Make This Obstruction Thing Go Away

My Comments: Coming to terms with the chaos in Washington, DC is not easy. Especially if you are inclined to favor Democrat Party values and themes. The insights expressed here may help Democrats and Republicans alike. I simply know many of us on the left are not happy.

By Dahlia Lithwick / June 22, 2017

It will shock nobody to learn that Donald Trump doesn’t understand what lawyers do. If you are a “successful businessman,” it’s hardly surprising that you would conceive of lawyers as well-compensated plumbers and cocktail waitresses—folks who make crap disappear and bring you everything you want, wordlessly and with short skirts. If you are a Trump-style “successful businessman,” one who is apt to hinge his success on infinite lawsuits, threats of lawsuits, and the invitation to your creditors to file other lawsuits, your lawyers are pretty much just the guys and gals who empty your ashtrays of whatever debris is left behind once the court has ruled. If one lawyer won’t get you the outcome you desire, the next one surely will. With massive fees and important connections on offer, there will always be a nearly infinite pool of people willing to file some brief on your behalf.

As soon as Trump started to talk about lawyers and the law on the campaign trail last year, I recognized the type: a rich guy who had never been told “no.” If you have small children you, too, will recognize the type. It’s a developmental stage that usually ends at toddlerhood, but if the toddler has enough money, power, and influence, that person can grow up to be an adult who is a nightmare to represent. Before I was a journalist I briefly worked at a family law firm, and I occasionally had the professional obligation to assist extremely wealthy “successful businessmen” with their divorces and custody battles. Sometimes these folks were on the other side. Always, they held a view of lawyers I didn’t remember learning about in law school: They believed attorneys were the help and that laws were problems that—with enough help and enough money to buy even better help—could be made to go away.

It was a good life lesson, in that I came to understand that there are people who can at once achieve the greatest heights in corporate America and remain truly baffled that they can’t get sole custody just because they want their ex-wives to suffer. Some of these people had quite literally never encountered judges who had told them “no,” much less lawyers who said, “This is the statutory child support formula, and it’s not negotiable.” So when Trump began to suggest on the campaign trail that, say, Judge Gonzalo Curiel was a “hater,” or that Merrick Garland didn’t deserve a Supreme Court hearing, I was pretty unsurprised. Trump is every fancy divorce client ever, announcing that judges and lawyers either play for his team or get canned.

Much has been made of the fact that Trump fired his FBI Director James Comey either because of Comey’s Russia investigation or not because of it. Much has been made of the fact that he fired Sally Yates because he didn’t like the advice she offered about Michael Flynn and that he fired U.S. Attorney Preet Bharara because Bharara wouldn’t return his phone calls. Trump also makes endless businessman-y noises about his plans to fire Rod Rosenstein; Robert Mueller; and his attorney general, Jeff Sessions. And in the meantime, he surrounds himself with other lawyers, many of whom have no experience in government service but seemingly infinite experience in emptying his ashtrays. The personal attorneys he’s recently brought on to deal with the FBI investigation (which he claims doesn’t exist, incidentally) include a fellow who appears to be engaging in the same branding and get-rich side gigs that Trump dabbles in himself and another lawyer who was on the losing side of the massive Trump University suit for which the president had to pay $25 million to settle claims from students who alleged they’d been defrauded. Nobody should be surprised, then, that Trump’s personal lawyer is now doing work that should be done by the White House Counsel’s office. We also shouldn’t be surprised that some of the Trump ashtray-emptiers now have to hire their own ashtray-emptiers. Nobody’s ever said “no” to those guys either.

This pattern goes a long way toward explaining why most serious Washington lawyers want nothing to do with the president’s dubious criminal defense dream team. Lawyers who have been trained to answer to the Constitution first and their wealthy clients far later don’t want to be in the position of having to tell the world’s largest preschooler that sometimes no bendy straw for the juice box really means no bendy straw for the juice box. And lawyers who have done far more with their careers than Sherpa a “successful businessman” through multiple bankruptcies may have a hard time explaining to the president that no amount of money or power in the world can make certain judges and some courts disappear.

In the end, the same intellectual underpinnings that gave us the “unitary executive” theory—the notion that the president has unbounded control over the executive branch and its agencies—plus the burgeoning belief that corporations are people and that money is speech have created the preconditions for a president built of equal parts money, power, and a return to Louis XIV’s conviction that “l’etat, c’est moi” (“the state is me”). And as Sen. Sheldon Whitehouse has been arguing, so long as dark money can continue to buy judicial seats, the president’s view that “successful businessmen” are above the law will increasingly be affirmed in the courts.

