress shouldn’t exclude seniors in stimulus” and “we don’t have to trade health and retirement security for economic stimulus.”

This morning (Saturday, Jan. 24), Barbara Kennelly, the chief executive of NCPSSM and a former US Representative from Connecticut, has a letter to the Washington Post on p A11, “Let’s Not Cry ‘Wolf’ Over Social Security,” link here. She points out that Social Security will start shorting in 2017, not in 2011 as reported in the Washington Post on Jan. 16 (“Obama Pledges Entitlement Reform”). She also refers to the 2008 Trustees Report, which shows that Social Security is sustainable and able to provide current benefits until 2041.

The whole question of “earned entitlement” reform (and means testing) seems to have a social and political and even “moral” basis, rather than one based on actuarial reality. It seems to be motivated by intergenerational conflict and the “moral” notion (more commonly found on the right wing) that there ought to be limits on how much any one person can “consume”, or that blood family ought to resume more of the responsibility (perhaps the ultimate aim). This sounds like it edges toward the idea of rationing in Medicare, or age limits for procedures.

Thursday, January 22, 2009

Social Security and Medicare hide perverse incentives

Gary Andres (Dutko Worldwide) and James C. Capretta (EPPC, Ethics and Public Policy Center) have an op-ed on p A25 of the Jan. 22 Washington Times, “Needed: more elderly workers: Perverse social security, Medicare incentives must go,” link here.

For one thing, I didn’t know that the Annual Earnings Test used to be applied to age 69 until the 1995 Contract with America (Newt Gingrich’s baby) knocked it back to full retirement age.

There is also a disincentive built into counting only the top 35 years for total benefits (instead of all work). Workers and their employers continue to pay full FICA taxes if working past retirement age. And according to Reagan’s 1982 budget reforms, employers have to take care of the health care costs ahead of Medicare, if they offer insurance.

Hence, with these policy choices, employers have perverse incentives to push out retirees early, and employees have perverse incentives to take buyouts. Maybe a lot of us in our early or mid 60s would still be working at full income were it not for these perverse policy choices, say the authors. In my case, that’s believable. We would be paying a lot more income tax than what is saved in the short run by these rules.

Add another trick that the authors didn’t mention, the social security offset in pension calculations.

This piece didn’t go into the “morality’ of means testing, because conservative columnists generally don’t like to argue for playing Robin Hood (even when there are no “rich” to start with). But there may be some relatively painless fixes to Social Security and Medicare for Mr. Obama to consider after all.

Monday, January 19, 2009

We're still trying to guess where Obama is heading on social security.

Please!! We’re still trying to guess where Obama is heading on social security.

A blog by Harvard economics professor Greg Mankiw, with an entry Oct. 17, 2008, says that while Obama is comfortable with expanding the taxable wage base (over $25000), that will only fix about 15% of the problem. As of October, Obama was against raising the full retirement age or cutting benefits. The entry is here.

But an AP story by Libby Quaid suggests that Obama and Nancy Pelosi are “‘nsync” on social security reform and benefit cuts on those deemed to be able to afford them definitely is on the table. (How in the world do we answer something like that? How many assets is enough?) How soon any cuts would happen, no one can say. The link is here.

The old libertarian prediction that Social Security would return back to a politicized wealth redistribution and manipulation system, and not even pretend to be an annuity that a worker had the right to earn or count on, could be coming true. Forget the Ponzi scheme talk of Cato.

I’m a little surprised that I don’t see any hollering and screaming about Obama’s hints on social security and Medicare yet on the AARP website. (AARP does have this more general paper on Yahoo! on how to help retirees.) And I don’t see a recent paper by Cato on social security, but I would expected to hear plenty from the Org in the “ice palace” (or “Fortress of Solitude” on Massachusetts Ave.) by now. (Maybe they do expect Clark Kent to pay a visit. After all, he’s supposed to be a journalist now.)

As noted in the Jan. 16 entry, there’s only a frost-heaved, rutted dirt road now to kick Obama's metaphorical can on. It’s like driving into the Northwest Angle of Minnesota.

I remember those little skits of the servicemen at Fort Eustis back in 1969. “From each according to his ability, to each according to his needs.” We really made fun of that kind of thinking then.

Update: Jan 20 has a piece Jan. 8 "The Right Crisis to Target?" Social Security and Medicare, it says, remain self-financing during the near-term future. The writer is surprised that Obama brought it up at all now. We could reduce benefits of those in the future "to escape the wrath of the AARP" or index retirement age to life-expectancy, as does Sweden now (that sounds like a better idea to me). The link is here.

