Category Archives: Retirement

Retirement in These United States

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My annual “Would you like to review your retirement account” message arrived from one of my retirement plans today. This is my cue to post a reflection or two on the state of retirement in these United States. The first thing anyone should know about retirement is that if you’re not dirt poor, you need to have a reliable, as unbiased as possible, financial advisor. For me, that means a person in the employ of my investment company who does not earn a penny in commission from servicing my account. He also happens to know a lot.

The second thing is to wonder why you should pay any attention to anything I have to say. Quite possibly you shouldn’t. But I do have more expertise than most folks. Some of you might recall that when I left grad school at UC-Berkeley, I entered the full-time employ of the B’nai B’rith Hillel Foundation (Berkeley). They hired me to teach biblical Hebrew part-time, and to fill out the rest of a full-time job, I became their accounting assistant. To do that, I enrolled in courses at a local community college so as to be at least one level better than flat-out ignorant.


The retirement program at Berkeley Hillel was a joke. And not a very funny one. To be fair, it was not unlike programs offered by many non-profits and small businesses. The folks that designed the program operated on the assumption that few people would actually spend their careers with Hillel or B’nai B’rith, so they used a plan where the employee paid nothing and pretty much received nothing in return. Among the exceptions to the notion that employees would not stay for their careers were the Foundation directors, many if not most of whom were rabbis, and that presented a number of problems to the administration because in the USA, clergy who wish to take advantage of tax breaks offered solely to clergy must be independent contractors. B’nai B’rith created a plan which took good care of these “independent contractors” and the rest of us got the sense we should look elsewhere for a career.


My solution to this problem was to create for our local staff our own retirement plan separate from that of the national organization. I received many communications from the national office telling me I couldn’t do this, but as it turned out I could and I did. As part of my job I needed to deal with the fact that our building was not owned by national Hillel, but rather by a local corporation. At the time that I started working on this, the corporation had become inactive. There was no one on its Board of Directors, and I suggested to our Director that this was dangerous because if it were discovered, we could be the subject of a hostile takeover. We repopulated the Board, and then the Board passed a resolution authorizing us to create our own retirement program. The plan we created did not conflict with the one run by the national office, it was supplemental to it. All of our contributions were voluntary to the maximum permitted by law.


As I mentioned, the national office plan was quite generous to the rabbis and a few other long-term employees. So generous that it was forced into bankruptcy in the 1990s and taken over by the Federal government agency which manages bankrupt retirement plans. I left Hillel in 1988 after 9 years of full-time employment. I was “100% vested” in the national retirement plan. To see how little that means, on my separation the pension plan offered me a “buyout.” They would give me $500 in return for releasing them from their obligation to pay me a pension. That’s what 9 years of full-time employment was worth to me. Please keep in mind that 9 years is about 25% of what most people will spend in their work lives. My response was, “Keep your $500, I’ll see what the pension is worth when I reach retirement age.” I actually didn’t expect to collect a dime once I learned of the bankruptcy, but as it turns out, I am receiving that pension. Since I turned 66, I’ve been getting $39/month from the federal agency that bails out bankrupt plans. Now, it’s practically nothing, and it’s subject to income tax even so, but I have already collected a lot more than $500!


In the meantime, the other retirement plan I helped design is doing very well. On separation from Hillel, I turned it into an IRA (Individual Retirement Account) and the principle is sufficient to pay me about $1,000 a month now. That’s because unlike the B’nai B’rith program, my nine years of contributions were allowed to grow like any other investment. And again, in the context of employment that represents about 25% of my work life, that’s a reasonable return on my investment.


When I left Hillel, I became an administrative employee of the University of Michigan, an organization with a very good retirement plan for every employee. As a department manager, among my responsibilities were training new employees and helping existing employees choose the retirement options that would best serve them. Of course that often meant referring them onto the University offices that specialized in employee education, but over my 25 years in administrative service, I did make it a point to stay current on retirement issues.


That brings me (at last!) to the reason I am writing today. One of the most common pieces of advice you will hear about collecting Social Security is that you should wait as long as possible before you file for it. However well-meaning the advisors and columnists might be, this can be very bad advice.


Social Security is a form of annuity. What most people don’t understand about this is that that means it has an end-point—usually when we die. When we die, Social Security pays out a pittance to (partially) cover funeral costs and the following month, it simply ends. This is different from many other types of savings, investment, and retirement accounts. Of course, you are free to purchase many sorts of annuities which, like Social Security, will terminate on death. But most other types of investment have no such end point. For example, if you own a rental property and make use of the rent you receive to supplement your retirement income, when you die, your heirs receive that rental property. If you have your retirement invested in the stock market, you receive both the interest and any gains the stock might earn and again, those shares pass to your heirs if you have not spent them before death.


