Boomer Dis-Entitlement

Originally published in Flourishing July/August 2012

When I was growing up in the 1950’s, retirement as we think of it today was a rarity.  According to a poll taken in 1950, most workers aspired to work for as long as they were physically able.  Quitting was for the disabled and infirm, and so was Social Security.  Neither normal life nor the government offered decades of uninterrupted leisure.

But, since 1960, the percentage of men over age sixty-five still working has been cut in half.  My own father, who was born in 1917, retired at age sixty-four.  Probably due to the recession, average retirement age has risen recently from sixty-two to sixty-four.  That still gives the average man nearly two decades in retirement.  The average woman can expect even more. 

With Social Security, Medicare, and both corporate and public pensions, we have created a large new class of societal dependents.  These promised, but mostly unfunded, benefits have already bankrupted dozens of companies, and now have our nation careening toward fiscal disaster. Yet, current beneficiaries are so insistent—perhaps justifiably in most cases—that their benefits be maintained or even increased, that few politicians have the courage to say what everyone knows:

Those payments can’t be sustained much longer.

Our children and grandchildren are working to pay our benefits, knowing full well that the country can’t afford to pay those same benefits to them.  And yet, generationally speaking, we have the cheek to question their drive, ambition, and willingness to save.

Frankly, I don’t see any lack of ambition or a lack of a savings discipline among the young people I work with; but what I’m saying here is that it’s time to tell ourselves the truth about what we’re doing to all of our children and grandchildren.  If we boomers are to have any credibility with our kids, we’d better be willing to share the burden with them.  So, are you sitting down? 

Boomer entitlements, specifically our future Social Security and Medicare benefits, will be reduced—or better yet—phased out and replaced entirely in coming years.  (See The Chilean Model in our May 2011 issue.)

I’ll have much more to say on the issue of retirement income and boomer entitlements in future issues of this newsletter.   mh

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Middle Class PPACA Taxes

Originally published in Flourishing July/August 2012

 In a landmark decision announced on June 29, 2012, the 2010 Patient Protection and Affordable Care Act (PPACA) was declared by the U.S. Supreme Court to be “constitutional”.  With this precedent, it’s hard for me to imagine any Act of Congress that couldn’t clear the bar of constitutionality; but that’s a topic for another time.  The purpose of this article is to begin to outline the costs to middle-class taxpayers of the PPACA.

First, there is the penalty—correction, the surtax—on not buying “qualifying” health insurance.  Starting in 2014 the surtax for one adult is the greater of 1% of adjusted gross income (AGI) or $95.  That minimum climbs to 2.5% of AGI or $695 in 2016. After 2016, the minimum is indexed to inflation.

Then, there is the “medicine cabinet tax”, which took effect on January 1, 2011 and prevents Americans from using their pre-tax Health Savings Accounts (HSA), Flexible Spending Accounts (FSA), and Health Reimbursement Accounts (HRA)  to purchase non-prescription, over-the-counter medicine (except insulin).

Third—and this one may come as a great surprise and disappointment to many supporters of PPACA who have “special needs” children—the new law imposes a cap of $2,500 on contributions to FSA’s.  (Currently, there is no cap.) There are thousands, if not millions, of middle-class families who now use FSA’s to pay for special needs education and treatment with pretax dollars; think Autism, for example.  The new limit takes effect in less than six months, on January 1, 2013. 

Fourth, for those who itemize their tax deductions, the threshold for allowable medical deductions is raised from 7.5% of AGI to 10% of AGI.

Fifth, beginning on January 1, 2011 under PPACA, premature, non-medical withdrawals from an HSA’s are penalized at 20%.  As you probably know, the penalty for premature withdrawals from annuities, IRA’s, 401k’s and other qualified retirement plans is 10%.

Sixth, effective July 1, 2010, Americans using indoor tanning salons have paid a 10% excise tax.

Finally, no good deed goes unpunished:  Starting in 2018, PPACA imposes a 40% excise tax on “Cadillac” health insurance plans.  A “Cadillac” plan is defined as a plan with $10,500 annual premiums for single taxpayers and $27,500 for families.  There are higher thresholds for early retirees and for those in high-risk professions.  Did you really believe that you would be able to keep the insurance you have now?

Each of these seven taxes could apply to any taxpayer, including the non-rich whoearn less than the ballyhooed family income threshold of $250,000 per year.  

But, let’s keep things in perspective.  As citizens and investors, the greatest mistake we can make is to extrapolate current events into the unforeseeable future.  Well more than half of all adult Americans are opposed to many—though not all—of the provisions of PPACA; and yet, it’s unquestionably true that our current system of paying for healthcare is broken.  As my tone surely reveals, I believe PPACA should be totally repealed and replaced; but even if that doesn’t happen, I believe the public will demand some significant changes.  

This is not the first time Congress and a “visionary” President have overreached in their efforts to solve a real problem and/or to advance a political philosophy that’s contrary to what most Americans believe.  I don’t know how this PPACA thing will work out, but I hope—indeed, I’m confident—that however it turns out, the ever-resourceful American family will be able to adapt and prosper.  Ditto, America’s great businesses.  mh

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Sources for this article include:

http://finance.yahoo.com and http://atr.org  (Americans for Tax Reform)

I’ll Retire When . . .

Originally published in Flourishing July/August 2012

I’m often asked, “When do you plan to retire?”  My gut reaction to that question is, “Why would I want to do that?”  But, you deserve a better answer.

So, when I look in the mirror every morning, I see white hair, where black hair once flourished.  I see wrinkles and age spots, and scar tissue, too.  Linda says my backside looks like my dad’s—I don’t think that’s a compliment.  I suppose these things should bother me, but they don’t. 

When I look in the mirror every morning, I have a yellow bird on my shoulder.  We sing together while I shave.  We shower together, and we share breakfast, too.  My grandchildren are sure that I’ve gone over the top.  I say that I’m at peace with myself and with the world.  Why wouldn’t I sing?

I feel the same way about my work.  When I arrive at the office, I’m working with and for people who have entrusted me with their life’s savings; yet when times are tough for them, they call to ask how I’m doing.  The next time you’re sick, call your doctor, thank him, and ask how he’s doing.  You’ll feel better, and you will probably have made his day.  So, I sing at work—albeit silently to protect the innocent.

I’ve just finished reading Turning Pro,* by Steven Pressfield (best-selling author of The War of Art and The Legend of Bagger Vance).  Before turning pro as a writer, Steven worked at a number of jobs, including fruit-picker and dish-washer, but  most notably and happily as an over the road truck driver.  I can relate: I liked building things with concrete and steel, but I never believed that was what I was put on earth to do.  I turned pro in the financial advice business in March of 1989, two years before anyone would hire me.  When it comes to retirement, Steven Pressfield speaks for me:

The Spartan king Agesilaus was still fighting in armor when he was eighty-two.  Picasso was painting past ninety,…

Once we turn pro, we’re like sharks who have tasted blood, or renunciants who have glimpsed the face of God.  For us, there is no finish line.  No bell ends the bout.  Life is the pursuit.  Life is the hunt.  When our hearts burst…then we’ll go out, and no sooner.

One more thing:  Family Wealth Management will be here for you long after I’m gone.  mh

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* Turning Pro, Steven Pressfield, Black Irish Entertainment, LLC,  2012, p 115.