Sunday, January 18, 2009

"More Streets and Roads" on pensions: what happens with PGBC and "social security offset"?

Nancy Trejos has another reassuring column on what happens to pensions when employers go bankrupt, Sunday, on p F5 (Business) of The Washington Post. The link is here.

She discusses the Big 3 domestic auto makers. Congress has authorized only $13 billion of payouts to guarantee the underfunded $41 billion pension shortfall.

Yet, in most cases, average workers are still pretty well protected up to certain limits by PGBC. People who retire earlier are protected to lower ceiling limits, however. At 62, the protection is about 80% (a $42,660 max pension instead of $54000). I’m not sure if this sort of proportionality would apply to pensioners whose benefits are much less than these maximums.

The Pension Benefit Guaranty Corporation does not guarantee increases (such as COLA) made within the last five years before plan termination or bankruptcy.

Pensions often has “social security offsets”. Pension plans often assume that retirees will get the amounts promised in the past by Social Security. Companies, rightfully or wrongfully, count on this mechanism. That’s another reason why any reduction in social security benefits to reduce expenditures could be so deadly to some retirees.

Friday, January 16, 2009

Obama interviewed by Washington Post Editors; promises entitlement reform; demands sacrifice; "we can't kick the can" at the "end of the road:

Barack Obama gave an interview to the Washington Post editorial board yesterday (Jan. 15), and promised major reforms to contain entitlement programs, especially social security and Medicare. The video link is here. It accompanies a front page Post story Jan. 16 by Michael D. Shear “Obama Pledges Entitlement Reform: President-Elect Says He'll Reshape Social Security, Medicare Programs.”

The Hartford Courant has a summary story on the interview from wire reports here.

Obama did not mince words that in entitlements he would have to address “duty, sacrifice and responsibility.” Some of the changes would take place during his terms, and can’t wait “nine more years.” “We can’t continue to kick the can down the road, when we’re at the end of the road.” He said he could not be pinned down as to specific sacrifices (when asked if people would be expected to relinquish benefits already promised and perhaps already being received) but said he would reiterate what we already know, that we can fix social security, but cannot manage Medicare outside of the context of health care reform in general.

The most obvious “fix” for social security would be to raise the wage base or tax rates, or both, possibly with a doughnut hole concept. This was done repeatedly throughout my 30+ years in IT. But there is at least a remote threat of reducing benefits, even for existing retirees, and pressuring them to do certain kinds of work. But employers would need to be pressured to keep them.

Social Security has its own page on the Trust Fund and the issues surrounding it, here.

Barack Obama had a page ("Seniors: Social Security") on social security during his campaign, on his own campaign site, here.

Obama and Biden have another page (“on the issues”) here.

Obama indicated that health care performance ranges considerably in various parts of the country, from good (Minnesota) to bad (Florida). He did talk about the need for automated record keeping (that’s not a sacrifice – that just creates IT jobs, even for people in their 50s and 60s) and elimination of defensive medicine (that’s only a small sacrifice – from malpractice lawyers – to back off and accept some tort reform). But in Medicare there is a terrible problem, as I noted in my posting Jan. 11, about the efforts and expense at the very end of life, prolonging it. We are likely to find that the advisability of many life-extending procedures will depend on the support form the rest of the elder’s family, in a world of Diaspora where extended families are scattered and where adult children often have disputes with needy parents over cultural values (like religion, gay issues) and not just “misbehavior” in the usual sense.

Obama has suggested that he will convene some kind of budget commission in February to weigh the sacrifices. Republicans say that Nancy Pelosi will keep all this on "her side of the table."

Wednesday, January 14, 2009

More reassurances for employees and retirees whose companies go broke

Paul Katzeff has an important column on Yahoo! Finance about what happens to your 401K accounts after a layoff, particularly if your employer goes bankrupt, or terminates contributions to your 401K, or terminates your pension.

Your money is encapsulated inside your account. It is not comingled with the company’s. The account is yours; you are not a “creditor” of the employer. Usually, the retirement account is managed by a third party. In case of termination, you’ll have 60 days to move the account into an IRA.

You have rights under ERISA for your defined benefit pension if terminated (whether you're a vested employee or already a retiree). Most employer plans are “qualified” and PGBC can pay up to $54000 for fully earned benefits. Some pensions are “collective” and organized by guilds or unions, and have contributions from several companies.

The text of the article, “Securing Your Nest Egg Against Layoffs,” dated Jan. 13, is here.

