My Early Retirement and The Government's Role

[Danny]

I know from exchanges with members of the forum that there is amongst us a contingent - I don't how large - that has little use for government - that want very little of it involved in their business and personal affairs.

I want to say that our government through foresight and some progressive legislation has made it possible for me to retire early. I'm sure I could not have ER'd without them.

Now I know government can be maddening with its bureaucracy and inefficiencies and basically I want to avoid interacting with it as much as possible, but there are a lot of benefits from having our government.

I'm not going to go into all the benefits that create a foundation for the good life I enjoy...just the direct acts of our congress and the involved government agencies that made my early retirement possible. I think I remembered them all.

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)

2. Social security - not yet but am confident we will get it.

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.

7. Cobra - took this for 18 months after I took ER.

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

9. 529 plan - same as above.

 

[Sandy]

There is a lot of good that state and federal goverment provide, and you have clearly elucidated a number of good points that benefit many of us.

It is easy to forget these good policies when news/general information tends to focus on the ineffiencies and silly policies that do occur. But like everything else (celebrity "news", traffic reports, safety and crime), a lot of what we hear about goverment is distorted, because policies that work smoothly and efficiently are not news and don't promote comment.

Thanks.

 

[ERD50]

[-]DanTein,[/-], Danny (just saw the name change*) - couldn't most of those exists w/o government? Most of them are based upon workarounds of the cumbersome tax system we have. Some of those strike me as thanking the firefighter when it turns out he was the arsonist.

Pension Benefit Guaranty Corporation - Maybe I'm wrong on this, but didn't companies really start pensions because of the tax benefits? If they were not taxed in the first place, this wouldn't be an issue. If the same money was placed in a private retirement account, we likely would be better off, no?

Social security - again, wouldn't you have been better off if you could have just invested the money that you and your employer put into this?

ESOP - again, a tax mumble-jumble made this possible. It's just shifting money around, not creating any wealth.
.
401K - I think it is prudent for the govt to encourage saving, but again, this is just a big tax mumble-jumble shell game.

IRA - ditto 401K

IRS rule 72(t) - fireman/arsonist again. We are going to save you from the taxes we placed on you - whooppee!

Cobra - took this for 18 months after I took ER. OK - Probably a good regulation. The health care system is messed up, but I think this is at least one decent step at making the best of a bad situation.

UTMA- Uniform Gift To Minors Act helped with kids college. Right, and then when you go to apply for another wonderful govt benefit, financial aid, you may find out that the money you put in this account disqualifies you for aid. Are you sure this 'helped'? More tax mumble-jumble.

529 plan - same as above - yes, same as above.

I'm all for the govt doing things that they can do better than business or individuals can. Beyond that, what's the point? And I don't consider a 'shell game' of benefits (take something from me so you can tell me you are 'giving' me something) a good thing.

-ERD50


* what's with changing names on this forum? I've never seen that allowed on any other forum. When someone uses the search function, they sometimes get posts that reference the old name, but it is the current name that gets listed. Makes following some threads difficult.

 

[Martha]

ERD, we have a history of allowing name changes.

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 am willing to admit that I would not be where I am today without public assistance.

 

[ziggy29]

I think it's easy to sound like a blanket anti-government type, and I guess it is, but some of this sounds like being thankful the government gives you a "free" dollar when they took two dollars from you to begin with.

For sure, some government programs and such are beneficial, but much of what you mentioned is little more than ways to let you keep a little more of what they took from you, not something they give you out of thin air.

When it comes to tax breaks, it's sort of like a gas station raising the price of gas by 50 cents, and then being thankful that prices fall by a quarter. They have succeeded in charging an extra quarter in the end and consumers are happy about it.

 

[Danny]

ERD, we have a history of allowing name changes.

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 am willing to admit that I would not be where I am today without public assistance.

Thanks Martha for the reminder of those great programs and sharing with us your experience with them.

I forget that we benefited from Minnesota state grants, work-study and Minnesota's SELF loans.

Also have a brother-in-law on SSI
.

...You look good in leather.

 

[ERD50]

Yes, a lot of the 'safety net' items provided by govt are a good thing. Some would argue that private charities would pick up the slack if the govt didn't - I don't know if that would be the case or not.

But most of the items in Danny's OP were not safety nets, they were, as Ziggy said, giving you $1 after taking $2 (oversimplification - but you get the point).

leather - agreed!

-ERD50

 

[Danny]

Yes, a lot of the 'safety net' items provided by govt are a good thing. Some would argue that private charities would pick up the slack if the govt didn't - I don't know if that would be the case or not.

But most of the items in Danny's OP were not safety nets, they were, as Ziggy said, giving you $1 after taking $2 (oversimplification - but you get the point).

leather - agreed!

-ERD50

....just had a trip down memory lane - used to wear English Leather - a commercial had this sultry sweetie reclining - saying "all my men wear English Leather or they wear nothing at all.."

I don't follow what you and ziggy mean by $2 in for $1 out concerning the programs I mentioned....of the ones mentioned where is that true...and how so.

