Retirement

Welcome to 2020: Hindsight and Vision

Posted on Jan 1, 2020 in Community, Family, Investments, Planning, Retirement, Tax, Technology

This time of year we often look back over the past 12 months, and as we close out 2019, we also close out a decade. Time goes by in the blink of an eye, and the past ten years are only different in that there has been more change than ever before. That will only be exceeded by the rapid change in the next ten.

We’ll welcome some of this: systemic and technological changes to make life better. Other changes,  like those which require shifts in well-worn habits, or to combat climate change and rewrite our social contracts to reflect life today, will be more difficult, and require more attention.

LOOKING BACK: THE DECADE IN REVIEW

ECONOMICS
We all remember where we ended the last decade, surrounded by the tatters of financial life after the Great Recession (aka the Financial Crisis, August 2007-March 2009). We weren’t sure it was over, and while the recession had technically ended, the impact would still be felt by many for years to come. While we are spending lately like the Financial Crisis is forgotten, some have still not recovered, and the trauma of the event continues to affect almost all of us.

As the decade began, we were told the recovery was happening, then we were hit with a series of smaller crises in financial markets: 2010 Flash Crash (trillion dollars lost in the stock market in 36 minutes, started by automated trading programs); 2011 European Sovereign Debt Crisis (causing a write-down of Greek bonds); 2013 bailout of Cyprus by the European Union (to avert a banking crisis); 2015 Chinese stock market crash, followed by a commodity-driven US stock market drop, and finally a 2018 worldwide stock market downturn, ending last Christmas Eve, when the S&P fell nearly 20% in the preceding three months.

While the economy is NOT the stock market, the two are related. Here is what the largest U.S. companies did over the last decade, in terms of their stock prices:

It hasn’t been an entirely smooth ride; we have forgotten the hiccups that occurred because of the events noted above, and others.  But what does this tell us about the economy?  Is it reflective of fundamental strength of companies and demand, or of manipulation of interest rates, and tax laws that favored stock buy backs? Or a combination?

Despite very low unemployment, wages have barely budged for most, and some Americans have taken to working two (or more) jobs. A minimum wage of $15/hour works out to $30,000/year for a full-time job, which hardly meets rent in some urban areas. You enjoy the benefits of a rising stock market when you can invest, and for many, that’s still out of reach.

POLITICS
President Obama was two years into his first term as the decade began, and the push-back to the change he represented was evident. A Republican-led Congress blocked attempts at government spending on infrastructure programs to jump-start the economy and get Americans, particularly those in the trades, back to work in the wake of the Financial Crisis. The Tea Party, a movement within the Republican Party and a harbinger of where we would end the decade, gathered power, pushing for lower taxes, reduced government spending and a reduction in the national debt. By the decade’s end, they’d achieved 1 of 3.

Obama’s first term was devoted to health care reform, and Congress passed the Patient Protection and Affordable Care Act (“Obamacare”) in 2010. President Obama’s second term included another big change: in 2013 the U.S. Supreme Court decided the case that recognized same-sex marriage and overturned the Defense of Marriage Act (DOMA).  Reforming our health care system and expanding the definition of marriage were both HUGE shifts in the American landscape.  No question there would be a reaction to big social change.

Part of the reaction to the economic situation was political of another persuasion: the Occupy Wall Street protests began in July 2011 in New York City and spread to 82 countries by October. Bailouts for big banks led to an outcry against financial greed and corruption, starting a new discussion about economic inequality that continues today.

The BlackLivesMatter movement began in 2012 after the shooting death of teenager Trayvon Martin, and went national in 2014 after the deaths of Michael Brown in Ferguson, MO and Eric Garner in New York City at the hands of police. Social media aided both the spread of participation in the campaign against violence and systemic racism, and in the backlash, with the appearance of “All Lives Matter” and Blue Lives Matter, in support of the police.

The election of Donald Trump in 2016 was the capstone to years of work to bring America back to an earlier time, to re-entrench systems and institutions to support the economic and social structure we created after World War II.  The President’s Inauguration in 2017 kicked off worldwide Women’s Marches, with 420 reported marches in the U.S. and 168 in other countries, becoming the largest worldwide protest in recent history. In March 2018, Stoneham Douglas High School students led nationwide protests over gun violence, called the National School Walkout. By May the protest movement became the March for Our Lives, with demonstrations in 900 U.S. cities.