Tuesday, January 13, 2009

Social Security privatization could be deadly if retirees have to take disbursements at specific ages

Allan Sloan has a great article on the perils of social security privatization (“W.” style) today on page D01 (Business) of the Jan. 13 2009 Washington Post. It’s called “Deals: Here’s How It Could Have Been Worse”. One risk that he points out is that retirees could have been forced to “cash in” at bad times, sell, and take annuities with lower interest rates and lower values, resulting in much lower payments if taken at the end of 2008 than at the end of 2007. The link is here.

The writer says he favors some privatization if it’s done carefully enough. For one thing, you have to change the rules so you don’t force people to sell assets and take distributions at specific ages. You also have to limit investment classes to vehicles that protect principal. But we’re facing changes like this anyway. It’s likely that early retirement (62) will go away as entitlements are cut back in order to stimulate jobs for those who are still working – and to encourage older people to try to keep working and to encourage employers to hire them. And it’s going to be a real problem to make the jobs “real” – not simply based on lifestyle hucksterism and false socialization (as I noted in my main blog Sunday Jan. 11 – look at my Profile for the link).

Monday, January 12, 2009

Pension plans may not be in as bad shape as are many 401K's

I’ve covered the way the Pension Benefit Guaranty Corporation works before (Nov. 2008), but on Jan 11 the Business Section, p F05, of The Washington Post ran an article by Nancy Trejos, “Your Company’s Fund Is Bruised, but Don’t Worry,” link here.

One study found that 360 of 500 Fortune 500 companies had underfunded defined benefit pension plans. The article says that if your plan was terminated in 2008 and you are 65 or older, you could still receive up to a maximum of $51,750. The article suggest that you can find a Form 5500 for your employer at the webstie FreeERISA (which offers some additional subscription options). Schedule B of the form will show if the total benefits liability is greater than the assets, showing underfunded status. There is an issue that companies don’t have to file until almost a year late, so the effects of the 2008 meltdown may not show up yet.

Bruce Sneed, of BK Sneed Financial Planning in Woodbridge, VA, is quoted as saying that people now should plan to work until age 72 to 75. If only employers were that accommodating. The comment is especially scary because Barack Obama has been hinting at huge cuts in entitlement programs, possibly even cutting existing benefits, to reduce the cost of the economic stimulus package to put (younger) people back to work.

Picture: NBC4 Health Fair, Washington DC; sorry that the camera got out of focus somehow.

Sunday, January 11, 2009

Minneapolis doctor criticizes the way we handle end-of-life

Craig Bowron, a physician who practices in Minneapolis hospitals, has a major op-ed in the Outlook section of the Washington Post this morning (Jan. 11), “The Dying of the Light: The Drawn Out Indignities of the American Way of Death”, link here.

A particular passage in the piece hits particularly hard:

“In the past, the facade of immortality was claimed by Egyptian kings, egomaniacal monarchs and run-of-the mill psychopaths. But democracy and modern medical advances have made the illusion accessible to everyone. We have to rid ourselves of this distinctly Western notion before our nation's obesity epidemic and the surge of aging baby boomers combine to form a tsunami of infirmity that may well topple our hospital system and wash it out to sea.”

I thought, this belongs in the Washington Times, not the Washington Post. Or does it? Social conservatives are always extolling family unity and preserving life at any cost, with mandatory loyalty of family members. But conservatives should be worried that the spiraling cost of end-of-life care, both in the medical and custodial areas, is doing as much to bankrupt our whole economy as is Wall Street.

And conservatives are right in that many of the specific medical issues Bowron discusses in his piece are lifestyle or behavior-based. There seems to be no room left for gratuitous emotion.

I didn’t see this piece in the Minneapolis papers (the Star Tribune). I lived in Minneapolis myself from 1997-2003 and got to know the Minnesota health care system when I had my acetabular (from a convenience store fall) fracture in early 1998. I had one of the top surgeons in the nation and recovered very quickly, and went back to work quickly (at age 54). Interesting.

With the elderly, Again, we’ve learned how to keep people alive, but not to keep them active. That sounds in marked contrast to how management of HIV disease has turned out (it looked so unsurmontable in the 1980s) where drug therapies can not only extend life now for decades but get people back to work.

Saturday, January 10, 2009

Parade Magazine sounds alarm on home health worker pay, and availability in the future

Parade Magazine this weekend (for the Jan. 11 Sunday papers) has an alarming sidebar on p. 6, “Will we lose home health care?” The link for the piece, by Meg Massey, is here. The background of the problem seems to be the demographic "winter storm" which is far more significant in the established "middle class" (and in Europe even more than the United States) than among minorities or especially immigrants (mostly legal or sometimes perhaps not). The short article predicts that the demand for home health workers will increase 40% in the next ten years. Lois Capps (D-CA) has proposed legislation to raise Medicaid reimbursement rates for home health workers, and to improve their situation with respect to exempt status (HR 3582, 2007). Her House website is this. The details available on the Web on some of her legislation look a bit fragmentary (with some files gone), but I’ll try to follow this and find out more.

