Government Pensions and other Benefits

Municipal workers in major cities (e.g. New York, Boston, etc), whether they be police, fire, sanitation, or transit workers have pension programs that are unmatched in private industry. Those of us who work in private industry actually pay for those pensions. Workers, including management workers at every level, after 20 years, can retire with full pension benefits, usually at 50% pay for the rest of their lives. Those pensions, unlike private industry which normally starts full pensions at age 65, are paid immediately no matter what the age of a retiree. A person, starting their job at age 18, can retire at age 38 and collect their pension. Some double dip and take another city job for 20 years and collect a second pension. Their pensions, unlike private industry, are indexed to inflation and therefore go up each year by the rate of inflation. The pension is based on the last year’s pay including overtime. Both management and non-management get paid for overtime. Private industry commonly uses a five year average which lowers the annual income on which a pension is based. It is common practice for municipal workers to be given unlimited overtime work the last year, often doubling their normal annual income. Therefore, their 50% pension benefit actually becomes their normal annual salary. This is unheard of in private industry (because any company who tries that will soon become bankrupt). Management workers including the ‘top guy’ also get paid overtime (again unheard of in private industry) and also often pad their retirements through working as much overtime as they can the final year. Apparently, there are no controls on overtime worked and paid in big city municipals (I do not know if state workers have similar benefits) as there would be in private industry as this would be a serious budget matter for a corporation. Also, workers can accumulate unused sick days throughout their working life (again, nearly unheard of as a private industry practice). Some accumulate more that a year’s worth of sick days to collect a huge check at retirement ($50,000 to $100,000 is not that unusual and some checks have exceeded $200,000).

How are benefits like this possible? Municipal unions negotiate with city governments. In other words, the politicians who run city government and therefore need the votes of the city union members and their families negotiate these contracts. Talk about a conflict of interest! It should be illegal. Not only do you get these outrageous pensions, but often wages far exceed the going market price (e.g. compare a municipal sanitation worker’s wages and benefits to private industry). City unions have the right to strike or if they don’t (e.g. fire and police) use tactics as massive sick ins to achieve the impact of a strike). They have extensive and unacceptable impacts on citizens by the nature of their work by using the strike weapon or call in sick tactic. In other words, bargaining power is not evenly matched between municipal workers and its citizens.

Now, before going forward, I don’t want any of the above to lead anyone to ‘demonize’ municipal workers. The vast majority are very good people trying to support themselves and their families as best they can. You cannot blame them for trying to get as good a deal as possible for themselves and their families. Cost of living is higher in metropolitan areas and their normal wages are not going to make them rich. Much of the blame needs to go to ourselves and our politicians for not having the backbone to match municipal benefits to normal private industry standards.

The current system of pensions and benefits are unfunded. The future liabilities to pay these benefits far exceeds the anticipated tax revenues needed to pay them out. This brings up a dual concern for both workers and citizens. Citizens (only 20% of whom work for companies that pay pensions) will have to ante up such huge increases in taxes that their standard of living will significantly diminish (e.g. give up your house and move to an apartment; or give up that apartment and move out of state or to a smaller house or apartment; spend less on other necessities or ‘wants). There’s also a possibility that cities may have to mimic the airlines who have gone bankrupt and defaulted on their pensions with court approval). Nobody wins in this scenario. Not the citizen; not the municipal worker.

Solutions are daunting. Hiring through a bid process private industry companies for transportation and sanitation is one place to start. If possible, expand this to other city jobs, especially administrative. Also, it is obvious that municipal pensions and benefits need to reflect the policies of private industry. However, what city union will voluntarily give up the benefits its members enjoy. I would venture to predict none. I think the bankruptcy option eventually will become the solution. I think we need to hasten that day by imposing federal laws forcing all levels of government to pay for future pensions now through cash investments into independently monitored funds at sufficient levels to pay for future benefits. Currently, these pensions are way under funded by trillions of dollars combined. they amount to a ticking finacial time bomb that will not only result in the default of these pensions someday, but the total financial demise of America. By enacting laws forcing public pensions to be funded just as we do for corporate private pensions, the true costs of these public pensions will be known today along with our ability to afford or not afford them. We cannot depend on the inherent conflicts of interest between politicians and union members (who are also city voters) at the bargaining table to fix this problem.

Health Care

Just as competition drives costs down in other areas, it should do the same in health care. For insurance, state and federal government too often interfere with private industry by specifying requirements (e.g. must cover pregnancy, must cover office visits, etc.). Though well meaning, it forces people to buy more insurance coverage than they need. That drives prices up. Let the marketplace determine what medical coverage to offer. There will be more choices and better prices.

More difficult are hospital and surgery costs, especially for emergency care. When you are taken by ambulance to a hospital because you are critically ill, you are brought to the hospital the ambulance crew thinks is best and close for your condition. It is impractical for you to ‘shop around’ for best prices on the hospital cost, surgical costs if needed, even the ambulance ride cost. You are at the mercy of all those providers and locally, they pretty much have a monopoly (never a good thing) on your health situation. To some degree, your medical insurance if you have it can help limit your liability and introduce some competition on costs. Most insurance companies have a policy of paying ‘fair and reasonable’ rates for your medical services. If they have a contract that the hospital and surgeon can’t charge more than those rates, you have some protection. Otherwise, you must make up the difference and it may be much more than the 20% of the bill you thought you had to cover.

Woe to the person with no insurance. I only learned this first hand recently when my mother was taken to a hospital and diagnosed with brain cancer. Hospital bills averaged 25-$40,000 per week ($150,000 total for four weeks). That didn’t include the surgeons and assistant surgeon’s fee. $45,000 for a 90 minute operation just for the main surgeon (who does several in a single day; think about this, he could make a million dollars a month or more if he actually collected that amount).

As a Medicare and Blue Cross patient, the normal and reasonable amounts they combined covered amounted to a little over 10% of the total bills. I sweated bullets because the hospital had required me to guarantee her bills would be paid as a condition of admission since she was in no condition to sign for herself. What I found out much later is that Medicare contracts doctors and hospitals to accept their fair and normal rates and not charge the patients any more than that. They forgave almost 90% of the total bill.

Imagine the poor families without that kind of contracted limit (e.g. no insurance, or weak insurance)! How can the same medical service be legally allowed to vary by a factor of 10 times on price?! The price of a medical service should be the same for all patients regardless of insurance type or no insurance. It ought to be the law. I believe it is the law for most any other product or service (for example, two woman buy the same dress at the same store on the same day, pay the same price). Then maybe when normal and ordinary expenses were negotiated between the medical community, government, and private industry, real competitive pricing might occur. I’m not advocating fixed pricing because that just creates shortages in medical services as is common in Europe. There needs to be real price negotiation taking place leading to the same price charged for the same service to all patients.