 

[W2R]

ERD, we have a history of allowing name changes.

Good!! Glad to hear it. In about 729 days, I may need a name change myself.

 

[ats5g]

[-]DanTein,[/-], Danny (just saw the name change*) - couldn't most of those exists w/o government? Most of them are based upon workarounds of the cumbersome tax system we have. Some of those strike me as thanking the firefighter when it turns out he was the arsonist.

Pension Benefit Guaranty Corporation - Maybe I'm wrong on this, but didn't companies really start pensions because of the tax benefits? If they were not taxed in the first place, this wouldn't be an issue. If the same money was placed in a private retirement account, we likely would be better off, no?

Social security - again, wouldn't you have been better off if you could have just invested the money that you and your employer put into this?

Whether or not people would be better off investing the money in a defined contribution plan vs a defined benefit setup is certainly open to debate. For example, Nebraska did a study a few years ago showing that workers in the DB plan did much better than those in the DC plan [Nebraska sees red over its 401(k) plan]. See also the footnotes to this Calpers research brief.

I see a lot of evidence/studies showing what horrible investors people are, and how bad they do investing their money in defined contribution plans. I'm continually amazed that college professors are able to retire comfortably with only DC plans. Of course, they really only had two low cost choices [TIAA + CREF stock] until the 1990's, and most were forced to annuitize the money upon retirement.

- Alec

 

[ziggy29]

I don't follow what you and ziggy mean by $2 in for $1 out concerning the programs I mentioned....of the ones mentioned where is that true...and how so.

What I mean is that for everyone who is a net *consumer* of government services and benefits, there are others who pay in a lot more than they get out of it. I don't see why someone should feel grateful for getting $5000 worth of services from government when they are paying $10000 in taxes.

Take the 401(k) plan, for example. Really all they are doing is letting us keep a little more of our own money. They aren't "giving" us anything we wouldn't have already had if not for taxes.

And then there's Social Security, which is likely to be a losing "investment" for anyone under the age of about 40 to 50. It's easy to be "thankful" for the monthly check until you think about what you probably could have done if you could have kept all the contributions you and your employer made, put 80% of it into investments and 20% into disability and term life insurance for disability/survivor benefits had you not been required to pay into SS.

It's not like the benefits they are giving us are free. That's my only point, really, that there's no free lunch. I'm not trying to sound Randian here because I think there is some benefit to the programs you mention but I just want to counter the notion that it's "goodness" coming out of thin air.

Some of the stuff we are "grateful" for is just some of the crumbs they give back to us after they have taken much of the entire loaf from us.

 

[ziggy29]

Whether or not people would be better off investing the money in a defined contribution plan vs a defined benefit setup is certainly open to debate. For example, Nebraska did a study a few years ago showing that workers in the DB plan did much better than those in the DC plan [Nebraska sees red over its 401(k) plan]. See also the footnotes to this Calpers research brief.

Sure, but that largely depends on future demographics breaking the right way, AND that depends on individuals making bad choices with their 401(k) and other plans. Defined benefit plans (and Social Security, for that matter) would look great if the payee to recipient ratio was growing as it did when the Boomers were entering the work force. It doesn't work so well when they are *leaving* the work force at a pace that causes that ratio to drop sharply.

The bottom line is that most people who tend to fear uncertainty prefer defined-benefit plans (and Social Security) over taking control of their own future, and that's understandable. The problem is, demographic shifts make this more and more expensive to maintain for less and less future benefit.

I see a lot of evidence/studies showing what horrible investors people are, and how bad they do investing their money in defined contribution plans.

This is precisely why many people believe that any "personal accounts" which may *someday* be a part of SS reform (current Democratic opposition withstanding) need to include both mandatory participation in a defined contribution plan AND a specific, required age-appropriate lifecycle-type fund. It's not appropriate for most 25-year-olds to be so afraid of risk that they stick their 401(k) in money markets for 35 years, and it's not appropriate for a lot of 50-year-olds to be all in aggressive growth and emerging markets.

 

[Martha]

Yes, a lot of the 'safety net' items provided by govt are a good thing. Some would argue that private charities would pick up the slack if the govt didn't - I don't know if that would be the case or not.

But most of the items in Danny's OP were not safety nets, they were, as Ziggy said, giving you $1 after taking $2 (oversimplification - but you get the point).

leather - agreed!

-ERD50

Careful, I'll bring out the whip.

I doubt charities will be able to care care of disabled people and their medical bills. But, that isn't really the discussion.

I personally benefited from non safety net programs for education like loans and grants and work study. Not a safety net, but an equalizer. It is much harder today for your average poor kid to do college, mostly because the costs have gone up so high. Also, it used to be that you could go to "tech school" for free right after highschool and learn a trade. Now it costs a bunch of money.

 

[ziggy29]

I personally benefited from non safety net programs for education like loans and grants and work study. Not a safety net, but an equalizer. It is much harder today for your average poor kid to do college, mostly because the costs have gone up so high. Also, it used to be that you could go to "tech school" for free right after highschool and learn a trade. Now it costs a bunch of money.