I suspect that if one asked Trump if there was any difference between the Office of Legal Counsel, the White House Counsel’s office, the attorney general, his divorce attorney, and the FBI director, he would say, without guile or uncertainty, that they all work for him. Perhaps the unitary executive crowd would agree. But as we inch nearer to a showdown between Mueller’s and the president’s views of what lawyers do each day, it’s worth considering that there is one place left in America in which lawyers in crumpled shirts work for a tiny fraction of what their law school classmates earn. In Washington, the “successful businessmen” may buy a lot of $100 signature cocktails at the Trump International Hotel bar, but lifelong government lawyers don’t usually empty ashtrays for anyone.

Trump’s robber baron view of all attorneys as fungible well-paid loyalists may someday prove to be the Washington way. But so long as the rumpled, badly paid government lawyers are sitting on the other side of the table, this won’t be as simple as a divorce settlement. And Trump still has to contend with the most rumpled and principled government lawyers of them all: the judges who haven’t been much impressed, at least thus far, with all the president’s men.

Retirement Roulette

My Comments: I’ve been known to place a bet now and then. But Las Vegas, for me, is nothing more than a place to visit from time to time. But it takes all kinds, and if you are one who enjoys the uncertainty of your financial future, here’s an article for you to consider. Thanks Dirk.

April 19, 2017 / Dirk Cotton

Phyllis loves to play roulette at the casinos. She knows there are games with better odds but there’s something about the large spinning wheel and the big green table with its field of many bets that she finds irresistible.

Phyllis has a roulette strategy – she calls it a “system” – that she adheres to rigorously. Because a fair roulette game is totally random and the odds favor the house her strategy isn’t statistically profitable but that isn’t something that concerns a typical gambler. Watching a YouTube video of a roulette game, I heard one player say he watches for trends in the random winning numbers (humans are really good at seeing trends, even when they don’t exist) and I hear another say that he seems to win a lot with the number 26.

Phyllis’ strategy is to place several small bets on the first spin of the wheel and to double the bets each time she loses. After a winning bet, she bets the same amount on the next spin.

She places a bet on red, another bet on 36, a corner bet, and a street bet for each spin. (Watch a few minutes of this YouTube video if you’ve never seen a roulette game. Notice the multiple bets placed by each player at each spin of the wheel.)

After each spin, she calculates the revised amount of her bankroll and places another set of bets on the next round. Her strategy is to stop playing should she double her initial bankroll and, of course, she will stop playing when she is ruined.

At this point, you may wonder what Phyllis and her roulette strategy have to do with financing retirement. The answer is that the mechanics of her roulette game are somewhat analogous to the way in which retirement should be played. Visualizing retirement funding as a roulette game can demonstrate the process as a whole as opposed to seeing a set of related but independent strategies for income generation, asset allocation, annuitization, and the like.

We start with a grand strategy, hopefully one that is more profitable than a roulette strategy, and play one year at a time in the same way that Phyllis plays one spin of the roulette wheel at a time. We stop playing retirement when no one in our household is still alive.

It’s not a perfect analogy. Phyllis stops playing roulette when she runs out of money but, unlike roulette players, we can’t stop being retired when we go broke. We have to figure out how to continue playing retirement until the end, perhaps getting by on Social Security benefits alone – not a pleasant prospect2.

Now, let’s play a game of Retirement Roulette. Over my working life, I have accumulated wealth that I can use to pay for retirement. That wealth is represented by the three stacks of chips in front of me that constitute my “bankroll.”

My financial capital (pink), social capital (red) and human capital (blue) at retirement. (Image from designinstruct.com)

The first stack of chips represents my financial capital. It represents my wealth held in taxable accounts, retirement accounts, home equity, etc. The second stack of chips represents my human capital, my ability to generate income from labor. Perhaps I can retire as a college professor and still teach a couple of classes each semester for a few years. This stack of chips will shrink over time whether or not I use it as my ability to generate income from labor diminishes.

The third stack of chips represents my “social capital” and includes my Social Security benefits and a small pension I earned from a previous employer. I have three chips. The first represents my pension, the second represents my wife’s Social Security benefits and the third chip represents my own Social Security benefits.

My social capital.

On the “Retirement Roulette” table in front of me lies a broad array of potential retirement bets including:
• a bet on a retirement date
• a bet on an amount to spend this year
• a bet on stocks
• a bet on bonds
• a bet on cash
• a bet to claim or delay Social Security benefits
• a bet to purchase an annuity
• a bet to purchase long-term care insurance
• a bet on a legacy for our heirs
I refer to these as “bets” because each has a cost, each has a payoff, and each payoff is uncertain.