The topic is important because without vital home health business, more people will be forced into assisted living and nursing homes -- which also may be at overcapacity. So more adults -- especially those who did not start their own families -- will be forced to give up their careers and become caregivers, whether by choice or not.

Thursday, January 08, 2009

Obama may propose severe retiree entitlement cuts to balance economic stimulus package

There are numerous media reports that Barack Obama, who gave the stirring speech today at George Mason University, will have to propose drastic cutbacks in entitlements to retirees in both Social Security and Medicare.

The stories are not real specific, other than for suggesting the obvious possibility of raising FICA and Medicare tax rates on wages and extending the wage base in various ways (possibly with a doughnut hole).

There could be more rapid increases in full retirement age. There could be proposals for means testing, against other income or even assets (which turns social security from a pseudo-investment annuity into a socialistic scheme to redistribute wealth, always something very politicized). There could be pressure on existing seniors, already retired, to reconsider new careers that they don’t want.

There could also be some kind of rationing of procedures in Medicare, in relation to age, or in relation to the availability of filial family support. There could be strengthening of lookback periods in Medicaid even further, or outright filial responsibility laws at the federal level.

All of these horrors are at least possible.

The Washington Times has a front page story Jan. 8 by David R. Sands and Catherine Bellantoni, with Kara Rowland and Patrice Hill, “Entitlements on the lone as deficits rise: Obama pledges reform after party hinders Bush,” link here.

The New York Times has a front page story Jan. 8 “Obama promises bid to overhaul retiree spending; Huge deficits looming; potential for risky fight over Social Security and Medicare,” link here.

Wednesday, January 07, 2009

New less-invasive heart valve replacement could greatly extend some lifespans

ABC "Good Morning America" this morning reported on a new procedure which may extend life greatly for some heart patients, especially women.

Patients with aortic stenosis may face rapidly increasing heart failure, debility, and mortality. With patients with advanced age or frailty, open heart surgery for valve replacement is not an option. However, a new procedure, being tried at Columbia Presbyterian Medical Center in New York, allows non-surgical insertion of a small valve through the bloodstream with the incision near the groin, much as with angioplasty. The patient may go home quickly.

The procedure will be tried soon with other valves. It may become accepted practice in the next few years. It could greatly expand life spans – and quality of life -- for some people even further, but that also raises issues of costs.

Dr. Tim Johnson reported on the broadcast. The story is by Thea Trachtenberg and Johann Brady, “Doctors excited by ‘break-through’ heart procedure: noninvasive procedure in clinical trials for people who can’t have open-heart surgery”, link here.

Besides angioplasty with stents (so often and so publicly done with Vice President Dick Cheney) “key-hole” bypass surgery is sometimes available for coronary artery blockages and is much less invasive with much quicker recovery.

Update: Jan. 8, 2009

A friend passed along this reference "S.T.R. for stroke" on recognizing strokes.

Tuesday, January 06, 2009

Is social security really a Ponzi scheme?

Business Week offers an interesting perspective by Michael Mandel “Is Social Security a Ponzi Scheme,” dated Dec. 28, 2008, link here, with many reader comments.

The motivation for the article is the Bernard Madoff collapse, and the sudden public attention to Ponzi schemes. Such a scheme is set up when the operator pays original “investors” with funds collected from later “investors” instead of actually making money with economically productive activity. The colloquial term is “chain letter.” Generally, for example, ISP’s like AOL prohibit chain letters as part of their “terms of service”.

In a sense, social security is a chain letter because retirees today are paid by FICA taxes on people currently working, and these FICA taxes seem to be always increasing, or the upper taxable limit keeps increasing. There have been some anomalies, such as how federal workers were brought into the system during the Reagan years (1983).

Social security has been able to pay its way until now because the working population grew and because technological innovation increased productivity. So there has been more “real wealth” to pay the benefits. But that soundness is threatened by several factors. One is longer life spans. That concern is offset somewhat by the fact that in the United States the fertility rate is about at replacement (unlike much of Europe and Russia, which are in real trouble demographically) and legal immigration does add to the workforce. The actual economy and ability to maintain full employment, given the economic downturn, is more the issue. Over consumption, particularly of imports predicated on cheap overseas labor, and of over-priced housing also undermines the eventual soundness of social security but of all defined benefit pension programs. But, of course, that has a lot to do with our economic crisis today. The article says that our economy needs more “seed corn.”