Any discussion about medical costs needs to address the issue of legal costs. Doctors pay huge liability insurance expenses because the alternative is financial ruin. Doctors in high risks fields such as pregnancy and delivery pay so much insurance that many are dropping out, unable to pay the premiums. Those costs, necessarily are passed to us. Yes, we need to weed out and stop incompetent doctors from practicing medicine. Self-policing by doctors has not worked well and needs to be addressed. However, multi-million dollar awards also do great harm to all of us as those expenses are passed down to us plus ‘defensive’ medicine practices are increased, not for our health benefit, but for legal defense reasons, further increasing medical costs. We have to start thinking of doctors as infallible and able to figure out every subtle or complex medical issue perfectly. Nobody is or can be that good. We need to limit legal suits plus also introduce penalties for frivolous suits that should never have been filed to bring balance and reasonability back into play for this issue.

Much of the health care discussion revolves around socialized medicine as practiced in Europe and Canada. Unfortunately, they are no panacea for our problems. They amount to price controls which due to the enforced low cost results in over usage – that is high demand for medical services because the user has no financial incentive to self regulate his/her trips to the doctor or hospital for every minor ailment. What’s the problem with that? The problem is the supply side of medical services. Less financial incentive to practice medicine leads to less doctors and nurses and therefore shortages in their ranks so that there are not enough of them to render all the services requested. Consequently, patients can wait for months for needed operations that are not immediately life threatening, often in pain. Even prescription drugs can be in short supply as drug companies cannot recoup their research costs due to fixed governmental pricing. If we follow suit and fix prescription prices, there would likely not be enough worldwide profit for drug companies to continue to develop, test, and introduce new drugs (average cost about a billion dollars for each drug) to help all of us live longer and healthier. Finally, let’s not forget that medical services in Europe and Canada are not free. They pay incredibly high taxes as a result and so would we if we model ourselves after them. There is no free lunch here!

Another part of the health care discussion involves government taking over for the medical insurance industry. Government already interferes at both the federal and state levels through mandated insurance requirements preventing those with less insurance needs to buy more insurance than they need, raising costs. Also, government never ran anything more efficiently or cheaper than private industry. Private industry has the incentive of going out of business to run their business efficiently. Government has no such problem and therefore no incentive to run an effective, efficient operation. In fact, government employees are financially incented to run the biggest, costliest operations they can to qualify for higher job levels and pay.

The best action government could take would be to repeal all the mandated medical insurance requirements and stay out of it completely. If it proves politically unstoppable to keep government out of the medical insurance business, then it should concentrate only on the catastrophic end of the business. For example, if government was responsible for medical expenses above say $100,000, then that would become the limit of coverage for private insurance companies which should lead to a reduction of insurance rates for all of us. Again, this is not free. We collectively have to pay for the government’s insurance expenses through taxes. In any case, rather than have the government start with total medical coverage, let it start small and affordable and possibly work up to higher coverage incrementally in later years. That’s a whole lot smarter than creating huge, unfunded future liabilities such as the government has today with Medicare, Medicaid, and the senior drug prescription program. Currently, no one has a plan to fix/fund them and finding a viable solution my prove impossible and/or very financially painful for all of us

Cost Of War Or Price Of Freedom?

Publication: IBD; Date:2008 Apr 18; Section:Issues & Insights; Page Number: A1
PERSPECTIVE

Cost Of War Or Price Of Freedom?

LAWRENCE KUDLOW
Surprise, surprise. Having failed to puncture Gen. David Petraeus’ story about great improvements on the ground in Iraq, liberals are now saying the cost of the Iraq War has somehow undermined the economy — even caused the current slowdown. What complete nonsense. First point: The United States has spent roughly $750 billion for the five-year war. Sure, that’s a lot of money. But the total cost works out to 1% of the $63 trillion gross domestic product over that time period. It’s minuscule. But here’s the real question we ought to be asking: What is the cost of freedom? While the left refuses to acknowledge it, the U.S. homeland has not been attacked since Sept. 11. Right there is a big economic plus. Since President Bush went on the offensive and took the battle to Iraq, al-Qaida and other extremist terrorist groups have been utterly routed by U.S. forces. But in tying the jihadists down on their home turf, and keeping them from mounting another coordinated attack on the United States, our economy has benefited incalculably. Then again, the antiwar forces might want to recall John F. Kennedy’s inaugural address, in which he called on Americans to “let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to ensure the survival and the success of liberty.” Do these folks actually think 1% of GDP is too large a price, too heavy a burden? I sure hope not. The leader of the “Iraq is sinking the economy” school is Joseph Stiglitz, a former Nobel Prize winner who worked for President Clinton and now teaches at Columbia University. Even Stiglitz admitted to me in a recent interview that the United States can afford the Iraq War. His real agenda, however, is to cut Iraqi funds and defense spending in general in order to launch a Keynesian bigspending campaign here at home. Of course, the liberal government-spending appetite is insatiable during wartime or peacetime. And for nearly three decades voters have rejected it, opting instead for the low tax rates that spur economic growth while allowing them to keep their money. And by the way, despite the current slowdown, the U.S. economy has performed remarkably well during the five years of the Iraq War. Real GDP has increased by 16%, or 3% annually. The unemployment rate has hovered below a historically low 5% for quite some time. Nearly 10 million jobs have been created. Household net worth has increased by $20 trillion. Industrial production has expanded by 13.5%. Even home prices, despite the current correction, have increased by 20%. Lest we forget, anti-freedom, anti-capitalism jihadists were attempting to drive a dagger through our economy. That was the point of hitting the World Trade Center, wasn’t it? But they failed miserably to stop the rising tide of free-market capitalism throughout the world. Global GDP growth has averaged nearly 5% annually in the last five years. The capitalization of the world’s stock market has increased 159% — or $35 trillion. New emerging-market economies have seen their stock markets collectively rise by 223%. Incidentally, the Congressional Budget Office estimated that if troops in Iraq were reduced to 75,000 by 2013, war costs would amount to just over $1 trillion for the entire period — roughly one-half of 1% of $177 trillion in newly created GDP. Still a tiny amount. And how can anybody truly approximate the cost of permitting Saddam Hussein to remain in power? In 2006, several economists at the University of Chicago estimated that in certain scenarios, the containment of Saddam might have produced security costs that are similar to the actual expenses of the Iraq War. But what of the benefits of removing the totalitarian Iraqi dictator? How are we calculating those? It was Saddam who launched a 10-year war against Iran, invaded Kuwait, and gassed and killed hundreds of thousands of his own people. And it could well have been Saddam who blew up the entire Middle East had he been left in power. Where is the liberal price-out of the potential consequences of not going to war? And should the Iraqi surge continue to safeguard an American ally and promote the kind of 7% economic growth that is now occurring in Iraq, how does one estimate the economic benefits to that nation, the region, the United States and the rest of the world? Liberals like Stiglitz have blinders on when it comes to the strategic course of U.S. civilian and military operations in Iraq, Afghanistan and elsewhere. They’re only willing to evaluate the negatives, rather than think through the positives. This is called single-entry bookkeeping. It makes for bad economics and even worse national security.

Better Off From Free Trade? Absolutely!