In December 2018 “Yellow Vest” (“gilets jaunes ”) protests in France that were initially motivated by rising fuel prices and a high cost of living shut down urban centers weekend after weekend; by December 2019, the movement broadened its focus to include opposition to President Emmanuel Macron’s austerity measures, which included pension reform that would postpone retirement until age 64 instead of 62. The protests spread across political, regional, social and generational divides angry at economic injustice, with polls indicating than 80 percent of French people supported the movement.

A series of strikes in 2019 for action on climate change drew millions of people worldwide. The third global strike in September, also known as the Global Week for the Future, was timed to occur around the UN Youth Climate Summit and UN Climate Action Summit. The September Climate Strike included over 1,000 strike events in all 50 states, Puerto Rico, and the District of Columbia.  The student-led protests had five demands directed at world leaders and elected officials centered around a “Green New Deal”: to transform the economy to 100% renewable energy by 2030, while creating jobs and ending leases and permits for fossil fuel projects; respect for indigenous land and peoples; investment in communities affected most by poverty and pollution; protecting biodiversity, restoring 50% of the world’s lands and oceans, and stopping all deforestation by 2030; and sustainable agriculture, including the end to subsidies for industrial agriculture. A bold “to-do” list.

We closed the decade with anti-extradition protests in Hong Kong against a bill that was viewed as eroding the “one country, two systems” balance between Hong Kong and mainland China. The protests morphed to reflect broader threats to Hong Kong’s autonomy, as well as underlying discontent in Hong Kong, from the dearth of affordable housing to the demand for universal suffrage for elections rather than use of an Election Committee, which is viewed as non-representative.

Worldwide, there were protests related to housing affordability, economic inequality in general, climate, safety, and the concentration of power in few rather than many hands.

DEMOGRAPHICS
We’ve all heard about our longer life expectancy, and that reality is rapidly coming head-to-head with social safety nets worldwide. Despite reports of a reversal of this trend, looking closely at the numbers, the decline in life expectancy in the U.S. tends to cluster around certain regions, in rural areas where the opioid epidemic, among other factors, is concentrated and driving down life expectancy.  In coastal areas in the U.S., life spans are tracking the rest of the developed world, and increasing.   The safety net failing here is general health care coverage (as well as regulation of pharmaceutical companies).

The other safety nets running into headwinds are those for our elders. In April 2018, Nicaragua announced reforms to its Social Security programs to decrease retirement benefits; 34 people were killed by police in the resulting protests. In France, the aforementioned Yellow Vest protests now include push-back on labor law changes and plans to overhaul the pension system. In the U.S., the Social Security Administration notes on every Social Security statement that as of 2035, only 76% of benefits can be paid; for disability insurance benefits offered through the program, those benefits become unsustainable in 2020.  Medicare is on an even less solid footing.

Meanwhile, and because we like acronyms, a legislative proposal, called the Time to Rescue United States’ Trusts, or TRUST, Act, would create congressional committees to evaluate how to bolster solvency or make other changes to improve the programs. That sounds like kicking the can further down the proverbial road, but further increasing the age when we are eligible for benefits should be part of the solution. The Social Security 2100 Act calls for increased benefits, and increases payroll taxes to pay for it. Also in the hopper are plans to cut both Medicare and Social Security in a second Trump term, based on growing federal deficits, the same deficits Republicans and the Tea Party wanted to avoid, but created by the most recent tax reform legislation.

We are living longer than ever before, and the math these demographics present is straightforward: we need to work longer, pay more in taxes, and start benefits later. We’ll be experiencing exponentially increasing change over these longer lives, and we’ll need to retrain/retool/refresh along the way. All of which argue for a restructuring of how we work, not a return to a post-WW2 ideal, and a reworking of how we enjoy leisure time, “retiring” the current concept of “retirement.”

DATA
Throughout the decade, leaks and breaches of big data caused turmoil large and small:
2013 – Edward Snowden exposes widespread government surveillance
2016 – Panama Papers are revealed, showing myriad ways the rich can stash cash offshore
2016 – WikiLeaks releases Hillary Clinton’s emails and Russia interferes with US elections
2017 – WannaCry Ransomware attack hits computers in 150 countries

Wikipedia lists 138 data breaches from 2010 to the present, from Reddit to Capital One, the U.S. Department of Homeland Security to Uber, Premera Blue Cross to Facebook (Facebook was hit five times; in July 2018, a drop in Facebook’s share price on the heels of its latest data leak wiped out $109 billion from its market value, the largest single day loss in corporate history).