I use my strategic retirement plan to guide my bets in much the same way Phyllis uses her strategy to place roulette bets. That plan identifies my strategic objectives – the long-term financial retirement goals I’m trying to achieve. I now need to identify the best tactical moves I can make in the present round (this year) to further those long-term objectives. For example, I have a strategic goal to not outlive my savings so perhaps a good tactic for the current round is to not claim my Social Security benefits, yet.

First, I bet that I have enough retirement resources to retire this year at age 65.

I decide to wager the pension bet immediately because I am 65 years old and, unlike postponing Social Security benefits, delaying my pension claim has no financial benefit. The payoff for this bet is $1,000 of income monthly for as long as I live.

I have determined that the optimal Social Security claiming strategy for our household is for my wife to claim at age 66 and for me to claim at age 70. Since she is now 66, I will bet her Social Security benefits chip now and save mine for the year I turn 70. Of course, I can decide to bet my chip sooner should I need the money.

The payoff for this bet is some immediate income from my wife’s benefit and maximum lifetime retirement and survivor benefits for both of us should we live longer than an average life expectancy at the claiming age.

I won’t bet the home equity chips right away in case I need those for an emergency later in retirement.

My strategic retirement plan calls for a floor-and-upside retirement strategy so I will add a small pension bet to my wife’s Social Security benefits to create the floor. I move chips from my financial capital pile to the pension bet.

After calculating the income from my floor bet, I decide that I will need to spend 3% of my remaining portfolio balance on expenses for the coming year. I move that amount of chips to the spending bet on the table.

I count the number of chips left in my financial assets pile and decide on an asset allocation. I move 5% of the chips remaining in that pile to the cash bet on the roulette table, 35% to the bonds bet, and 60% to the stocks bet. All of my chips are now on the table on eight different bets and they look something like this:

I am actually making 12 bets, not eight, because not buying Long-term Care Insurance (LTCi), for example, is also a bet. It’s a bet that I won’t need the insurance in the coming year and that I will have both the resources and the health to enable me to make that bet a year from now should I so decide.

I win this “non-bet” when I don’t need to claim LTCi in the coming year and the payoff is a year of typically substantial premiums. I lose this non-bet when I do need to make a claim but don’t have insurance or when my health deteriorates to the point that I can’t qualify for the insurance in the future. I would lose a purchase bet if the insurer raises my future premiums so much that I am forced to let the policy lapse before I need it. And, of course, I lose the bet if delaying the purchase results in significantly higher premiums when I eventually do buy. Retirement bets can be very complicated and understanding them in their entirety is critical.

In Retirement Roulette, we bet all of our chips every year and we make every bet even if the bet is that we should wager nothing on it.

I “spin the wheel” and nature takes its turn. A year later the results are in.

The payoff on my stock bet will be about 8% with a standard deviation of about 12%, meaning that about two-thirds of annual returns will fall between a 4% loss and a 20% gain. The payoff on my bonds bet will be about 3% with a standard deviation of about 3%. My cash bet will return about the rate of inflation, or about zero in real dollars.

My pension bet will pay off $12,000 and my wife’s Social Security benefit will pay off about $20,000. My cash will increase by about the rate of inflation but decrease by about the 3% I planned to spend. Of course, expenses are unpredictable and I may actually spend more or less. The “payoff” for the spending bet will be about a 3% loss.

My life expectancy and that of my wife have decreased by a little less than one year. (Life expectancy is a key factor in many retirement decisions.)

And so ends round one.

To prepare for round two I must evaluate the results of all my bets, changes in my life expectancy and my wife’s, changes in our health, our expectations for the financial markets going forward, and other critical factors to decide which if any of my bets I should change for the coming round.

How will I bet in future rounds? I won’t know for certain until I see how retirement unfolds between now and then, but my plan is to play my Social Security chip when I reach 70. My spending next year might go up or down a little depending on this year’s market returns. I may move some chips from the stocks bet to the bonds bet after a really good run for stocks, or vice versa after a poor run, but only if the percentages get seriously out of whack. Most years I will tweak my bets just a little and spin again.

The game will continue as long as one of us survives. Unlike roulette, our game doesn’t end if we deplete our bankroll, though our lifestyle is likely to be severely curtailed in that event.

The important perspectives of the roulette analogy are:
• Like roulette, retirement funding has a very large element of uncertainty. This includes the length of our careers, how long we will live, market returns, interest rates, annuity payouts, inflation, discretionary spending and spending shocks, which is to say all of the critical factors are uncertain. Even households who generate retirement income completely with “risk-free” assets will be exposed to expense risk.
• Like roulette, retirement funding is a series of “rounds”(typically years) during which the retiree makes a series of decisions (bets) and the universe responds. These first two characteristics define what game theorists refer to as a sequential stochastic game against nature.5
• Retirement ends with death; roulette ends when the gambler decides to walk away or is ruined. Retirees can’t walk away but they can lose their standard of living.
• Unlike roulette, a retiree plays all her wealth every round. Some bets, like cash, will have very little risk. Bets we don’t make are as important as those we do.
• A “round” typically involves multiple bets that are separate, yet the ultimate result of the round is the sum of the bets won less the sum of the bets lost.
• Critical factors can change from one round to the next and these must be considered when placing next year’s bets. Retirement funding is dynamic, not set-and-forget.