Publication: IBD; Date:2008 Apr 17; Section:Issues & Insights; Page Number: A1
PERSPECTIVE

Better Off From Free Trade? Absolutely

WALTER E. WILLIAMS
Presidential candidates Hillary Clinton and Barack Obama, pandering to antitrade activists, suggest that should they become president, they will restrict trade agreements. Before you buy into their promised paradise, there are a few trade questions you might consider. Suppose you were choosing a country to live in. Which country would you prefer: a country that has the world champing at the bit to put its money into or one where the world is unwilling to invest? Let’s look at the numbers. The U.S. is the world’s largest recipient of foreign direct investment. In 2004, foreigners owned $5.5 trillion in U.S. assets and had $2.3 trillion in sales. They produced $515 billion of goods and services, accounting for 5.7% of total U.S. private output, and employed 5.1 million workers — or 4.7% of the U.S. work force — in 2004. In 2006 alone, foreign investors spent $184 billion investing in U.S. businesses and real estate, the highest amount foreign investors have spent since 2000. My question to Clinton, Obama and the anti-trade lobby is: Would Americans be better off if there were no foreign investment in our country? Between 1996 and 2006, about 15 million jobs were lost each year and 17 million created. That’s an annual net creation of 2 million jobs. Roughly 3% of the jobs lost were a result of foreign competition. Most were lost because of technology, domestic competition and changes in consumer tastes. Some of the gain in jobs is a result of “insourcing.” Foreign companies such as Nissan, Honda, Nokia and Novartis set up plants, hire American workers and pay wages higher than the national average. According to Dartmouth College professor Matthew Slaughter, “insourced” jobs pay 32% higher than the U.S. average. So here’s my question to anti-traders: If outsourcing is harmful to the U.S., it must also be harmful to European countries and Japan. Would you advise them to take their jobs back home? Wal-Mart has become the whipping boy for political demagogues, unions and antitraders. I suggest that they have the wrong target. The correct target is revealed by answering the question: “Why does Wal-Mart exist and prosper?” Wal-Mart exists and prospers because tens of millions of Americans find Wal-Mart to be a suitable source of goods and services. Clinton, Obama, unions and anti-traders should direct their outrage and condemnation at the tens of millions of Americans who shop there and keep it in business. There’s great angst over the loss of manufacturing jobs. The number of U.S. manufacturing jobs has fallen, and it’s mainly a result of technological innovation — and it’s a worldwide phenomenon. Daniel W. Drezner, professor of political science at the University of Chicago, notes that U.S. manufacturing employment between 1995 and 2002 fell by 11%. Globally, manufacturing job loss averaged 11%. China lost 15% of its manufacturing jobs, 4.5 million manufacturing jobs, compared with the loss of 3.1 million in the U.S. Job loss is the trend among the top 10 manufacturing countries that produce 75% of the world’s manufacturing output (the U.S., Japan, Germany, China, Britain, France, Italy, Korea, Canada and Mexico). But guess what: Manufacturing output rose 30% globally during the same period, and 100% in the U.S. from 1987 to today. Technological progress and innovation is the primary cause for the decrease in manufacturing jobs. Should we save manufacturing jobs by outlawing labor-saving equipment and technology? Economist Joseph Schumpeter referred to this process witnessed in market economies as “creative destruction,” where technology, innovation and trade destroy some jobs while creating others. While the process works hardships on some people, any attempt to impede the process will make all of us worse off. Williams is a syndicated columnist and John M. Olin Distinguished Professor of Economics at George Mason University.

The Business Cycle

Everyone would like the nation’s economic results to constantly average a good growth rate year after year. However, that’s not possible. When times have been ‘good’ for a while, the seeds for a drop in economic performance are naturally occurring. As business profits increase and home prices rise in good times, more people and companies have entered the industries with increased opportunities. Initially, the effect is good – providing more jobs, new companies, higher household incomes and wealth, etc..

However, until ‘too many’ (a number that can’t be predicted so that it could be avoided) people invest in companies, jobs, technology, homes, etc., it is unclear at what point these investments need to stop to be ‘in balance’. Therefore, at some point, a surplus is created (that is, supply exceeds demand). In other words, the economy has too much ‘wasted’ resources in place to continue at its old growth pace. Price reductions and job loss are the natural economic tools to correct this imbalance over time.

While that can be personally and financially painful (more for a few, than for all), the seeds to correct and reverse the downturn are already being planted. People who previously could not afford to buy a home can eventually afford to buy them at lower prices and probably lower interest rates (since inflationary pressures are dwindling with lower demand), raising their standard of living. Others, who could not afford to start a new business that they previously wanted to create or expand their current business, now have lower rents and possibly lower wages to help them get started and some will take the plunge, creating new jobs. In some cases, the job losses of some industries, because they are no longer needed to the same level as before, will become permanent losses.

That still can be good as most of those human resources are eventually redirected into new and/or growing industries. For example, we lost hundreds of thousands of phone operators in the 1990s when cell phones became popular. However, the new industry for cell phones created more jobs and better jobs than before (in addition to becoming a much wanted and purchased consumer item that delivered valued consumer benefits). This increase in economic activity will grow over time and the good times will be returned. It can be messy – destroying jobs that need to be destroyed and moving people into industries and jobs that need them which in total increases nearly everyone’s standard of living. That’s the business cycle working to produce higher standards of living and doing it better in a free capital market than in any other economic system.

Capitalism

We live in a free market economy. Prices of goods and services are determined by supply and demand. That type of system is called capitalism. Countries that employ a true captilalistic economic system enjoy the highest standards of living in the world. The reason is that free markets balance supply and demand. Those individuals or companies that ‘waste resources’ (i.e. produce goods and services in greater quantities or poorer quality than people want to purchase at a given price) suffer through less or no profits or profit losses and eventually go out of business if the situation is not corrected. They have to lower prices to sell what won’t sell until eventually, if at all, demand finally equals supply.

Those that give people what they want in the right quantities and qualities profit (i.e. are rewarded) if they keep their costs in line. If instead, they charge too much to customers or deliberately get ‘greedy’ with their prices to increase their profits, that profit factor acts as an incentive to other individuals or companies to enter the market. That increases supply, which in turn lowers prices to levels that will inspire additional demand from consumers to snatch up the available supply.

In other words, capitalism gives people what they want efficiently, at the right price, and with the least amount of cost and waste. The complete opposite of the capitalist economic system is communism. Communism controls one or more of the three variables of a free market system, supply, demand (e.g. through rationing), and prices (including wages). Waste is subsidized by the government and companies are not penalized for it. Therefore, less of wanted or needed merchandise is available to the citizens and their standard of living suffers. There is no effective worker motivation to do well in their jobs or to innovate and/or start new businesses. This also lowers the standard of living and quality of life.

However, totally free markets really do not exist. Even in free markets, governments, in the cause of social justice or other reasons, impose varying restrictions and even trade barriers. For instance, to protect an industry (e.g. agriculture). This throws supply and demand (and thus prices) out of whack. We are no longer efficient. Instead we are wasteful and lower our standard of living as we pay more than would be the case under free markets. That extra money we pay means less money to spend on other goods and services, or savings, and we are poorer for it as less of those goods and services are produced and ultimately less people are needed/hired in those industries, raising the nation’s unemployment rate.