Social Security rewards you for delaying accepting payment by increasing your monthly check for each year you delay. But the part they and many advisors don’t tell you is that should you lose the lottery and die before your mid-80s, you will actually collect less than you would have had you declared earlier. Suppose your Social Security check would be $2,000 when you turn 62. If you delay to the “full retirement age” of 67 (say), the check will rise to something like $2,500 per month. But remember that you have not collected $120,000 you would have received between ages 62 and 67. The additional $500/month you receive will not equal that $120,000 you have given up for 20 years! Now these are all round numbers and guesstimates, you have to do the math that precisely applies to yourselves to see when you will cross that finish line.


The first clear and convincing reason to take your Social Security at the earliest possible time is if you have good reason to believe that you will not live into your 80s. Possibly a serious cardiac or cancer diagnosis, perhaps just your knowledge of family longevity.
The second obvious reason is because you are unemployed or underemployed and simply need the money to live on. That is unfortunate because that is a case where delaying would give you a better retirement, but in the words of the great sage, “It is what it is.”


The third reason to begin accepting payment, even if you think there’s a good chance you’ll make it into your 90s and even if you don’t need immediately need the funds, is if you have good self-discipline and are capable of investing rather than spending the money. In most scenarios, if you take your Social Security and use it to invest in the markets or perhaps purchase rental property, you will do better—and maybe far better—than if you allow the government to hold on to it.


This is how I reasoned things for myself. My parents both lived into their 80s. I’m not a smoker and other than a bit of high blood pressure I have no significant health issues. Although there are no certainties in this life, those factors argue that I am likely to make it into my mid-80s. Therefore I decided against taking my Social Security when I first became eligible. I figured it would be nice to get those enhanced payments by delaying it. When I reached my mid-60s, I revisited this decision. I had now arrived at what the Social Security Administration terms “full retirement age.” (That was 67 for me, I believe it has now moved up to 68 for people contemplating retirement now.) Still, if I wait even longer (up to age 72) those monthly checks would grow even larger. And because I and my spouse are still working, we didn’t need the money.


But at that point, doing some math, I decided we’d be better off if I started to collect. The reason is not because we need the money for current expenses, but rather because I believe I can find better investments than the annuity represented by Social Security. We already had the usual spectrum of investment accounts held by middle-class Americans, so I bought rental property and I use Social Security to pay down the principle on those rental units. What that means is that when I do finally retire, we will own the rental units which will then be providing a steady income on their own. And as I said above, when I pass on, I’ll have something to pass on to my children.


The proverbial “bottom line” here is not that I made the best possible decision nor that you should do what I did. The advice I am giving you is to set aside simplistic answers from places like the Social Security Administration itself, or your H and R Crock tax adviser. Make sure you find a real expert, and carefully vet the advice you receive. There is no “one size fits all” solution—so make sure you understand the many alternatives that lie before you.

Well, It’s That Time – Social Security

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Next month my Social Security payments begin. I chose to start them because I have reached what the Social Security Administration calls “full retirement age.” This is not the same for everyone. Until a few years ago it was 65, for people in my bracket it is 66, and Congress has increased the age even further for younger people today.

No matter what one’s “full retirement age” is, we can start Social Security at 62. This is absolutely necessary because there are so many people with jobs that involve physical activity they can no longer perform, people who have lost their jobs and left the job market (these are not included among “unemployed” in case you’re wondering), and always a special concern to me, people with mental disabilities. Whatever the reason, Social Security can begin at 62. The issue is that benefits are reduced for each year one takes them prior to “full retirement age” so benefits at 62 can be much lower than a person anticipates. By pushing the full retirement age higher, Congress also punished people who need it earlier.

The SSA is also willing to reward people who delay accepting benefits past the full retirement age. The increase is currently in the range of 6% to 8% per year. If you have most of your money in interest bearing savings accounts or bonds, that looks like a great rate–substantially higher than what you can earn in such investments. A national investment newsletter recently published an article lauding the strategy of waiting as long as you can.

But the advice strikes me as incorrect. The SSA is not doing this out of the goodness of their hearts. They have actuarial tables and they know when we will no longer be needing Social Security, at least in aggregate. In other words, whenever we die, we stop receiving Social Security. Forever.

What that means as far as I can figure out is that the rate increase of even 8% is phony. Because while it is true you will start off with that increase, you will also lose all the money you would have received while waiting. A strategy of investing the Social Security you are receiving might not reap 8% over those years, but you (and your heirs) will not lose whatever that amounts to at your passing–and that strikes me as a much better deal.

If my math is correct, I suggest that people should not wait beyond their full retirement age. Start collecting it then. If you don’t need it, invest it. Or give it to charity. But betting against actuarial tables is, in my opinion, a sucker bet.