Here’s the source article link: https://seekingalpha.com/article/4063573-retirement-roulette

 

A $400 Trillion Financial Time Bomb

My Comments: Scary. I’ll be gone by then, but are you kids listening?

Allison Schrager / June 2, 2017

Financial disaster is looming, and not because of the stock market or subprime loans. The coming crisis is more insidious, structural, and almost certain to blow up eventually.

The World Economic Forum (WEF) predicts that by 2050 the world will face a $400 trillion shortfall (pdf) in retirement savings. (Yes, that’s trillion, with a “T”.) The WEF defines a shortfall as anything less than what’s required to provide 70% of a person’s pre-retirement income via public pensions and private savings.

The US will find itself in the biggest hole, falling $137 trillion short of what’s necessary to fund adequate retirements in 2050. It is followed by China’s $119 trillion shortfall.

Asset returns have been lower than they were in the past and people are living longer, so some of this shortfall is to be expected. The WEF assumes many people born recently will live beyond 100, which may be a bit much (the Social Security Administration expects most Americans born today to live into their mid-80s). But much of the massive shortfall is baked into retirement systems; setups in which nobody, neither individuals nor the government, saves enough. About three-quarters of the projected comes from underfunded promises from governments, with the rest mostly accounted for by under-saving on the part of individuals.

Michael Drexler, head of financial and infrastructure systems at the WEF, who edited of the report, likens the problem to climate change. “Like climate change, you don’t see the consequences today, but if you do nothing the problem builds up and then there is nothing you can do,” he says. “Today you can still change things, but if you do nothing you’ll wind up with a problem that is three to four times the global economy.”

Forecasting anything accurately in 2050 is tricky. We could get lucky, in a sense, and people might start dying younger. More happily, asset returns might pick up. Some argue that worries are unfounded, because we can still pay pensions today and sort out any future problems if they become acute. Others cite uncertainty around the estimates as reason to delay action today. But uncertainty goes both ways—things could be better or worse, and the worst-case scenario poses much bigger costs than we can bear.

Acting sooner ensures lower costs in the future. Putting money aside for retirement now confers the benefit of compound interest and provides certainty to financial markets that fear ballooning government debts. For example the US Social Security Administration estimates that its shortfall could be fixed with an immediate 2.58-percentage-point tax increase, or a 16% cut in benefits. If the government waits until 2034 (the year it can no longer pay full benefits given its current trajectory) it would need a 3.58-percentage-point tax increase, or a 21% benefit cut. If the shortfall proves bigger than expected, the costs of waiting will be larger, too.

The report offers several suggestions to address the shortfall. Most include ways to boost individual saving by offering retirement accounts to a wider population and expanding financial literacy. The authors advocate diversifying investments beyond traditional stocks and bonds. Drexler says that investing in a diversified portfolio of infrastructure projects can increase returns and enhance economic growth.

Financing a long and comfortable retirement requires contributions from multiple sources, as well as shared risk. “If in 2050 people reach 85 and run out of money they’ll need to rely on Social Security,” Drexler explains. “But if there’s a shortfall the government will be overwhelmed by demand or pensioners living in poverty. We must start educating people now, so we have a good [defined-contribution pension] plans so people have something.”

Still, an overwhelming majority of the short-fall comes from government programs. In order to address this problem, governments must adequately and proactively fund their entitlements too, either by increasing taxes or by cutting benefits. Individuals alone cannot save enough to compensate for the unrealistic promises their governments have made. ■

Nursing Homes, LTC And College Planning Are Toast, So Is Retirement

My Comments: I graduated from high school some 58 years ago this month. So… Time for a visit and see who is still alive. And also meet up with my college roommate whom I haven’t seen for 54 years. A busy few days. He’s the one in the middle staring at the camera.

So I leave you with these thoughts as you think about your future in retirement…  We’ll be back in a few days.

June 8, 2017 • Evan Simonoff

Retirement isn’t the only stage of life or financial planning discipline that is headed for the history books, Edelman Financial Services founder Ric Edelman believes.

Nursing homes have lost 20 percent of their residents since 2010, and long-term-care insurance will soon be history as well, Edelman told attendees at Singularity University’s Exponential Finance conference in New York on June 8.

