My Early Retirement and The Government's Role

[bamsphd]

Quote:

Originally Posted by Danny 1. Company pension (Pension Benefit Guaranty Corporation (federal corp created by congress) has oversight on mine to make sure I receive it - know they aren't universal - especially lately - so think there isn't a requirement that companies need to have them) 7. Cobra - took this for 18 months after I took ER.

The funny thing about these two is that until the government imposed wage controls but exempted benefits, employers rarely offered pensions or health benefits. Once wage controls were lifted, employers tended to keep the benefits as golden handcuffs to retain workers, and to take advantage of their tax treatment.

Because of their golden handcuff nature, and their tendency to cause problems like the US automakers are having, I'm not sure pensions as currently implemented in the US are an entirely good thing. Not that I would turn down a nice COLA'ed pension if I was offered one! However, I'm not sure the goldern handcuffs would be good for me, and I'm not sure that pensions as currently designed are good for society.

In the case of Cobra, I am certain that it is at best a partial fix to the government created problem of employer provided medical insurance. If employers did not provide medical insurance, you wouldn't need Cobra! Under a 100% individual system, you would keep the same insurance as you changed jobs and then retired. Under a single payer Canadian/French/German/British/... style system, you wouldn't worry about losing your insurance either.

So while the Pension Benefit Guaranty Corporation and Cobra are both mostly good things, they are both fixing problems that government contributed to making in the first place.

Quote:

Originally Posted by Danny 3. ESOP - not sure people remember/know of this gem - but congress created this back in 1974. Employee Stock Ownership Plan - got company shares as a bonus every christmas - added up over time as my first employer and stock did well - I like the idea of getting the employee vested in the success of the company . 4. 401K - my ESOP eventually got folded into this and the company started chucking dough in and I did to. This was often a substitute for pensions at many companies, my company decided to provide both. I eventually worked at 2 other companies and participated in their plans. 5. IRA - When I left my 3 employers I would transfer the 401K into one of these. Once there I could trade individual stocks w/o worrying about taxes and that's where my returns started to really take off. 6. IRS rule 72(t) - has enabled me to withdraw money from my IRAs via SEPP - Substantially Equal Periodic Payments without penalty. 9. 529 plan - same as above.

All of these cases seem to be examples where the government raised tax rates, then gave some of it back. In most of the cases they created or expanded new unproductive industries in the process. Certainly most 401K, IRA, and 529 plans increase the management expenses and record keeping required. I personally have some company stock, a 401k, and both flavors of IRAs all to avoid income taxes, which means I have accounts with ETrade, Fidelity, and Vanguard. Without the tax motivation, my investing would be a lot simpler and cheaper. Though ETrade, Fidelity, and Vanguard might all have fewer employees, not to mention my own company's HR department!

For the ESOP I have an additional concern. While as an investor I might like to have employees vested in the success of their company, for the employee it is a dangerous gamble. They already have their full paycheck riding on the health of their employer, that is the last place they should be investing! I'm happy your ESOP lottery ticket paid off, but I don't think lottery tickets are a prudent investing plan.

Quote:

Originally Posted by Danny 2. Social security - not yet but am confident we will get it.

Too bad is suffers from a similar problem to the automaker pensions. Promise goodies today, let somebody else pay for them tomorrow. I'm pretty confident we will collect social security, though probably at a lower relative level than current beneficiaries. We will do it by robbing our grandchildren.

Quote:

Originally Posted by Danny 8. UTMA- Uniform Gift To Minors Act helped with kids college. Grew over time helped ease the load and was able to ER sooner

I presume you really mean the lower kiddie tax rates helped ease the load. If the government wasn't playing tax games you could have saved the paperwork and kept all the funds in a single account in your own name.

Quote:

Originally Posted by Martha Danny, I can add to your list: --social security disability for my dad --guaranteed student loans --college grants --work study --SSI and medicaid for my brother, otherwise I would have to support him and I don't know how I would pay his medical bills --AFCI/medicaid for my sister, who used it temporarily after her worthless husband left her and their children and disappeared off the face of the earth

I'm more sympathetic to most of Martha's list. Helping the young get started makes considerable sense for a society. Though to some extent subsidizing education has probably contributed to both making education more expensive and more necessary. I personally enjoyed my many years piling it higher and deeper, and most college students seem to mostly enjoy the experience. However, for the society as a whole, I wonder would we be better off if fewer years of education were the norm? Grampa only had a high school education, but he certainly did OK.