The government, labor unions, and liberals only sees and cares about the industries and jobs it protects. In the aggregate we are worst off. Fortunately, we do this a lot less than the Europeans who suffer from high unemployment and much lower standards or living than us. In effect, governments are enforcing a dosage of communism on capitalism. That guarantees waste and higher prices (e.g. farmers are paid more for their milk and/or produce though government price supports than a free market would pay, so that consumers also must pay more to buy it while at the same time, the government must pay to store the surplus, wasting more resources). We all suffer economically for it as less money to purchase other goods and services are available to us after paying those higher prices.

Sadly, the poor are hurt the most since they have little or no discretionary income to absorb the higher prices for basics such as milk and produce. In the meantime, agricultural corporations are the beneficiaries. The romantic notion of helping the small farmer is a fabrication since in reality, the number and more importantly the percentage of agriculture they represent is nearly non-existent in reality. If the small farmer needs help, he/she needs to become more efficient or go out of business, not be subsidized. His/her labor can be more beneficial if employed elsewhere.

History Lesson – Democrat or Republican?

Subject: Taxes (from an email forwarded to me)

I just can't wait to start paying more taxes!!!

Are you Democrat or Republican?

As Joe Friday used to say "Just the facts, ma'am, just the facts".

Whether you are a Democrat, Republican or Independent..... these are the facts .....

Taxes under Clinton 1999//Taxes under Bush 2008

Single making 30K - tax $8,400// Single making 30K - tax $4,500
Single making 50K - tax $14,000//Single making 50K - tax $12,500
Single making 75K - tax $23,250// Single making 75K -tax- $18,750

Married making 60K - tax $16,800// Married making 60K- tax
$14,500
Married making 75K - tax $21,000// Married making 75K - tax $18,750
Married making 125K - tax $38,750// Married making 125K - tax $31,250

If you want to know just how effective the mainstream media is, it is amazing how many people that fall into the categories above think Bush is screwing them and Bill Clinton was the greatest President ever. If any democrat is elected, ALL of them say they will repeal the Bush tax cuts and a good portion of the people that fall into the categories above can't wait for it to happen. This is like the movie The Sting with Paul Newman; you scam somebody out of some money and they don't even know what happened.

Your Social Security

Just in case some of you young whippersnappers (& some older ones) didn't know this. It's easy to check out, if you don't believe it. Be sure and show it to your kids. They need a little history lesson on what's what and it doesn't matter whether you are Democrat of Republican. Facts are Facts!!!

Franklin Roosevelt, a Democrat, introduced the Social Security (FICA) Program. He promised:

1.) That participation in the Program would be Completely voluntary,

2.) That the participants would only have to pay 1% of the first $1,400 of their annual Incomes into the Program,

3.) That the money the participants elected to put into the Program would be deductible from their income for tax purposes each year,

4.) That the money the participants put into the independent "Trust Fund" rather than into the general operating fund, and therefore, would only be used to fund the Social Security Retirement Program, and no other Government program, and,

5.) That the annuity payments to the retirees would never be taxed as income.

Since many of us have paid into FICA for years and are now receiving a Social Security check every month -- and then finding that we are getting taxed on 85% of the money we paid to the Federal government to "put away" -- you may be interested in the following:

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Q: Which Political Party took Social Security from the independent "Trust Fund" and put it into the general fund so that Congress could spend it?

A: It was Lyndon Johnson and the democratically controlled House and Senate.
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Q: Which Political Party eliminated the income tax deduction for Social Security (FICA) withholding?

A: The Democratic Party.

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Q: Which Political Party started taxing Social Security annuities?

A: The Democratic Party, with Al Gore casting the "tie-breaking" deciding vote as President of the Senate, while he was Vice President of the U S.

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AND MY FAVORITE:

Q: Which Political Party decided to start giving annuity payments to immigrants?

A: That's right! Jimmy Carter and the Democratic Party. Immigrants moved into this country, and at age 65, began to receive Social Security payments! The Democratic Party gave these payments to them, even though they never paid a dime into it!

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Then, after violating the original contract (FICA), the Democrats turn around and tell you that the Republicans want to take your Social Security away! And the worst part about it is uninformed citizens believe it!

If enough people receive this, maybe a seed of awareness will be planted and maybe changes will evolve. Maybe not; some Democrats are awfully sure of what isn't so. But it's worth a try. How many people can YOU send this to? Actions speak louder than bumper stickers.

AND CONGRESS GIVES THEMSELVES 100% RETIREMENT FOR ONLY SERVING ONE TERM!!!

A government big enough to give you everything you want, is strong enough to take everything you have. - Thomas Jefferson

Federal Reserve Policy and Actions

By controlling the money supply and setting key interest rates, the Federal Reserve has a huge impact on the economy. It probably has more influence on the economy than the President, especially one that hasn’t been lowering or raising taxes, which also have huge impacts on the economy. (In effect its actions, though not all powerful, have a huge impact on both job creation/destruction and inflation).

Higher interest rates reduce economic incentive to borrow money for houses, cars, factories, stores, etc.. This depression of demand for products and services means we need less people employed to provide these goods and services. Keeping people employed who aren’t needed leads to lower profits and possibly bankruptcy, so layoffs grow and new hires shrink. This accelerates the lack of demand for products and services so that the providers/employers of them have little or no power to raise prices. This dampens price inflation, a necessary step to avoid a spiral of high inflation that can hurt the economy more than it helps. High inflation eventually puts prices of goods and services out of reach of more people, dampening demand and causing unemployment to rise and real wealth to fall.

When the economy is ‘too strong’ the Fed will attempt to raise interest rates to reduce the threat of inflation (note – also read my thoughts on the business cycle to understand the problem with an economy that has become too strong). Conversely, when the economy is too weak, the Fed will attempt to lower interest rates/increase money supply to stimulate the economy to grow. However, the impact of interest rates and money supply take six to twelve months and longer to show their full impact. There are other decisions besides interest rates to consider when businesses try to increase investment or people to buy houses, cars, etc.. Also, many loans already exist and may be immune to incentive to refinance at changed interest rates.

The delay between Fed action and its impact on the economy makes things very tricky for the Fed. It needs to look at current economic conditions which may not be where they want it to be yet and judge whether past Fed actions will get it there without further interference or whether additional steps need to be taken. It is easy to over shoot in either direction. The Fed has been exhibiting a bias to fight inflation above its other goal of high employment. This has led to recessions and forced the Fed to reverse course. Unfortunately, a reversal takes a year or more to get to where it’s needed.

It can be argued that the Fed has not paid sufficient attention to sustained growth in job productivity (i.e. if productivity is up say 4%, a 4% rise in wages is neutral, not inflationary) plus the favorable impact of reduced trade barriers (that force most businesses to become more competitive in price). In other words, the inflation bias has been too strong and the fight for full employment too weak.

Strategically, whenever the Fed targets something as out of whack (e.g. the stock market or housing as it has recently), the tools at its disposal (interest rates/money supply) are too wide impacting to target the ‘bubble’ it seeks to eliminate. It impacts the whole economy and is therefore too powerful a weapon to utilize to control only a segment of the economy. The damage caused is far reaching and can sometimes take years to undo.