Americans’ longevity is increasing, and their financial lives are changing faster than most advisors or their clients can imagine. Clients who live until 2030 can expect far longer lives than most expect today, Edelman said, citing Ray Kurzweil, Google’s chief futurist.

Breakthroughs in health care and medical science are likely to eliminate heart disease and cancer as major causes of death in 15 or 20 years, Edelman said. This may sound like happy talk. But in 1900, cholera, dysentery and scarlet fever were among the five major illnesses that caused people to check out. Where are they now?

This means that retirement, which was only a late 20th century phenomenon, will soon cease to be advisors’ chief challenge. Advisors’ major task will become career counseling, or second-career counseling, Edelman said, because even clients who are well off at 65 and would be able to retire if their life expectancy was 90 will face a different set of variables if they have a good chance of living to 110 or 120.

The upshot is that advisors should start thinking in terms of a cyclical lifeline of education, work, re-education, more work, a sabbatical and a third or fourth career rather than a linear lifeline. It means clients need to diversify skills and occupations and maintain their employment viability as much as they need to diversify their investments.

Edelman also predicted that many forms of education would become free or very inexpensive. States like Oregon, Tennessee, Arkansas and New York already have offered free or very cheap tuition to students, and free online education is appearing all over the planet.

At George Washington University, over 1,000 students are 50, though it’s not cheap. But the cost of college has become so ridiculously high that it is unsustainable, Edelman implied. Free college may sound far-fetched, but it was not that long ago that America’s best state university system, California’s, was essentially free.

Hey, in the 1960s, the Free Speech movement was born at UC, Berkeley, a university that rivals Harvard in America or Cambridge in the United Kingdom. Both speech and tuition once were free at Berkeley, but these days it is hard to believe that was only 50 years ago.

Other industries that can expect to see higher growth rates include leisure and travel. The cruise ship business is booming, and on at least three cruise ships, state rooms have become permanent homes for residents who live there year-round.

Asked how clients in their 40s and 50s respond when they are told retirement at 65 or 66 is so yesterday, Edelman acknowledged that their first reaction is usually denial, followed by fear and anger. But when the idea of living a lot longer in good health sets in, their reaction is more balanced.

The timing of these predictions from Singularity University remains debatable. But as Yogi Berra said, the future isn’t what it used to be.

“…the Nature of Capitalism”

My Comments: There are changes afoot, and 45 and his cronies seem to have few clues. Or, more likely, they don’t give a damn.

The disparity between those at the top of the economic food chain and the rest of us not at the top, is called ‘income inequality’. The different approach taken by the two primary political parties, assuming there is a motivation to govern, is that ‘income inequality’ results from laziness and social giveaways, while the other party argues there are pressures whose origins are beyond the capacity for anyone to influence.

The disparities show up now as anemic job growth numbers across the nation, to the rise in disaffected people who show up at Trump rallies, to the tension in so many communities between law enforcement and the people they are supposed to be protecting, to the tension between rural and urban populations, and on and on and on.

There are huge implication for people with years of retirement left to navigate. This is a good read and very thought provoking.

by Oscar Williams-Grut | November 5, 2016

Lord Adair Turner, the former vice chairman of Merrill Lynch Europe and ex-head of the Britain’s financial watchdog, is “increasingly worried” that advances in technology are undermining capitalism and stopping the global economy recovering from its “post-crisis malaise.”

In an interview with Business Insider, Lord Turner said: “We have an economic malaise where the capitalism system is not delivering as well or to enough people to maintain its legitimacy.

“There’s a certain sort of equality of citizenship that requires that everybody does OK. I think that may breakdown. I think it may breakdown because of the fundamental nature of technology. You have to be aware that the way that capitalism works will vary depending on the different stages of technology that we’re in.”

‘Huge returns for them and relatively low and precarious returns for an increasing percentage’

Lord Turner ran the Confederation of British Industry (CBI) in the mid-1990s, before becoming vice chairman of Merrill Lynch Europe from 2000 to 2006. He then served as head of the UK’s former financial watchdog the Financial Service Authority from 2008 to 2013, taking the jobs on the eve of the global financial crisis sparked by the US mortgage security bubble.

Lord Turner is now chairman of George Soros’ economic think thank the Institute for New Economic Thinking and this year authored “Between Debt and the Devil” on the global financial crisis. (There are those on the right who claim George Soros, despite his billions, it really a communist, interested in destroying capitalism – TK)

He told Business Insider that businesses like Facebook, Uber, and Airbnb are focusing huge amounts of wealth in the hands of relatively few people and generating fewer jobs than previous technological breakthroughs. This is undermining the fundamental promise of capitalism that advances in technology and the wider economy will bring some benefit to everyone.

