Strange times

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Denver Post.

Strange times.

As I approach 60 and retirement,

  1.  Free phone.
  2.  Free health insurance.
  3.  Social security.
  4.  Reverse mortgage.
  5.  Reduced property taxes.

These are all government programs.  And here’s the kicker:

6.  Roth IRA withdrawals do not count as AGI (or MAGI), adjusted gross income, at age 59 1/2.  That is unbelievable.  Who said America isn’t a great country?  This is all within an environment of not paying any income taxes at all.  It is really hard to believe but it is true.

That’s right.  If you live off an IRA you may qualify for Medicaid.  At least that’s what happened to me when I went to sign up for Obamacare.

he realized that with just a Social Security check, “You can hardly make it these days.”

I read about it a lot these days.  Something like a third of Americans who are getting older have no savings at all; more like half likely don’t have enough.  The demographics are such that baby boomers are 60-plus or close.  Thirty years ago pensions began to shift and “a generation”–more accurately, cohorts–are beginning to show up.

Two outcomes appear imminent:  1)  People are going to be in trouble and they will probably lean on the government.  It is going to affect the economy.  People will suffer–suicides, bankruptcies, and the indignity of working at Walmart will rise.  2)  The income gap will increase.  There will be (more) people with more and people with less.

What can you say?  If you don’t have a nice home, if you can’t afford it, and you have to work at Walmart, why stay there?

When I turn 62 I will receive $1000 a month in social security.  I look at it as quite a raise.  It will pay my mortgage, taxes, and insurance.

“It pays some chump change — $7 an hour,” Oakley said. She has told local officials they should pay better. “I use it for gas money. I like the people. But we have to get out there in the traffic, and the people at the city think they’re doing the senior citizens a favor by letting them work like this.”

I don’t know.  If I am 70, alone, and unhappy I may want to work too.  It might be something I want to do.  But I wouldn’t want to have to do it.  And I’d like to think it would involve more than standing at a door or in traffic.

Twenty-nine years at McDonnell-Douglas without a pension or 401K?  I don’t understand.  Even if they close the plant, if you had qualified, there would still be a pension (assuming no really funny business).

One in seven has in their retirement years filed for bankruptcy, faced liens for delinquent bills, or both, according to public records.

Is this higher than elsewhere or among other cohorts?


McDonnell-Douglas did get whacked.  These are blue or gray collar workers; I mean, factory closings are not new.  And some people work even though they don’t have to.

When I “left” Nextel I lost tons in stock options, options that would have skyrocketed with an imminent merger.  I was probably hit disproportionately because of my tenure and the number of options; no, that’s not true.  I wasn’t singled-out and I had more than my share of many other benefits.

I was 40 at the time.

Back to our story.  These people, I hope, had plenty of other benefits too.  If they didn’t they shouldn’t have stayed there.  Could they invest the $30K as pension money in a Roth IRA?

The problems are some people are not savers and “financial literacy.”

Governments are reacting (e.g., state-sponsored retirement plans and solo 401ks) and financial products are getting better.

It is an interesting phenomenon:  governments are getting to be just as good marketers as businesses.  The internet and cell phones has made signing-in and merging databases easier than ever.  People don’t expect customer service anymore anyway.  It is stunning how easy it is to sign-up for some of the government programs available today.

But the obscure point is I liked the health insurance mandate included in Obamacare.  In civilized countries people have health insurance and the government is making real progress.  We can only push you so far…  If you want to pay the fine you may.  But there are some people who are just hard to reach.  They’re not going to do it until they have a disaster or they’re kicked in the ass.  Sometimes, for one’s own good, you just have to prod and push, I think.

How to get people to save?  That’s a toughie.

I’d rather be out on my own, managing my money, my career/job, and where I live.

Some people have it a lot tougher.  Maybe they’re just not like me.  Or maybe they just like greeting people at Walmart.


The key to this whole thing, at least for me, is the Roth IRA.  From Wiki:

Originally called an “IRA Plus”, the idea was proposed by Senator Bob Packwood of Oregon and Senator William Roth of Delaware in 1989.[2] The Packwood–Roth plan would have allowed individuals to invest up to $2,000 in an account with no immediate tax deductions, but the earnings could later be withdrawn tax-free at retirement.[2]

The Roth IRA was established by the Taxpayer Relief Act of 1997 (Public Law 105-34) and named for its chief legislative sponsor, Senator William Roth of Delaware. In 2000, 46.3 million taxpayers held IRA accounts worth a total of $2.6 trillion in value according to the Internal Revenue Service (IRS). Only a little over $77 billion of that amount was held in Roth IRAs. By 2007, the number of IRA owners has jumped to over 50 million taxpayers with $3.3 trillion invested.[3]

In 1997, then Senator William Roth (R-Del) wanted to restore the traditional IRA which had been repealed in 1986, and the upfront tax deduction that goes with it. Under congressional budget rules, which work within a 10-year window, the revenue cost of giving that tax break to everyone was too high. So his staff limited deductible IRAs to people with very low income, and made Roth IRAs ( initially with income limitations) available to others. That slid the revenue cost outside the 10-year window and got the legislation out from under the budget rules.[4]

Economists have warned about exploding future revenue losses associated with Roth IRAs. With these accounts, the government is “bringing in more now, but giving up much more in the future,” says economist and FORBES contributor Leonard Burman. In a study for The Tax Policy Center, Burman calculated that from 2014 to 2046, the Treasury would lose a total of $14 billion as a result of IRA-related provisions in the 2006 tax law. The losses stem from both Roth conversions and the ability to make nondeductible IRA contributions and then immediately convert them to Roths.[5]

First, $12 billion over 32 years is not a crisis.

Wow, it only came into being in 1997.  If you had invested $30,000 in a Roth IRA in 1997 and invested it well (e.g., triple in 10 years mutual funds), you would have $270,000 tax free after 20 years.  If you wanted or needed the initial $30K you could take it out after five years with no penalty at all.  It wouldn’t amount to this if you took out the original investment promptly, but that is close to $240,000 after 2o years absolutely free and tax free after 20 years.  If you have more than 20 years obviously it is going to be much more than that.

Tell me, assuming maybe you have a house and you’re not totally in debt, a single individual cannot live on $30,000 tax free.  Throw in social security and a pension, as the ex-McDonnell-Douglas employees did receive, and you are doing quite well.

This assumes optimistic, very high investment returns over the last 20 years of 10%.  It is/was achievable.