To avoid insurance's adverse selection problem, having universal insurance along the lines of social security disability and medicaid makes a lot of sense.

At least for those conditions we can actually cure or prevent, a single payer health care system may also make sense. Certainly the overhead of the current US system seems to be quite unproductive. In most states, it is also a lottery system which only the healthy win.

Give the government its due, there are times when it is the worst system except for all the other ones, and it does some good. However, much of that list does not qualify in my mind.

[Danny]

Bam - This is an amazing, interesting and deep analysis. I can understand your logic in most of it, but I have to admit some of it is a little too abstract for me to digest. . I've lived in the reality that we have had the last 50 odd years and I took advantage of the government programs available to make my early retirement possible. If I had lived in your utopia of minimal government involvement in our business and personal affairs, had to fend for myself in a survival of the fittest world, I doubt I would have accomplished that and I'm sure there would be many more people marginalized and wanting. Thanks

[unclemick]

Kings, govenments and the joy of killing or rape and pillage if you prefer.

I believe one of the premises in 'The Birth of Plenty' was that the need to finance the the fun stuff like war jump started capital capitism and got it really going via the govt. bond thing. I forget where the need to finance shipping cargo's fell into the mix. Book went with Katrina and I'm too lazy to Google this morning.

Anywise - ya gotta have big government for capitalism to successfully exist.

heh heh heh - Pontificate on dudes - it's going to 70 up north here and time to start raking some leaves!

[ERD50]

Quote:

Originally Posted by Danny ... I took advantage of the government programs available to make my early retirement possible. If I had lived in your utopia of minimal government involvement in our business and personal affairs, had to fend for myself in a survival of the fittest world, I doubt I would have accomplished that .... Thanks

I guess it's not clear to me what your basis is for feeling this way.

Several of us have pointed out that most of what you are calling 'benefits' in your OP are just a re-shuffling of your own dollars.

I don't think it is very abstract. If the govt collects money from people (taxes), and then gives that money back to them (tax deductions, SS), no wealth was created - money was just re-shuffled. And in the process, some of that money is eaten up in admin costs. It is a zero sum game. So, in general, we would as a whole, have MORE money of the govt didn't re-shuffle so much of it.

I'l repeat here, so no one takes the above out of context: I'm OK with govt programs that fill a gap that private business/charities cannot. I'm OK with social programs for the truly needy, and things that help people get a step up and improve themselves - I think we ALL benefit from that, even if indirectly. I'm against the smoke-and-mirrors of taking $2 from me, and giving me back $1 and calling it a 'benefit' that helped me ER.

-ERD50

[audreyh1]

Great post bamsphd!!!!

Audrey

[ziggy29]

Quote:

Originally Posted by ERD50 I'll repeat here, so no one takes the above out of context: I'm OK with govt programs that fill a gap that private business/charities cannot. I'm OK with social programs for the truly needy, and things that help people get a step up and improve themselves - I think we ALL benefit from that, even if indirectly. I'm against the smoke-and-mirrors of taking $2 from me, and giving me back $1 and calling it a 'benefit' that helped me ER.

Well said, and that's really what I was trying to say before. I don't say it in a knee-jerk anti-government way, but overall I think the government is taking more from me than I am receiving in benefit. I'm not complaining about that, because there are good reasons for that in many cases (I don't need some of the assistance that the needy/deserving poor do, for example)...but I'm also not going to be grateful if they give me back a handful of Doritos after they previously took a full bag from me. They are just giving me back a small amount of what they took from me before.

And that's okay; I accept that's the way government works and that there's a price to pay for a social safety net -- but it's no reason for me to feel like they are doing me a favor.

[samclem]

The government doesn't create wealth, and in the strictest sense, there's no such thing as "government provided services" (health care, pensions, etc). All wealth creation comes from the labor and ideas of individuals (usually organized within corporations). Everything the government distributes was taken, under threat of force, from someone.