He said: “Look at Facebook — it now has a market cap of about $370 billion. It only employs 14,000 people and it had to do very little investment in order to get there. The reason is this technology has this extraordinary feature that once you develop one copy of software, the next billion copies don’t cost you anything.

“There’s zero marginal cost of replication. That is just completely different from the world of electromechanical machinery. Once Henry Ford had built one factory, if he wanted another he’d have to build it all over again. He had to put in lots of millions of stock.”

Technological innovations, such as industrialisation, have traditionally generated more jobs than they destroyed. But research by Citi and Oxford University earlier this year found a “downward trend in new job creation” from the 1980s onwards, with technology generated fewer, lower-skilled jobs than past revolutions.

The World Economic Forum has already forecast that 5 million jobs could be eradicated by technology by 2020 and 57% of all jobs across the OECD are at risk of automation, according to research by Citi and Oxford University.

Lord Turner says: “The problem is this: I think we probably are on the verge of a wave of automation and robotisation and the application of big data etc., which will tend to create an economy of huge returns for the people clever enough to create the software, do the big of data analytics, create the computer game, create the new business model or the data system that sits at the centre of Airbnb or Uber.

‘One of the things is it does seem to be driving inequality’

Multi-billion dollar tech platforms like Airbnb and Uber pitch themselves as part of the “gig economy,” which they say helps people earn extra money through either flexible work or renting out their assets.

But British economist Guy Standing argues that most of the people who work on these types of platforms are part of what he terms the “precariat” — low-paid workers with precarious job security. He claims these types of platforms that connect workers with employers are part of a wider trend of low-paid agency work.

Tech platforms’ role in society has been in focus recently, with a British employment tribunal ruling that Uber drivers were in fact staff rather than freelancers on the platform. As a result, they are legally be entitled to things like holiday pay and sick pay.

Lord Turner says: “I think we’re just at the beginnings of understanding what deep things this [technological change] does. One of the things is it does seems to driving of inequality. This information and communication technology enables huge wealth creation with very little investment for some categories of people in the economy and creates jobs that are very low pay for others.”

Lord Turner thinks this tech-driven inequality has contributed to the popular resentment for elites and mainstream politics that drove the Brexit vote and support from Donald Trump in the US elections.

He says: “I think we may be at a turning point in the nature of capitalism. Our assumption for the last 200 years has been that although there are ups and downs year by year, broadly speaking decade-by-decade capitalism delivers an increase in GDP per capita and although it’s not an equal system, some people do better than others, on average over a couple of decades everybody does OK.”

‘I am increasingly convinced and worried there are more fundamental forces at work’

Lord Turner suggested that a solution the tech-driven equality could be a universal basic income — a flat wage paid to all citizens that is enough for them to live on. Experiments with this are being carried out in Holland and Kenya.

An alternative could be that the government ensures people are paid a “living wage” for essential human roles such as health and social care, Lord Turner says.

He told BI: “There are many jobs that we need to do in our society, care etc., that you can’t automate and you wouldn’t want to automate. They need to be done but it may be that if you leave those entirely to the private sector or the state in trying to buy them, using competitive bidding processes to continually drive the price down, those things where we do need people to do the job will be at rates so low that it doesn’t give people enough income and dignity.

“Does that mean that we just have to accept that the state has to say through the social care system and health care system it’s going to employ people and pay people at a rate which it considers reasonable — a living wage or whatever — rather than at the lowest rate at which it can put it out to competitive bidding?”

But Lord Turner added: “I think it’s a fundamental social issue that we will increasingly have to debate and I think we don’t really know what the policy levers there are.”
Lord Turner believes that finding a solution to the problems presented by the new tech economy are essential not just to repairing global trust in capitalism but also in repairing the global economy itself.

Lord Turner argued in his book, “Between the Debt and the Devil”, that the global economy’s painfully slow recovery from the 2008 crisis has been caused by the huge debt overhang created by a half century of loose credit conditions in the run up to the crash.

But he told BI: “Whereas soon are 2008 I felt our problem was fundamentally just an enormous debt overhang generated by an out of control credit boom, I am increasingly convinced and increasingly worried that there are some more fundamental forces at work which is why it’s taking so long to get out of, and why we’re still not out of, this post-crisis malaise.”

When to Start Social Security

My Comments: A very serious question, and one that requires some thinking about. We’ve talked about this before, but if you’ve not yet signed up, here are five questions you can ask yourself to get a better answer.

Chuck Saletta – May 19, 2017

Your lifetime Social Security retirement benefit is expected to be about the same no matter when you start collecting. Still, when you start collecting matters when viewed in the context of your end-to-end retirement plan.