Monday, January 05, 2009

ABC reports on "power of attorney abuse" by caregivers of the elderly

ABC Good Morning America this morning (Jan. 5, 2009) ran a story on “power of attorney abuse” by caregivers or relatives of the elderly.

The news segment reported in incident in Spokane, WA where grandchildren of an 83 year old woman with dementia got power of attorney after moving in as caregivers, then got title to her house, drained her accounts, sold the house, and evicted her. Eventually the children (not grandchildren) caught on and contacted police. The grandchildren were prosecuted for fraud and sentenced to two years in prison, but the woman died in an assisted living facility.

An attorney appearing on ABC suggested use of “shared power of attorney” and suggested that the senior review the accounting of his or her money frequently.

All states have facilities to report adult abuse somewhere in their social services or law enforcement setups.

The ABC News website now has a story "Don't give power of attorney to the wrong person: will power of attorney abuse rise because of the wrong person?" by Rich McHugh and Johann Brady, link here.

It's also possible to protect an elder's savings by putting them in trust and having a trustee manage how they can be spent. In rarer cases, this technique can be helpful against other hidden circumstances (like downstream liability). There are many trust attorneys in every city.

Saturday, January 03, 2009

Outgoing HHS Secretary Leavitt's grim forecast for Medicare, Medicaid

The Heritage Foundation (a conservative think tank, to be sure) publishes an interview (conducted by Grace Marie-Turner) and lecture with Michael Leavitt, outgoing Health and Human Services Secretary under President Bush, dated April 29, 2008, published June 11, 2008 (Heritage Lecture #1088), called “Medicare: Drifting Toward Disaster,” link here.

On January 1, 2009 in The Washington Post, on p A13, columnist George F. Will has an op-ed “Dr. Leavitt’s Scary Diagnosis”, link here. Leavitt now says that the Medicare Part A trust fund could run out by 2016 instead of 2019 because of the weak economy. Will goes on to say that when Medicare was invented in 1965 (“when we decided that health care for the elderly would be paid for by people still working”), we had no concept of how quickly medical advances (like bypass surgery) could extend life, and he also adds that many people who have benefited from extravagant care did not always practice the best personal health habits, including many who smoke. We may not have correctly anticipated smaller and more dispersed extended families. Will and Leavitt do understand that previous generations looked at health habits differently because the risk of death from external sources was much greater, and they don’t mean to imply that this is a matter of personal morality or “moral hazard”.

He also discusses that the federal contributions to Medicaid are likely to explode, and we’re already seeing states cut back Medicaid eligibility and services because of finite budgets.

On filial responsibility, I’ve often noted that many states may feel the incentive to start enforcing their “poor laws.” However, the lookback period regulations in Medicaid payments that receive federal subsidies could experience a paradoxical effect: in order to get more federal funds, states might liberalize how they interpret “asset give away” and lookback regulations.

Friday, January 02, 2009

Senior day care may be a booming business opportunity in a down economy

Gradually, more companies are offering “adult day care” and “adult day health care” for seniors who otherwise need constant assistance from caregivers. Some centers offer weekend or temporary stays called “respite care” to free up caregivers. Another important concept is to enable the caregiver to hold a regular day job, often an economic necessity. Then a caregiving pattern develops that may be familiar to parents, to drop a dependent at a day care center on the way to work and pick up the dependent at the end of the day. The day care option may be preferable to placement in permanent assisted living, which means giving up home and moving. Adult day care centers often are helpful after medical problems (like strokes or aneurysms) that may in time get better, making day care less necessary.

A typical explanatory resource is Senior Resources.

There is an e-book at a site called “Savvy Chicks” (a bizarre name) that describes senior day care as potentially an opportunity for entrepreneurs, because the demand is likely to grow so much. The posting is called “Start & Run a Profitable Senior Day Care Center,” link here.

Again, the demand for these services increases partly because of the way medical practice has evolved, particularly with the gratuitous treatments motivated by Medicare. It is medically easier to prolong life for its own sake than to prolong vitality. It is economically and socially and ethically much more desirable to be able to prolong vitality at the same time; it’s just medically much more difficult to do as things stand now, partly because of past lifestyle practices and partly because of increasing social isolation. Does the fragmentation of the family unit in western society make maintaining vitality harder? Do some people simply need more social attention from kin than others do? This sounds like a tough ethical question that we are only now starting to grasp.