Taxes

Less taxes collected by government, mathematically works out to more income for workers and their families. More money for us means more money spent on products and services. That translates into more jobs. More jobs start the cycle of more money for workers and families again. In other words, there is a positive multiplier effect. We saw this with the Kennedy tax cuts of the 1960s, the Reagan tax cuts in the 1980s and we saw it again with the Bush tax cuts of the last decade despite inheriting a recession and the financial impacts of 9/11.

Despite Katrina and Rita hurricanes that destroyed whole cities, despite the very expensive war on terror, the U.S. economy has been humming along at 3 to 3.5% growth rates for a long time. (Refer to my explanation of the Business Cycle- for an understanding of why this growth rate cannot stay constant forever and is in fact, currently stalling, but will be temporary).

When taxes are raised, we all have less money to spend, which means less products bought, and therefore fewer workers needed. The unemployment rate goes up and the cycle starts again. That’s right, increased taxes is a negative drag to the economy and it too has a multiplier effect. Don’t believe me, then look at the Western European countries with high tax rates and their double digit unemployment and stagnant economic growth.

Now look at the Eastern European countries plus England, who have cut their taxes to low rates and are surging economically. Need more proof. Look at the Great Depression of the 1930s. Governments tried to fix a recession by raising taxes to balance the budget and imposing trade restrictions. What happened? Greater taxes reduced spending and capital for investment, feeding the negative multiplier effect of these type of actions. Trade restrictions, adopted wholesale and at the same time by many countries including America to ‘protect’ domestic jobs instead destroyed immediately the domestic jobs dedicated to exports for all those nations. No jobs were gained from other nations because the domestic capital to create those industries “helped by the trade barriers” did not exist anymore.

Also, if there were capital available, it would take years to build the infrastructure (without any money coming in during construction) before the first job in that industry could be gained. Even if this could have happened (which it didn’t), all of us would have paid higher prices for those products and services, meaning we would have less money to spend on other products and services. Those people in the other fields where that money would have been spent would have lost their jobs and that would have again steam rolled another negative multiplier effect on the economy.

The Impact of Tax Cuts on Government Revenues:

We’ve all seen the statement that “Tax cuts reduce government revenues and increase budget deficits” –The Big Lie! That statement, in my opinion, is one of the worst, bald faced, self serving lies, perpetrated by the Democratic Party, that has ever been presented to the American public. It sounds logical which is why they use it, but the facts don’t support it. Facts are ultimately what matters. If you only look at the annual change in tax revenues after an income tax cut has occurred, you will see tremendous, often double digit growth in tax revenues collected by the government that continues for years. The extra revenue is generated due to job and income growth that occurs as a direct result of the tax cuts.

Then why, you ask, do federal budget deficits often increase after taxes have been cut? It’s simple. Now look at government spending after a tax cut. Amazingly, it too increases at tremendous rates, even greater than the rate of those big tax revenue increases. That’s the long and short of it. To make matters worse, at the state and local levels, whenever the ‘good times’ bring in revenue increases, instead of returning the surplus to the taxpayers or saving it for a ‘rainy day’, they too increase spending. Inevitably, (may be a few years in the future), the economy slows (see my piece on the business cycle), and federal, state, and local governments start to see large deficits with no easy solutions in sight. Our politicians, whether Democrats or Republicans, have demonstrated an insatiable appetite for government spending. They want to present to us ‘locals’ who elect them the ‘government goodies’ they ‘got for us’ as a reason to reelect them. Seemingly that works well because incumbents are generally hard to defeat in an election.

The second big lie also perpetrated by the Democratic party who truly covet spending the money you and I earn is the labeling of current, planned annual spending increases as spending ‘cuts’ because two or more years ago, the plan was to spend even more. To give some analogies, could a big corporation who increases spending from $100 million dollars last year to $105 million this year, state that they cut spending because two years ago they actually planned to spend $110 million? Of course not!

Also, if you are earning $30,000 a year and you were hoping for a $2,000 raise, but only received a $1,000 raise, would you think that your wages were cut? Of course not! However, according to the Democrats, those would be cuts. It’s just plain stupid and an insult to our intelligence to label spending increases over the previous year as spending cuts. Tell you the truth, the federal government needs to have some years in which spending actually is less than the previous year. You’d be surprised at how fast deficits would shrink and then grow to surpluses. Companies in financial trouble do this all the time. Why can’t the government, when in a financial mess, exercise the same discipline?

Trade Deficits

As with federal budgets, we hear the same cries about the size of our trade deficits decade after decade. Ignore them. The arguments we hear for balanced trade are all fallacious. There is no need to balance trade. Trade happens because two parties find it advantageous to trade money for products. This is capitalism. It works better than any other economic system.

For an easy to understand analogy, you probably have a trade deficit with your supermarket, your department store, and every other business you buy products or services from because you buy more form them than they buy from you. Did your personal trade deficit with them mean anything? No. Everyone’s happy, so to speak. No one forced anyone else to make a ‘trade’ they weren’t happy about.

Some of the loudest voices about America fixing its trade deficits come from Western Europe. You know, the people who are so ‘economically educated’ that they average long term 10% unemployment or double the long term unemployment rate of the U.S. If they actually got their wish, that would mean America would buy less of their products so that trade could be balanced. If we buy less from them, then they would need to produce fewer products which would cause some of the people who work on those products there to be laid off and their 10% unemployment rate to sky rocket higher.

The U.S. just needs to keep focusing on growing its economy, especially by increasing worker productivity. We’re very good at it. That will keep investors (yes even investors from Europe) investing in the U.S. because our returns on investment are safe and high. Foreign nations and individuals with dollars in their possession that they may no longer want can only buy our products, services, financial instruments, or companies.

Don't fear the buying of American companies fear crowd. We buy their companies too. Those American companies that they buy come with American based assets and people that cannot be transported easily. So normally, they grow those companies right here in America, increasing not decreasing employment. When Japan had high real estate prices about 15-20 years ago, they were buying American companies like crazy. Lots of fear raised then too. However, the jobs stayed here and years later, many of those companies were sold back at a loss to Americans because they overpaid for them in the first place and real estate prices crashed in Japan, causing a cash crisis there.

Balancing the Federal Budget

Cries to balance the Federal budget from all sources have been heard for decades, even centuries. Seldom has the U.S. budget ever been balanced for any given year. It is almost constantly in deficit. Yet, after all this time, the sky hasn’t fallen so to speak. Why? If you think of your own budget, when you buy a large capital expenditure – a house, car, even furniture, most of us don’t pay for it entirely the year we buy it. So why, when the Federal government buys buildings, ships, airplanes, trucks, tanks, etc. that will last in most cases decades, should we expect those budget items paid off in the year bought?

Now, things that are consumed in the year bought (e.g. government employee wages, unemployment checks, food stamps, etc) should be paid in the year consumed. Therefore, just as is common for a person or family to take out a mortgage or loan for capital items and pay them off as we use them constricted by loan size to income, perhaps the same should be considered for government. Government annual income even in a good economic year is less than $3 trillion. Ideally, it's maximum debt limit should be $4.5 trillion and certainly no more than $6 trillion or double annual income. Same principles that a responsible bank would normally follow on a long term mortgage loan for you or me.

Given that government debt exeeds $14 trillion, the U.S. budget is already in very big trouble now! I think the debate about government deficits would be better understood and accurate if compared in this manner. So now that we know that we are in big trouble, how do we fix the problem?