That's not to say that government isn't necessary. It provides the essential laws and protection of property that makes capitalism (and the wealth created by individuals within a capitalist system) possible. Government confiscates individual property in order to provide defense from foreign aggression and to further the nation's interests in the military, diplomatic, and economic spheres relative to other nations, which is also a requirement in the real world.

Domestically, it can perform certain functions (again, using money seized from individuals) that industry cannot efficiently perform (e.g. build transportation infrastructure). The propriety of this governmental role is far less clear cut. I think the government should do things that have a correspondingly large positive impact on the society as a whole, providing the small investment that enables much larger private efforts to succeed. Examples:
Roads: Without them, all physical commerce becomes impossible. Note that the government shouldn't be in the business of taking funds from people to buy other people trucks and cars, just building the roads to enable private individuals and companies to transport themselves and their wares.
Basic Education: Enough to insure an informed citizenry that can effectively make decisions in a democracy. That benefits everyone in excess of the funds spent. Libraries serve a similar beneficial function.
Establishment of common standards: This function enhances efficient commerce.
Social services: The most basic services, provided primarily to prevent social turmoil and unrest. The fact is, those who have failed to provide for themselves or cannot do so are a force for social instability--we know they often steal from others and will riot, which reduces the ability of productive people to produce. So, an argument can be made that government has a legitimate function of providing baseline services not out of charity or concern for those who are destitute (that is the goal of private charities) but only to preserve social order. This aid must be at a very basic level (e.g. public feeding centers, dormitory-style shelter) in order to not diminish the role of charities and to not disincentivize self-reliance.

Intergenerational wealth transfer should not be a function of government.

[samclem]

(More libertarian ranting)

To the degree that an individual believes government involvement "saved" him, it appears to be an admission that the individual was too ignorant, or indolent, or helpless to have made it on his own. The government takes and redistributes (wastefully) a huge chunk of personal wealth. None of us can know how much more prosperous we would be as individuals or as a society if that 12% of payroll hadn't been confiscated for Social Security, or if tax rates overall were in keeping with legitimate government roles. We can be sure that more jobs would have been available, that we'd have more money to save and invest, and that there would be more money available for charitable giving. Can anyone really say they've experienced a net benefit from government redistributions without knowing the opportunities they might have had if the funds hadn't been redistributed in the first place?

[Khan]

Quote:

Originally Posted by samclem (More libertarian ranting) To the degree that an individual believes government involvement "saved" him, it appears to be an admission that the individual was too ignorant, or indolent, or helpless to have made it on his own. The government takes and redistributes (wastefully) a huge chunk of personal wealth. None of us can know how much more prosperous we would be as individuals or as a society if that 12% of payroll hadn't been confiscated for Social Security, or if tax rates overall were in keeping with legitimate government roles. We can be sure that more jobs would have been available, that we'd have more money to save and invest, and that there would be more money available for charitable giving. Can anyone really say they've experienced a net benefit from government redistributions without knowing the opportunities they might have had if the funds hadn't been redistributed in the first place?

Wasn't that the state of bliss 100 years ago?

[RetireeRobert]

Quote:

Originally Posted by Danny Bam - ......... I've lived in the reality that we have had the last 50 odd years and I took advantage of the government programs available to make my early retirement possible..........

So, these "loopholes" in the tax code and government giveaways you "took advantage of", shouldn't our society be closing them? Is it really a desirable societal goal for people to be "retiring early" instead of working till normal retirement age (which SS says is 66-67)? Perhaps some kind of surcharge on early retirees is in order. This form of wealth at the expense of the poor working stiffs is a disparity of haves and have nots.

[Danny]

Quote:

Originally Posted by ERD50 I guess it's not clear to me what your basis is for feeling this way....Several of us have pointed out that most of what you are calling 'benefits' in your OP are just a re-shuffling of your own dollars. I don't think it is very abstract. If the govt collects money from people (taxes), and then gives that money back to them (tax deductions, SS), no wealth was created - money was just re-shuffled. And in the process, some of that money is eaten up in admin costs. It is a zero sum game. So, in general, we would as a whole, have MORE money of the govt didn't re-shuffle so much of it... I'm against the smoke-and-mirrors of taking $2 from me, and giving me back $1 and calling it a 'benefit' that helped me ER. -ERD50

There you go again with that 2 for 1(or something along those lines) business erd and ziggy and I guess you too sam? and et tu audrey?!

