My Early Retirement and The Government's Role

[ziggy29]

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]

(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]

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]

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]

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]

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]

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]

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]

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]

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?

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]

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....

 

[Danny]

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?
-ERD50

ERD - Supposed to represent in a simplistic way where the relative amount of money came from. 4 = company profit sharing and 1 = company match and 1 = is my money all being dumped into my 401k plan every year. So lets say I got $4,000 in profit sharing and I put in $1,000 and the company matched that with another $1,000.

the same for the other categories the number represents my or the company's contribution to that category. so for the pension I put 0 in and the company contributed an amount represented by a symbolic 1 (I'm not going to say what the real amount is) Hope that is clearer.

 

[RetireeRobert]

.......there are certain "other" guys that need their loops holed out and slammed closed...

Then your views do IMHO contain a certain hypocrisy. You must have justified them somehow in your own mind.

 

[RetireeRobert]

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.

So, your pension plan changed rules on you "after the fact"? Don't get me started on what Oregon Public Employees Retirement System did---change my benefit 3 years AFTER I retired. There are some 16 or 17 lawsuits in various stages now on what Oregon's Legislature did to PERS.

Maybe your system was using Oregon as a precedent.

 

[Danny]

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

Like I said, I'm not taking this as an academic exercise ERD of how everyone does in the SS system and I'm not pulling anyones leg.. I'm looking at it from my perspective only.
The SS has my amount being taken out but also the COMPANY puts a match in. So I'm getting 2 for my 1 and it's possible if I keep eating my vegetables I will get it or make out even better GW but maybe not.

What about my other examples

 

[Danny]

Then your views do IMHO contain a certain hypocrisy. You must have justified them somehow in your own mind.

I'm not going to take your bait and start making personal attacks against you Robert.

 

[RetireeRobert]

I'm not going to take your bait and start making personal attacks against you Robert.

If you suggest my comments were a personal attack on you, I reject that. If you took offense at my comments, I am sorry.

You personally seem like a decent fellow. It is your mix of ideas/positions you have publically stated which lead me to my conclusions.

 

[dumpster56]

So, your pension plan changed rules on you "after the fact"? Don't get me started on what Oregon Public Employees Retirement System did---change my benefit 3 years AFTER I retired. There are some 16 or 17 lawsuits in various stages now on what Oregon's Legislature did to PERS.

Maybe your system was using Oregon as a precedent.

No they have not in my case. I left BEFORE they might change the rules. State law in NJ will not allow them to change rules to already retired . The changes which will be made will be to new hires to the system and people who are still working when or if rules change. It just made me nuts that when you decide to work as a teacher I was not given the ability or choice to not participate and make my own choices. Sure I saved and did other investments BUT the pension was my main way to pack it in early. Then again if I did not work in such an awful environment and live so far financially, ie buying the afforable house 55 miles away and having that 120 round trip commute I might still be working for the public schools in a better district in NJ and still living there. The problem was not one district would hire me with 30 years experience. Too much money to pay me on the salary scales. Local towns pay teachers in NJ. So I sold the big house BEFORE the market has gone soft and cashed out and I must say I am happier than ever. My 3 day a week 4 hour days teaching gig in an elementary school teaching Physical Education to K thru 3 rd grade kids is well Fantastic. Playing games and TEACHING fitness skills to children who WANT to learn is just why I went into teaching in the first place! Teaching 12th grade high school students in a run down inner east coast american city for the past 20+ years over crowded classes 45 to a class, the indiference the fights, the drugs well no wonder I was well burned out ! Glad I had the pension and I was willing to take a reduced benefit at 50YO!

 

[ERD50]

Like I said, I'm not taking this as an academic exercise ERD of how everyone does in the SS system and I'm not pulling anyones leg.. I'm looking at it from my perspective only.

The SS has my amount being taken out but also the COMPANY puts a match in. So I'm getting 2 for my 1 ....

You can't take a microscopic view, claim there is a benefit to a specific individual within that group, and therefore justify the whole system.

I think this is where RetireeRobert's hypocrisy comment comes from - you seem to be saying 'I got mine, the heck with everyone else', but you don't want to hear that when it is someone else (like a successful, motivated, educated, risk taking entrepreneur) that is 'getting' theirs.

That company match money (again...) didn't just come out of thin air. If the company didn't need to give that match money to the gov't to redistribute it, it could have gone to other uses. Part of it to your salary, part of it to investments in the business, part of it in savings passed on to the consumer in lower cost of goods... any number of things that could have created wealth.

At this point, I kind of expect you to say that if the govt didn't take that money from the company, that the company would never have passed it on to any one else, that you just do not believe in free markets. If that is your platform, then you are like the people that want the generator on the front wheels of the car. You are in denial.

-ERD50

 

[samclem]

The SS has my amount being taken out but also the COMPANY puts a match in. So I'm getting 2 for my 1 and it's possible if I keep eating my vegetables I will get it or make out even better GW but maybe not.

More bad news: In the most fundamental sense, your employer doesn't pay anything to Social Security. It is simply a marketing gimmick that helps hide the true cost of the program to workers.
Here's how it works: An employer needs to hire an employee to perform a certain job. He hires that person in full consideration of the entire amount the employee will cost his business: Pay, medical insurance, Social Security taxes, Medicare taxes, retirement plan funding, etc. If the employer can still make money after all these costs, and if that spending provides him the best marginal return on his money (that is, he couldn't make more profit by hiring an employee to do a different job or by investing in equipment, etc) then he hires the employee.
The employer pays as little as possible to get the employee he needs, but he is in competition with other businesses who also need employees, so he can't pay too little. The prospective employee adds up all the pay and benefits from each prospective employer and then decides which employer is best for him.

The SS tax "paid by the employer" is part of the employer's calculated cost for the employee. If employers did not have to pay that tax, then it would likely go in large part to the employee (since the money available for employee pay at all businesses would increase by 6%, there would be heavy upward pressure on employee pay. Any employer that decided to pocket this money would soon find his employees hired away by other businesses).

So, what you should ask yourself about SS is: How much bigger would my nest egg have been if the government had let me have that 12% of my pay each month (6% from me directly and 6% from me through my employer) and let me invest it? It's easy to do the math using your own pay records provided by SS and the historic return for a portfolio of moderate risk. Plus, the money would be yours to do with as you please: Take a 4% annual withdrawal, buy an annuity, travel the world, pass it along to your kids, spread it among worthy charities. You wouldn't be dependent on Social Security keeping any promises to you. I think you'll find that you'd have been far ahead without the "helpful" intervention of a paternalistic government.

 

[Danny]

ERD, ziggy, sam and Robert and whoever else agrees - did you or are you now participating in a 401K or IRA or ESOP plan? Has it been beneficial to you?

Will you accept the SS or pension if you have one when you are eligible?

Would you use the 72(t) to make ER possible?

Would you use the 529 if you have kids going to college?

If you are participating in any of these what attracts you to them?"

Would you reject using them on principle because it would be hypocritical? and not fair to others?