You can start your Social Security retirement benefits any time between age 62 and 70, and the longer you wait within that window, the larger your monthly check will be. The trade-off between the age you start and the benefits you receive is such that, actuarially speaking, you’re likely to get around the same lifetime benefit amount no matter when you start in that window.

Even so, depending on your personal life circumstances, it may make more sense for you to start earlier in that window, later in that window, or somewhere in between. Here are five key things for you to consider when it comes to determining when to start your benefits.

No. 1: Are you still working?

If you’re still working and below your full retirement age (somewhere between age 66 and 67 for those who haven’t reached it yet), it generally makes little sense to collect your Social Security benefit. That’s because you’re penalized as much as $1 for every $2 you earn above $16,920 in the year.

Even if you’ve reached full retirement age, you may want to hold off collecting Social Security until age 70 if you’re still drawing a paycheck and that paycheck is enough to allow you to make ends meet. That’s because your Social Security check increases by 8% per year you wait past your full retirement age, up until age 70, to start collecting, and an 8% guaranteed increase like that is very hard to come by.

No. 2: How long will you live and stay active?

Aside from spending on healthcare, people’s spending tends to drop off the deeper into retirement they get. While you may technically get more money overall by waiting until age 70 if you survive long enough, how much of that extra money will come after you’re no longer able to make much use of it? As my Foolish colleague Todd Campbell recently pointed out, the crossover age happens somewhere between 79 and 81 years old, depending on when you start claiming.

Even if you do live long enough to receive more money from Social Security by waiting to collect, ask yourself how active you really see yourself being in your 80s and beyond. There’s value in getting the money sooner, while you’re more active and better able to enjoy it. If you reach the later part of your golden years regretting the things you didn’t get done because you didn’t have access to more money younger, there’s no do-over option at that point in your life.

No. 3: What other sources of financial support do you have?

If taking your Social Security check early makes the difference between surviving and starving, by all means, take it. If, on the other hand, you’ll be receiving temporary retirement income such as from a structured sale of your business or an employment severance agreement, it may make sense to wait. If you don’t need the money right away, waiting for the bigger check might make a whole lot of sense.

Remember, too, that your Social Security benefit itself can become taxable if your income is high enough. According to Social Security, as much as 85% of your Social Security benefit can be considered part of your taxable income. All it takes is $34,000 in combined income if you’re single or $44,000 in combined income if you’re married filing jointly, and 85% of your Social Security benefit becomes taxable income to you. Almost everyone filing as married filing separately will see their benefits taxed.

Social Security defines your “combined income” as your adjusted gross income plus your non-taxable interest income plus half your Social Security benefit. Because it includes your non-taxable income and half your Social Security benefit, it can be easy to reach that level even if your otherwise taxable income is low.

If your other sources of income are longer term in nature, such as a pension, rental income, or investment income, then it makes less sense to wait. After all, you won’t be avoiding the tax on your Social Security benefit by postponing taking that benefit, and the sooner you start Social Security, the less you have to depend on your other income for support in those early years. That could enable you to keep more invested more aggressively for longer, potentially improving your overall retirement income.

No. 4: How big are your Traditional 401(k) and Traditional IRA balances?

Once you turn 70 1/2, you’re generally required to start taking distributions from your Traditional IRA and Traditional 401(k) plans. While the distributions start off fairly small — around 3.6% of your balance — they grow as a percentage of your account balance every year after that until age 115. While you can’t avoid those required distributions, you can get your money out earlier and potentially at a lower tax rate.

Once you turn age 59 1/2, you can start withdrawing money from your traditional 401(k) and Traditional IRA plans without facing a tax penalty . If you have a substantial Traditional IRA and/or Traditional 401(k) balance, you can start taking that money out to cover your living expenses before you start your Social Security. By holding off on Social Security while you take those withdrawals from your Traditional 401(k) and/or Traditional IRA, you can keep your income and tax down while drawing down those balances.

If you get your Traditional 401(k) and Traditional IRA balances low enough, then you won’t face as steep required minimum distributions later in your retirement years. In addition, any money you took out of those plans and didn’t spend remains yours to use as you see fit. By leveraging those factors over time, the combination can give you the opportunity to keep your overall taxes lower in retirement without really affecting your overall retirement lifestyle.

No. 5: Do you plan to convert your Traditional IRA and/or Traditional 401(k) to a Roth IRA?

Similar to the previous point, you can convert your Traditional IRA and 401(k) balances into your Roth IRA, paying taxes on the conversions along the way. Roth IRAs are not subject to required minimum distributions for the original account holder, and thus once the money is in your Roth IRA, you can keep it in that account as long as you are alive.