There is shuffling but how does that equate to the 2 for 1, smoke and mirrors, no wealth created premise. Sounds like you're caught up in an academic abstract like bam that ignores my very real experience.

Lets do the math:

Pension - me = 0 Company = 1

ESOP - me = 0 company profit sharing much > 0

401k me = 1 (I deferred tax here) company match=1 company profit sharing = 4

social security me = 1 company = 1

IRA = 401k "shuffled" here to grow tax deferred

72(t) early withdrawal w/o penalty from IRA proceeds are taxed

529 - money placed here for kids benefit - what is the problem with this...Is this "2 for1" or is it smoke and mirrors...

UTMA - taxed money placed here for kids benefit to be taxed at kids rate - by the way I don't recommend this, not good for financial aid , but it was what we had back in the day before 529s.

Cobra - me = all the cost - What is the problem with this one?


Please explain and get it through my thick head - How is the G taking 2 from me and giving back 1? Where is the smoke and mirrors? Why do you all think there was no wealth created "just shuffled"?

Are you saying that the company should have just given me the equivalent profit sharing, pension, 401k match and their share of the SS in my paycheck and let it be taxed at the time...then I should have taken the remainder and put into a taxable investment account and pay the tax as I went along? Do you think I would have done as well or better than I did?

Now ERD, ziggy, audrey and sam and whoever else agrees - did you or are you now participating in any of these or other government approved savings mechanisms/plans?

If you are participating in any or plan to - what attracts you to them?


Sam - interesting to read and well thought out - where is this working/has worked - how can you be sure that we would have more jobs, more money, more charity...need to see example of how we would be better off in a libertarian utopian scenario....I'm dealing with the working model that we have here in the U.S. ,which isn't utopia, but I think works pretty well....

[Danny]

Quote:

Originally Posted by RetireeRobert So, these "loopholes" in the tax code and government giveaways you "took advantage of", shouldn't our society be closing them? Is it really a desirable societal goal for people to be "retiring early" instead of working till normal retirement age (which SS says is 66-67)? Perhaps some kind of surcharge on early retirees is in order. This form of wealth at the expense of the poor working stiffs is a disparity of haves and have nots.

No
Yes
No
No

[samclem]

Danny,
I can't say I understand your math/ < > example.

I agree with you that "things are working pretty well." "Pure" laissez-fare capitalism doesn't work in the real world, and the socialism -around-the-margins we have in the US today is not an entirely unsatisfactory compromise. But, we should realize that the more collectivism we have, the less wealth we'll have overall. The pie will be smaller, and redividing into ever-more-equal slices doesn't work well.

Regarding real-world examples: Of the industrialized, developed nations, I think the US is less encumbered by government intervention than most. So, it would be tough to show how things could be still better. But, we've seen many examples of how centralized governmental controls and direction has reduced national prosperity and decreased individual freedom.

[RetireeRobert]

Quote:

Originally Posted by Danny No Yes No No

I see. So as long as tax code loopholes and government giveaways benefit you, they are ok. It is if that *other* guy gets them they need closing.

"Don't tax me, don't tax thee. Tax the fellow behind the tree."

[dumpster56]

How is it that I took advantage of local governments when I became a teacher and HAD TO JOIN the teacher pension and annuity system? That I had to put 5% of my salary for 30 years into the system no way to opt out and do it myself. I have read my pension I have earned my pension I am getting my pension checks every month since I retired in january. There is a surcharge on my early retirement pension. I lost 13% of its value. I get 87% of what it would be if I left at 55YO. The state is thinking of changing the formula back to 60YO, That was one of my reasons to leave when I did.

[RetireeRobert]

Quote:

Originally Posted by newguy888 There is a surcharge on my early retirement pension. I lost 13% of its value. I get 87% of what it would be if I left at 55YO. The state is thinking of changing the formula back to 60YO, That was one of my reasons to leave when I did.

Not really a "surcharge". You get less per month at say age 52, then at age 55, and less at age 55, then at age 60, because of actuarial tables.

At age 52 you actuarially have perhaps 25 years left to live and receive your pension. At age 55 you actuarially have fewer years to live, perhaps 22. So, the monthly payouts are less at younger ages because the pension pot has to last you more years.