First, a change in government accounting practices and attitudes needs to occur. We should separate immediate type expenses from long term investments. Immediate expenses must be paid in the year consumed (for example food stamps, medical expenses, government salaries and pension payments, etc.). No borrowing permitted. For the rest, ‘pay off’ those long term investments such as new government buildings, ships, planes, etc. (as if they were actual loans with set payment terms such as interest rate and length of loan) by assigning the required amount of tax revenues from the current year toward that ‘loan’ so that it would become clear whether or not we are still paying for investments bought in prior tax years that should have been paid off by now (and/or defaulting on our previous ‘loans’). Those are the situations that should cause us concern.

Next, we start with actual government revenues of less than 3 trillion dollars a year. We first budget enough money to pay principal and interest of our $14 trillion dollar plus debt off in 30 years. What's left is the maximum we can spend in any given fiscal year. All the short term and long term spending programs must be shrunk to fit that annual dollar limit.

How can we possibly do that? Let me first ask you this - if you earned $21,000 a year, spent $36,000 a year and had a debt of $145,000 or six times earnings, what would you do? You'd pick your priorities and cut back or a bank would do it for you probably evicting you from your home. Now add 8 zeros to each of those numbers, and you now have the current finances for the federal government. Now for the solution:

1. Go back to the 2006 budget for a start cut spending on each government program to those levels. It wasn't that long ago, so it shouldn't be that hard. That cuts about a trillion dollars a year in spending. I'm sure, a reduction in government employees to the number we had back then or less would be necessary.

2. Government subsidies for all sorts of reasons (agriculture, rural electricity, ethanol, green technologies, hiring police and firemen that local governments should be paying, etc.) total one trillion dollars a year. Cut all of them to zero. In some cases like agriculture, it may be prudent to cut back incrementally over a five year period to give farmers time to adjust without going bankrupt if it occurred too fast.

3. Cut the number of government workers by 20%, bring salaries and benefits in line with the private sector. Get rid of the IRS by applying taxes against paychecks with no deductibles, just like Social Security. No taxes on interest, dividends, or capital gains; therefore no forms to fill out plus a great effective way to boost capital investment and job growth which will increase collected govermnment tax revenues.

4. Turn over Medicare collections (but not necessarily Medicare itself) to insurance companies. Insurance fraud is 25% for government Medicare and less than 1% for inurance companies. That will save hundreds of billions in spending over a 10 year period.

5. Social Security - continue to buy Treasury Bonds with government gauranteed interest rates, but insteazd of using that money on government spending with no investment return, buy mutual funds, ETFs, bonds so that income does come back and can therefore pay off SS liabilities and probably with extra revenues to reduce debt and increase benefits going forward. So we have not privatized SS since we still have government gauranteed Treasury bonds. Even if the investments go down in value, that would still be more money to retire maturing bonds than zero which is what we have coming back today from past Treasury bonds that are forcing us to re-borrow. Put control of this investment program into several investment firms. The government is totally unqualified to manage it. No political investment goals allowed (e.g. no to mandated green energy investments). The only goal is to make conservative investments with long term high return potential. Also, include direct, illiquid investments that pay income and are not subject to stock market swings. Most people are unaware of these, but not the wealthy who manage to stay wealthy in every economic climate. They exist in energy drilling and mineral rights, real estate, equipment leasing, and a lot of other areas. Those investments can't be sold on the stock market.

6. Defense - it is a disgrace that we just passed a huge Defense budget for 2012 with a double digit increase. We spend more on defense than the next 20 nations combined. We have hundreds of unneeded military bases that need to be closed, but are kept open as "job makers" for political districts and states. We need to cut the Defense budget by one third and that will still leave us very strong.

Saving and Improving Social Security

What if there was a way to achieve:

1. Greater benefits for all social security recipients, especially for the working poor who don’t receive much in benefits to begin with due to their lower contributions when working.

2. Eliminate permanently the possibility that Social Security will go bankrupt or forced to provide lower benefits than promised.

3. Eliminate (in the long term) the government liability of future social security pension benefits and all social security debt.

Would you be interested?

OVERVIEW:

The program I’m going to suggest is a fair, slow, multi-decade change that keeps the current Social Security program for today’s workers and retirees with a caveat for those still working. It utilizes at its core, the sound investment advice so often given to those eligible for IRAs or401Ks. The younger you start, the higher the multiplier of your investments by the time you reach retirement age. In other words, a person who contributes a fixed amount to an IRA annually at 20 years old will likely have several times the nest egg than a person who starts contributing to IRAs at age 40.

The proposed Social Security program starts with an investment in their name at birth. This will grow to much higher totals at retirement than any other program today because it will have over 60 years to grow by retirement age which no other current government program can offer. That (restricted) ‘gift’ to the newborn will get paid back as they enter the work force by helping to pay the Social Security costs of those on the traditional SS program. As ‘attrition’ reduces the number of people (over decades) requiring support through the old SS program, the SS taxes needed for it will eventually be less until it is nothing. However, up to today’s rates, those given the birth investment gift will not have their SS taxes go down to zero. Instead, those unneeded taxes will be invested in their names along with their company matches which is part of the SS laws today.

To prevent fraud especially from foreigners looking for a quick unearned benefit, only children of women who are American citizens (could consider also including mothers who are permanent residents) will be eligible for the SS birth investment.

DETAILS:

1. For every future person born to a mother who is an American citizen (may wish to also consider one who is a permanent resident), the government puts $10,000 into a special US Treasury bond with the same rate of return as a normal long term treasury bond. The difference is that instead of spending the money on government programs and nebver getting it back, the money is divided evenly into four pre-approved mutual funds. These funds and fund managers need to be approved and closely monitored by an appropriate government agency with a random double check type of procedure. Expenses of the funds and the government agency must be tightly controlled within high industry standards. Suggest no more than .002% of fund value. Cost to the government given 3-4 million births per year is $30-40 billion – a very small and affordable percentage of the federal government (take from the general fund, do not take this money from the social security fund).

At age 67, the fund value belongs to the person named. At this point, it may be wiser to give the person annual interest payments or an annuity rather than the lump sum which can be quickly squandered by some, leaving nothing for the rest of their lives. What would this be worth? If it grew at historical 10-11% long term averages of the stock market (i.e. doubles every 7 years), it could be worth well over $5 million!! If it grew at a more modest 6% long term average (doubles every 12 years), it would be worth over $400,000. Such amounts should help all retirees, but especially the working poor (or those physically unable to work or work full time) who earned barely enough to live on and consequently never received much in social security benefits. Those who pass away before age 67, since they never contributed to this fund, would have the fund returned to the government (this might eventually pay much of the costs of the program).

2. As the social security fund for the old program begins to exceed the benefits needed to be paid to recipients of the old program (i.e. as their number naturally shrinks eventually to zero), then the excess money goes to a fund for each individual then currently paying the taxes. This fund is an IRA (preferably Roth IRA) and companies continue to match their employees’s taxes as they do today. This fund is inheritable and never goes back to the government. Also, individuals can withdraw as early as age 59 ½ giving them their early retirement options in addition to supplementing the birth gift. It cannot be withdrawn for any reason before age 59 ½.