There are three key differences between this point and the previous one, though. First, you can convert your Traditional plans to your Roth IRA starting at any age, not just at age 59.5. Second, remember that money you convert to your Roth IRA isn’t available for you to pay the conversion taxes on, unless you subsequently withdraw that money from your Roth IRA. Third, money you are required to withdraw from your traditional plans after age 70.5 must be withdrawn, and can’t be part of a Roth conversion.

That combination of factors means that when it comes to Roth conversions, it’s useful to have another source of money to cover the taxes associated with the conversions as well as your costs of living. As a result, it may make sense to start taking your Social Security to have a source of money to cover those costs while converting your Traditional IRA and Traditional 401(k) plans into your Roth IRA.

Make the right Social Security choice for you

Social Security serves as a cornerstone for the retirement plans of millions of Americans. As with any cornerstone, it works best when it’s part of an end-to-end structure designed around a useful purpose, in this case, your retirement. By understanding how these five key factors interact with your choice on when to start taking Social Security, you can design an end-to-end retirement plan that better suits your needs with the resources you have available. And that’s a recipe for retirement success.

Bull Market Complacency Calls for Caution—and Action

My Comments: Today is Monday, when I post something about investments. Scott Minerd is not only a global figure in this environment, he has the ability to reduce complex ideas to where even I can understand them. His message, as I understand it, is continue to ride the bull, but be prepared to panic at any time.

  June 09, 2017 | By Scott Minerd, Global CIO

By many measures, the stock and bond markets have rarely been more expensive and more stable, and that has me worried. High-yield bonds and mortgage-backed securities are both trading near their narrowest-ever spreads relative to Treasurys, and they have been hovering around these levels for months. At the same time, U.S. stock market indexes are continuing to make new highs while the Chicago Board Options Exchange Volatility Index (VIX), which measures option-implied S&P 500 volatility, is near its lowest level since 1993. The amount of complacency built into the markets argues for caution.

Plenty of events clustered around this summer and fall could potentially spell disappointment for the markets. In Europe, Emmanuel Macron may have handily won the presidential election in France, but there remains the French parliamentary elections next week. These elections may result in what the French call “cohabitation,” a term that describes when the president and the majority of the members of the French parliament represent two different parties, which has not happened in France since the 1997 election. Meanwhile, the U.K. election results have hobbled Theresa May’s mandate and created a cloud of uncertainty over the timing and direction of Brexit negotiations. German federal elections, due to take place in September, will test Angela Merkel’s conservative bloc.

In Washington, the focus is on the Senate version of the healthcare bill, which is unlikely to be finalized before the August recess. This delay could push back the timeline for enacting tax reform to 2018. This says nothing of the political uncertainty in Russia, North Korea, or in the Middle East.

As this realization settles in, I think some of the hope underpinning the markets will slowly erode this summer. History suggests that there is a high likelihood we will get some sort of shock in the second half of the year, which would lead to tightening financial conditions and widening credit spreads. I have seen it happen a number of times in my career: The stock market crash of 1987 and the Asian crisis in 1998 were both unexpected events late in a lengthy economic expansion that led to a brief but violent repricing of risk assets. Both events, however, were followed by at least two more years of an expanding economy.

Today we are on pace to set a record for the longest expansion in U.S. history, thanks in large part to the slow post-crisis recovery and accommodative monetary policy. The current upward slope of the yield curve offers no indication that it will end soon, but eventually it will, given the Federal Reserve’s indications that further tightening is needed. I believe we will see two more rate hikes in 2017, the next one occurring later this month, and at least three increases in 2018. I also expect that the Fed will announce in September a change to its balance sheet strategy that will involve a gradual tapering of reinvestments in 2018. This should put upward pressure on yields at the short end and the belly of the curve, where most of the new Treasury issuance is likely to come.
Even as conditions call for a healthy dose of caution, there is no need to panic longer term. There is still significant ongoing stimulus coming from the European Central Bank and the Bank of Japan.

The combination of these conditions argues for taking certain near-term portfolio actions. Investors should consider upgrading credit quality whenever possible while reducing exposure to high-yield bonds and stocks. Holding some dry powder* for opportunities that should arise amid a pickup in volatility later this year would be a wise move. With spreads near record tights, fixed-income investors simply are not being compensated for the risk they incur in the hunt for yield. Investors should remain disciplined and not chase returns now. It may not be the most exciting message, but no one ever took a loss by booking a gain.

As I see more life left in this economic expansion, I believe there will be opportunities later in the year to make up for any near-term underperformance. The coming correction might not happen tomorrow, but current conditions bring to mind the legendary response of Baron Rothschild, who, when asked the secret of his great wealth, said he made his fortune by selling early. It might be wise to follow Baron Rothschild’s example and take some chips off the table.