All of this is related to the current socioeconomic expectation that you MUST go to college or your life will be a waste and you will be doomed.

Our culture turns its nose up at people without a college education -- even to people in the skilled trades, many of whom make a lot more money than some occupations requiring a college degree and who have jobs that are much more offshoring-proof than white collar jobs.

The net result is that demand for a college education is going up way faster than the supply of institutions and instructors. And that causes the price to spike.

Frankly, we'd be a lot better off if we encouraged people who don't have the aptitude to go to college to pursue a career in the trades or take other vocational training. Maybe if we did that, college costs wouldn't rise so sharply and we could better afford to give grants and other assistance to needier students who show great promise, desire and aptitude for college success.

But as long as we act like college is the only option for our kids, expect double-digit inflation to continue.

 

[RetireeRobert]

Good!! Glad to hear it. In about 729 days, I may need a name change myself.

You must be having fun crossing off a day, each workday's end. And three days on weekends. And Veteran's day and Thanksgiving are coming up so you get to cross of more.

I remember well the fun I had with my countdown list.

 

[RetireeRobert]

I know from exchanges with members of the forum that there is amongst us a contingent - I don't how large - that has little use for government - that want very little of it involved in their business and personal affairs.

I want to say that our government through foresight and some progressive legislation has made it possible for me to retire early. I'm sure I could not have ER'd without them.

Now I know government can be maddening with its bureaucracy and inefficiencies and basically I want to avoid interacting with it as much as possible, but there are a lot of benefits from having our government.

I'm not going to go into all the benefits that create a foundation for the good life I enjoy...just the direct acts of our congress and the involved government agencies that made my early retirement possible. I think I remembered them all.

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)

2. Social security - not yet but am confident we will get it.

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.

7. Cobra - took this for 18 months after I took ER.

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

9. 529 plan - same as above.

Given that the income tax system has been a fact since 1913 or so, then it is good that the people's elected representatives voted in all these "lessenings" of the income tax bite on people. Good that they saw fit to encourage (not so severely punish) peoples "saving for retirement" and "saving for education" behaviors.

Somewhere along the line, the people's elected representatives got the idea these particular "lessenings" of the income tax bite might be politically popular.

And it is good you have taken advantage of these "loopholes".

 

[Danny]

What I mean is that for everyone who is a net *consumer* of government services and benefits, there are others who pay in a lot more than they get out of it. I don't see why someone should feel grateful for getting $5000 worth of services from government when they are paying $10000 in taxes.

Take the 401(k) plan, for example. Really all they are doing is letting us keep a little more of our own money. They aren't "giving" us anything we wouldn't have already had if not for taxes.

And then there's Social Security, which is likely to be a losing "investment" for anyone under the age of about 40 to 50. It's easy to be "thankful" for the monthly check until you think about what you probably could have done if you could have kept all the contributions you and your employer made, put 80% of it into investments and 20% into disability and term life insurance for disability/survivor benefits had you not been required to pay into SS.

It's not like the benefits they are giving us are free. That's my only point, really, that there's no free lunch. I'm not trying to sound Randian here because I think there is some benefit to the programs you mention but I just want to counter the notion that it's "goodness" coming out of thin air.

Some of the stuff we are "grateful" for is just some of the crumbs they give back to us after they have taken much of the entire loaf from us.

ziggy - still don't understand the 2 for 1 and how it applies..interesting to read your view though

 

[Danny]

CBK - Christopher & Banks Corporation - Google Finance

Given that the income tax system has been a fact since 1913 or so, then it is good that the people's elected representatives voted in all these "lessenings" of the income tax bite on people. Good that they saw fit to encourage (not so severely punish) peoples "saving for retirement" and "saving for education" behaviors.

Somewhere along the line, the people's elected representatives got the idea these particular "lessenings" of the income tax bite might be politically popular.

And it is good you have taken advantage of these "loopholes".

yes, I think it's wonderful that a guy from the bottom rungs could rise up with the help of these mechanisms...you should really take a look at CBK Robert

 

[ziggy29]

ziggy - still don't understand the 2 for 1 and how it applies..interesting to read your view though

You're reading it too literally. The "2 for 1" isn't exact and it's not even important to the point -- the point simply is that we often feel like the government is giving us a dollar even if it was a dollar we originally gave them (in addition to a lot more we gave them).

IMO, this is a similar mentality to people who feel like they stick it to the government when they get a $5,000 tax refund. Some of them act like they are getting a free gift from Uncle Sam when in reality all they are doing is getting back a fraction of what they gave to the government in the prior year -- not to mention giving their Uncle an interest-free loan.

 

[RetireeRobert]

CBK - Christopher & Banks Corporation - Google Finance
...you should really take a look at CBK Robert

Thanks for the link. I will check it out.

 

[bamsphd]

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.

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.

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.

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.

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]

... 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