This also phases in from the old plan to the new plan (as less people are left on the old plan) to become the source of retirement funds through the government for any person not entitled to the birth gift (e.g. naturalized citizens). They get what they and their employers put into it plus investment growth. All investments must go to mutual funds or interest earning investments (not bonds though). No individual stocks. People who want to buy stocks or bonds need to do that outside this program.

3. The people receiving the birth gift of $10,000 must pay higher SS taxes if necessary to keep the old system afloat. That’s only fair to partially reimburse those who gave them the gift in the first place. As the need to pay higher taxes naturally goes away, the SS tax rate never goes below today’s current levels forcing all workers to save for retirement. The government’s liability eventually falls to zero. There is no danger of shortfalls to benefits though benefits are less definable – depends on growth rates of the investments. Overall, it will be a lot more in benefits than today’s system.

As necessary, tweak the current system as painlessly as possible. Examples include eliminating the social security early retirement age for workers under 40 or 45 or whatever the right age is. Possibly raise retirement age by 1-2 years (prefer to keep this temporary). Increase the maximum cap but don’t eliminate it (I don’t believe in onerous Robin Hood plans – they’re immoral). Many of these people may have other means of early retirement; some won’t. Same situation as today.

Have only the birth gift people pay extra social security taxes if necessary and feasible to keep the old plan afloat until it is no longer needed. If not feasabe, have them pay a bigger per person additional share than the rest. Social Security was meant to cover only some of a retiree’s needed income.

This plan comes much closer to covering all of a retiree’s needed income. This is more
and more important as company pensions have mostly disappeared. In addition, unlike
today, where social security tax money is immediately and completely spent leaving a big, non-invested, government I.O.U debt that must paid in the future through taxes and/or borrowing, the funds in the new plan will be real assets with real value and carry no governmental liability.

POTENTIAL COUNTERPOINTS AND RESPONSES TO THIS PLAN:

1. “We can’t afford it”.
Actually, we can. In the short term, the money is negligible and come from taxes and borrowing especially as other costs go down (e.g. Katrina Hurricane is paid for; or as we slowly withdraw from Iraq as conditions permit, those expense go away and this plan annually will be much less than them). The truth is we can’t afford not to do it. Social Security due to the good news that we live longer and in general retire no later and often earlier than previous generations cannot sustain itself in the long term. Expect average life spans to only increase continuing the
pattern of too few workers to support ever more retirees. Through no one’s fault, Social Security has become a kind of national pyramid scheme that will eventually collapse of its own weight.

2. “It’s risky”.
All investments are risky including the current Treasury bonds investments with only future taxes and loans as the only ‘asset’ to pay off their future liabilities. Mutual funds reduce the investment risk to acceptable levels while substantially increasing the eventual funds available for Social Security benefits. We could consider options to reduce risk further by allowing the birth gift to move (if chosen by those individuals who want it) to more conservative interest earning monetary funds. However, this excludes bonds which behave just like stocks (i.e. go down as well as up) and over the long run have historically generated substantially less returns on investment than stocks.

3. “Some people born in the same year and/or day will receive different benefits from the birth gift than others.” True, because their investments will not grow exactly the same. So what.
It is after all a ‘gift’. You should be grateful for whatever you receive. Whatever it is, it will be substantial. However, if this becomes a political impasse to legislation, another option would be to take all the $10,000 gifts for all the qualified birth citizens in a given year and put them into one big ‘pot’ of many mutual funds to use as they reach SS age to give everyone in that
year the same payout.

Have to be more careful with this approach. Previously, the ones who died before SS age had their gift funds returned to the government. Now what happens if it is part of one big pot? Secondly, as these people age, the few remaining say at age 90, might have millions of dollars each given every year from the big pot which is not the purpose of this approach. One approach could be to give occasional, actuarily justified cost of living raises as people age. Another would be to find a fair way to give the excess back to the government. I still like the individual gift better
than the big pot approach, but even this is infinitely better than what we have now

ONE FINAL COMMENT:

Don’t wait for the government to legislate this (because it may never happen) to do something wonderful for your children and grandchildren. It may never happen. If you can afford it, open up accounts now and in the future for your children and grandchildren, especially when they are born. It doesn’t have to be $10,000 ($500 has a reasonable shot of growing to $250,000 by age 63 if you invest it for a person at birth). It also won’t obviously be a tax free IRA (meaning there can be tax liabilities due to mutual fund capital gains and dividends, but these usually will be small). They also can spend it on what they want at any adult age (unless you do a controlling trust fund) without penalties (though l;ack of control is the part I really don’t like. It is much
better to wait to a normal retirement age to grow it to a big number (a young adult may be immature enough to just blow it on a car and have nothing for retirement).

NEXT STEPS

If you believe these ideas have merit, please forward to others in your Mailing list. Better yet, forward to your elected representatives in the Senate and The House of Representatives. Their email addresses can be found at:
http://dir.yahoo.com/Government/U_S__Government/Legislative_Branch/Congressional_Email_Addresses/. The email address for the President is:
comments@whitehouse.gov. Tell them you support this plan and request their feedback on what they like and don’t like about the plan. You may want to delete the one final comment section since it has nothing to do with legislation. Those of you that may receive this email with a very large number of forwarding addresses, instead of forwarding, consider copying and pasting and sending as a new email.

Achieving Personal Wealth Goals

Achieving Personal Wealth Goals

Live enough ‘below your means’ so that you can save and invest. Most of us will need it for emergencies, children, college expenses, retirement, etc.. Starting young increases your potential to build huge nest eggs for retirement early. Also, life is a lot less stressful when you can pay all your bills and still have money left over. Take advantage of government and business 401K/IRA savings plans and company matches to savings that may be available to you. If possible, favor Roth IRAs over Traditional IRAs. A Traditional IRA saves you some tax money the year you invest, but costs you taxes when you withdraw from it. Those Traditional IRA withdrawal taxes, particularly if your investment has grown significantly over 20 to 40 years or more can be enormous. And you must start withdrawing, like it or not, at age 70 ½. With a Roth IRA, you save no taxes the year you invest, which may cost you a few hundred dollars, but have no withdrawal taxes when you retire which can save you tens of thousands of dollars. And there are no forced withdrawals. Plus your heirs who may inherit what's left of your Roth IRA also pay no withdrawal taxes, but do for a traditional IRA.

Most of us are not expert enough to buy and sell individual company stocks profitably. That requires daily monitoring of stock price and volume movements, plus knowing how to use them to determine when to buy and sell. Very complex and easy to get wrong. Splitting investments between several mutual funds and/or key indexes reduces risk. Learn about and invest in a market basket over time of value and growth mutual funds. Also funds that focus on either small, medium, or large size companies plus emerging markets, and index funds like the S&P 500 that performs better than 70% of all mutual funds (the ETF “SPY” is a cheap way to buy that index), plus all of the above. Nothing eliminates risk. Still want more diversity – try the ETFs – MDY (S&P 400 Mid-Caps) and SLY (S&P 600 small caps), and also QQQ (Nasdaq 100 – top 100 Nasdaq stocks; more of a technology play). For additional diversity and balance, there are also “growth” and “value” versions of the S&P 500 indices - just put a “G” for growth, or a “V” for value at the end of them (SPYG, SPYV, SLYG, SLYV, MDYG, and MDYV).