Health Care in Post Revolutionary America

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We’re coming up on the first anniversary of my encounter with the American system of health care, so I think it’s worth doing a little recap and asking a few questions. I’ll keep this as short as I can, but health care is a complicated topic, so I hope you can spare a few minutes to read it in full.

Back in 2010 I retired from the University of Michigan a few years earlier than most people can consider such a thing. The largest obstacle many of you will face in taking early retirement if you are US citizens living in the US is the question of how you are going to obtain health care. And let me explain that I didn’t take early retirement so that I could play golf or sit on my butt, my object was (and is) to see if i can do something with my life more in line with what I set out to do after college. For my first year out I spent time trying to help folks living with a mental illness and now I am engaged in teaching Biblical languages and literature at the University level. With a little help from the Almighty and my friends I might see the day when I complete the Ph.D. I started to write in 1979.

Back to health care. Shortly after I agreed to the terms of the early retirement, the University of Michigan informed me that I could continue to receive their health care plan, but the cost would be $1,400 per month. As generous as the retirement offer was, there would have been no way that I could have afforded to pay that out of pocket. The reason I could consider taking the University of Michigan up on an offer to retire early was that I have a supportive spouse who agreed to carry me on her health plan. And so, with health care presumably under control, I took the offer.

A year after I retired, my wife received an attractive offer from the University of Tennessee Knoxville (UTK). Since I was retired, it was easy to give the offer serious consideration and we ultimately decided to take it. I arrived in Knoxville slightly before Terri just after Thanksgiving 2011. And just after I arrived, I suffered a pretty severe injury to my left knee brought on by all the moving activity. I wound up in the ER of UT where they spent some time making sure that I wasn’t going to bleed to death or need an amputation, and then they sent me home with a referral and advice to follow up with x-rays, etc. That’s when the “fun” began.

At that time (late November 2011) I was fully covered by the health plan of the University of Michigan. Beginning on January 1, 2012 I was fully covered under the health care plan of the University of Tennessee. At no time, not one day, was I lacking health care insurance. Nevertheless, I found myself effectively deprived of health care for about six weeks. This is how that happened.

As soon as I returned from the ER, I did what I was supposed to do under the terms of my Michigan insurance. I called the plan to inform them of the injury and to request that they authorize the recommended care. They cheerfully informed me that less the deductible, my ER visit was fully covered. They also said I was welcome to obtain all the follow-up care recommended by the ER with my “primary physician.” I pointed out that I was living in Knoxville and the primary physician was in Dexter, Michigan. They recommended that I fly or take the bus so I could receive my health care. When I pointed out that the health care was supposed to be covered when I was living outside Michigan, they replied, yes, that’s true, but you have to prove that you have lived outside the state for three years before that kicks in.

I wasn’t going to leave my spouse to deal with all the moving issues as she settled into her new position in Knoxville, so I just “toughed it out” reasoning that I would soon be covered by health care via the University of Tennessee. On January 2, now legally covered by UTK, I called a physician who had been recommended to me here in Knoxville. His appointments secretary looked me up “in the system” and informed me that since I wasn’t listed (yet) she could not offer me an appointment. I was flabbergasted. Really? She went on to explain that the UTK policy was that claims have to be filed within two weeks of the appointment or they would be automatically denied. It can take two or three weeks for the coverage to show up, and so in the past they have lost the ability to collect their fee for service because of this policy. As a result, they adopted their own policy which is not to see anyone who doesn’t appear on the claims list.

I did not have to wait the month or so this would have meant. I had made a physician friend in the community and he called to ask me how things were going. When I explained all this to him, he called the physician directly and the following day, the appointments secretary was back on the phone to me offering me an appointment. Altogether, I was unable to see a follow-up physician after my accident for six weeks.

This is how it was for a person with some of the best health care insurance in America. And all of the barriers to care that I experienced can be chalked up to insurance companies. Had I lived in Canada, England, New Zealand or tiny Israel I would have received prompt, good attention to my medical needs without fuss or muss. But in America, with our vaunted health care as available to those lucky enough to have insurance, I was treated like a pauper begging for care. Actually worse, because a pauper might have been eligible for indigent care.

The political silly season is now upon us. I am unconvinced that the problems I have experienced will be ameliorated by Obamacare because I don’t think Obamacare does much to reign in insurance abuse. What I would like to know is what precisely Romney/Ryan will do to improve this situation. I understand they oppose Obamacare (as I do). But that’s not good enough. While I dislike Obamacare, I think it is better than the nothing we had before Obamacare. Getting rid of Obamacare only puts us back to an even worse situation. What is the solution to this insanity we have in our country? Under what clause of what Romney/Ryan plan would I have been able to receive medical attention in less than the six weeks it took?