In other words, over your actuarially projected lifespan, you will receive the SAME total benefits whether you retire at age 52, or 55 or 60 or whatever on any given account balance.

[dumpster56]

Quote:

Originally Posted by RetireeRobert Not really a "surcharge". You get less per month at say age 52, then at age 55, and less at age 55, then at age 60, because of actuarial tables. At age 52 you actuarially have perhaps 25 years left to live and receive your pension. At age 55 you actuarially have fewer years to live, perhaps 22. So, the monthly payouts are less at younger ages because the pension pot has to last you more years. In other words, over your actuarially projected lifespan, you will receive the SAME total benefits whether you retire at age 52, or 55 or 60 or whatever on any given account balance.

True on your point there. But I still had issues with the way the system was set up when I started teaching 30 years ago. I had to join. There was no option. That said I did my part the government should continue to do what was promised and what I signed. If they can't fine change the rules to the new people and make the options clear.

[Danny]

Quote:

Originally Posted by RetireeRobert I see. So as long as tax code loopholes and government giveaways benefit you, they are ok. It is if that *other* guy gets them they need closing. "Don't tax me, don't tax thee. Tax the fellow behind the tree."

Robert - I know you to be a smart and clever fellow - and I know you knew that I knew that you knew my answer before you asked the question....you know that there are certain "other" guys that need their loops holed out and slammed closed...and I know you know who they are!

[ERD50]

Quote:

401k me = 1 (I deferred tax here) company match=1 company profit sharing = 4

Danny, I am not following your numeric examples at all. What does the 4, 1 and 1 represent? Or are you just being facetious over our 2:1 simplistic demonstration?

Quote:

There is shuffling but how does that equate to the 2 for 1, smoke and mirrors, no wealth created premise. Sounds like you're caught up in an academic abstract like bam that ignores my very real experience.

I don't know how to say it any plainer than it has already been said. It is not abstract at all. Let's take ONE example:

SS - Look at the entire pie here, the whole thing, input to output. How can the govt take money from workers, and then give any more back to them than they put in?

That money cannot just come out of thin air. And, with all the complex regulations, collections, and overhead that eats into it, there is no way that they can pay out $1 for every $1 collected. That is where we throw out the $2 for $1 number. Maybe it is some other number, but whatever, the total output will be less than the total input.

What is your 'very real experience'? If you end up collecting more in SS than you put in, that's fine for you, but all-in-all it is a zero-sum game, so if you got more, someone else got less. Is that a good thing? Earlier, it seemed that you did not like the idea of someone doing better than another? They should have their wages capped, or taxed away? So should we limit your SS?

Now, all of the above is presented as if SS had it's own 'bank' with deposits and withdrawals. As I understand, that is not the case, but it it secondary to making the point. Money cannot just come out of thin air.

I am interested in your reply, but I'm getting the impression you are either pulling our legs, or that you just really do not grasp basic economic principles. This discussion is starting to remind me of some put forth by non-technical people who do not understand the laws of conservation of energy. These people sometimes will insist that if we just put a generator on the front wheels of a car, we could power a motor to run the rear wheels and never need to recharge the car. These people believe it, and nothing you say can convince them other wise, they are sure it is all a conspiracy by 'big oil'.

So, if you are serious, explain how SS can pay out more in benefits than people investing the money themselves.

-ERD50

[Danny]

Quote:

Originally Posted by samclem Danny, I can't say I understand your math/ < > example. I agree with you that "things are working pretty well." "Pure" laissez-fare capitalism doesn't work in the real world, and the socialism -around-the-margins we have in the US today is not an entirely unsatisfactory compromise. But, we should realize that the more collectivism we have, the less wealth we'll have overall. The pie will be smaller, and redividing into ever-more-equal slices doesn't work well. Regarding real-world examples: Of the industrialized, developed nations, I think the US is less encumbered by government intervention than most. So, it would be tough to show how things could be still better. But, we've seen many examples of how centralized governmental controls and direction has reduced national prosperity and decreased individual freedom.

Sam - sorry I wasn't more clear! I forgot to add all those numbers up and then subtract a couple for the G-men.... agree that it is important to find a balance in government and our own affairs and governmental actions certainly have an affect on the economy and our personal freedoms..it's important to keep the government in check....