I always recommend using the research tools and fund screeners many brokerage firms and other websites give you to view how an asset you are considering buying has historically performed. Look at year to date, one year, 3 year, 5 year, 10 year, and since inception average annual growth rates. If they performed well in all those timeframes compared to the general stock market, then they were managed well in good times and bad. Yields a higher probability (but no gaurantee) of success in the future.

Stocks over the long run have outperformed other financial investments. Keeping your costs down increases your potential to save money. Think about this – the long term average growth of the stock market over decades has been around 11%. That implies a doubling every six and half years (“72” rule – divide the anticipated growth or interest rate into 72 to determine how many years it takes to double).

In some of those periods stocks did better than double, while in others it did worse or even lost money. Also and very importantly, there is no guarantee that those results will be repeated in the future. Life is a game of calculated risk and the best we can do is evaluate the risk and play the best odds available to us. A $1,000 investment that averages that rate of growth is worth $16,000 in 32 years, $64,000 in less than 40 years, and $512,000 in 65 years! Think about a twenty something investing just $1,000 every year and lucky enough to earn that rate of return. Then 40 years from now, when that person retires, he she receives the equivalent of a $64,000 check every year retired. So many companies now do not offer pensions, but do offer company matching of your savings. Always take advantage of that gift. The amount of savings you need to contribute to assure your financial independence could be cut in half! Or you could invest the same amount of money to reach a higher level of savings at any age (think early retirement options that you may give yourself - nice to have even if you choose not to use it).

Invest $3,000 one time in a newborn child or grandchild and keep it there for 65 years and that child may have two million dollars at retirement if the 11% rate holds. $750,000 if the rate is only 8%. Wow – why wouldn’t you do that if you can afford it (and many of you absolutely can)?

There are a whole host of incremental choices on large purchases for houses, cars, vacations, colleges, furniture, etc. that can produce good satisfaction while possibly not being all that you originally wanted. Make prudent choices on quantity and price of less expensive purchases that can still build to significant dollars such as clothes, shoes, restaurant meals, entertainment, phone service, etc.. As time goes by, if your income grows, you can still follow the same policy of living below your means, while incrementally increasing your purchase choices due to that higher income. Don’t forget however, to also increase your savings at the same time. When you’re retired you may want to be able to afford more than just watching T.V. all day long and eating at home with little or no money available for entertainment or vacations.

The goal is to save enough to become self-sustaining (to be able to live the rest of your life off the interest or growth and eventually principle of your savings alone or in conjunction with pensions and/or Social Security). For instance, if you need $50,000 gross per year to live and you (and/or your spouse if relevant to your situation) receive or will receive at retirement $30,000 from social security plus pensions, then you have to generate $20,000 a year from other sources. At 4% interest, you need $500,000 saved not to touch the $500,000. Really you need much less, because you won’t live forever and you therefore can touch the principal. If you think you only will live 20 years after retirement, $400,000 is enough without any interest (the interest will cover taxes and some years if you live more than 20 years.

Also, you live on net pay, not gross pay. When you are retired, there are no social security tax deductions, possibly no life insurance and no disability deductions needed anymore, no charity and other deductions now taken from your paycheck. There is only federal taxes at a lower rate from when you worked and if less than age 65, medical insurance that increases substantially until you reach 65, then it goes down below what you paid while working. Therefore, your dollar amount to be self sufficient is even less. If you own a house not yet paid off but will be paid off by the time you are retired, your living expenses go down and you need even less income. Take an IRS tax booklet and your expected retirement income from all sources and calculate your annual net pay after taxes. Compare it to your net pay today. You might be pleasantly surprised.

If you invest part of your savings in stock/mutual funds while you are still drawing funds from it and it grows at better than 4% per year, you need even less. A financial adviser can help you do the math. The dollar total to raise may still seem daunting, but it is doable if you save each year and invest wisely. Shoot for 10% or more savings per year as your goal. Never less than 5%. Pay yourself this savings first from your paycheck, and then determine what choices (housing, cars, clothes, etc.) need to be made to support a reasonable daily standard of living for you and your family. Even if you don’t make your ultimate goals (and most of you with effort can probably far exceed them), you are still way better off than you would have been if you didn’t save.

Note that I never mentioned buying bonds as so many stock advisers do. Bond prices gyrate just as much as stocks and their long term growth averages are half that of stocks. Also stay away from commodities which can gyrate up, and especially down, faster and worse than stocks.

There is another kind of investment that I recommend avoiding because it amounts to investments in a single company that again can go to zero. They are sold by “Certified Financial Advisers” who are not associated with a brokerage firm. These are investments into “illiquid” (meaning you can't sell them), income producing assets. Most of these are a diverse array of different funds that are for fixed periods of 2-8 years that pay monthly dividends in the 6-8% range which you can keep or reinvest in the same fund automatically), then are sold or liquidated with principal and interest returned to investors, or sometimes they are converted into a new stock that gets listed on the regular stock market exchanges. Most funds give themselves a 1-2 year option to delay liquidation in case the market is bad. If the market is extremely good, they can self liquidate early to achieve higher returns. There are also “legacy” (i.e. lifetime) illiquid investments for energy drilling investments (stick with land drilling to minimize risks). For the first year, you will be made a “general partner” meaning that you can be sued and lose everything you own, not just that asset. After one year, you are changed to a limited partner and cannot be sued. Returns historically are were in the 8-12% range (now much less due to Fracking increasing energy supplies), plus there are huge tax benefits. 80 to 100% of your investment can be subtracted from your income (because you are a 'General Partner' the first year) unless you buy these from an IRA. You get depreciation tax benefits for several years after that. It is also a way to avoid taxes when converting a Traditional IRA into a Roth IRA. A normal stock broker can't sell these. You need to use financial advisers associated with national firms such as Madison Avenue Securities. A good financial broker does 'due diligence' research before recommending a fund to you to purchase. IRAs can be used to purchase these funds but don't do energy drilling with IRA funds since you lose the tax benefit since your IRA is already tax deferred. Again, I wanted you to be aware of them so you are financially educated, but don't buy them. Too many fail completely or deliver losses.

Finally, the elimination of debt is a solid way to work toward financial independence. By lowering your bills, less income is needed to maintain a standard of living. Normally, a home mortgage is the largest debt we owe. Some of us attempt to pay off the mortgage early. A popular method is to overpay your monthly mortgage payments since all the excess reduces principal. Especially in the early years of a mortgage, a very small percentage of your payment actually reduces principal. Most of the payment goes to interest expense. There is a better way. When you overpay your mortgage, you are in effect giving your mortgage lender an interest free loan with the excess money. Instead, put that excess money in a dedicated savings account. The interest you earn will help you pay off the mortgage principal even sooner. Also, if injury or loss of job results in a loss of income, you have something to fall back on. When that investment is large enough to pay off the entire mortgage balance, then consider, depending on your circumstances at that time, paying off the mortgage.