By the end of 2018, the UN reported that more than half of the world’s population is now using the internet. Also in 2018, Europe enacts strict privacy controls for European citizens called GDPR (General Data Protection Regulation), and we can expect the U.S and others to follow.  (Expect California, non-conformist state that it is, to lead here.) We are all in cyberspace now, even if we got there kicking and screaming, and the last decade shows us how we must be vigilant about how we manage our activities and information online. Those of you with kids who want to opt out of learning new technologies, think again; you will need to know about whatever follows SnapChat and TikTok to keep your kids tech smart and safe.

TECH
Social media and gaming were not new when we started the decade, but mainstays that we use today were just emerging: Instagram launched in 2010, PlayStation 4 and Xbox One were released in 2013, Pokemon Go in 2016. More ways to stream/play/be entertained are on the horizon.

Other parts of the tech community were focused farther afield, and there was no shortage of space exploration over the last decade.  NASA’s New Horizons probe visited Pluto (2015), NASA found water on Mars (2015), SpaceX landed a Falcon 9, the first reusable rocket (2015); a new Mars rover is headed out into space next year, complete with an oxygenator (just like in The Martian) as part of the Mars 2020 project.  Recently, I overheard two middle school kids on the bus talking about the budgets of NASA and the Department of Defense, noting that the former is 1/20 the size of the latter, and if they switched budgets, we’d be living on Mars.  Out of the mouths of babes.

In between our personal screen and the Final Frontier, there are technological developments to herald and to watch carefully.  Automation, self-driving cars, drones, AI-driven “helpful tech” from Siri to Alexa are here to stay.

HEALTH
Major health crises – the Ebola virus in 2014 and 2018, the Zika virus in 2016, cholera in 2017 in Yemen, plus famine in Africa in 2017 – occurred alongside medical breakthroughs: a vaccine 70%-100% effective against Ebola was found by the end of 2016; 3D printing created a lab-grown ear (2013); China created monkey clones in 2018.

Like other new ideas, some need to come with a warning label. In late 2018, a Chinese scientist announced he had altered human DNA in twin girls to make them resistant to HIV, news that was widely criticized by scientists and medical ethicists. The technology that made this possible was “CRISPR” (pronounced “crisper” = Clustered Regularly Interspaced Short Palindromic Repeats), which forms the basis for genome editing technology. In June 2019, U.S. scientists used CRISPR to treat a 34-year old woman with sickle cell disease. Also in 2019, a second case of sustained remission of HIV after stem cell treatment aided by the CRISPR research was reported. Alas, most of the decade was spent in a patent dispute between the two scientists laying claim to the CRISPR research and the huge educational institutions with which each is affiliated.

A man-made health threat is that of gun violence, and the decade proved laden with examples: Aurora, CO (2012) — Sandy Hook Elementary School (2012) — San Bernadino, CA (2015) —
Orlando, FL (2016) — Charleston, VA (2017) — New York City (2017) — Sutherland Spring, TX (2017) — Parkland, FL high school — Tree of Life Synagogue (2018) — El Paso Walmart (2019) — Dayton , OH (2019) – White Settlement, T (2019). Active shooter drills become commonplace in schools.

Technology continues to make us safer, and seemingly simultaneously exposes us to more, and deadly, risk.

CLIMATE
We talked about the climate Crisis the whole decade, continuing the discussion organized through the Kyoto Protocol (a 1992 international treaty to reduce CO2 emissions, the first commitment period of which ended in 2012), followed each year by climate change conferences. In 2015, at the UN’s annual climate change conference (COP 21), almost the entire world came together to agreed to reduce carbon. The U.S. and China, responsible for 40% of the world’s carbon emissions, joined the Paris Accords in September 2016. As of October 2019, the hold-outs were Angola, Eritrea, Iran, Iraq, Kyrgyzstan, Lebanon, Libya, South Sudan, Turkey, and Yemen. In November 2019, the U.S. formally began its withdrawal from the agreement, announced earlier during the Trump Administration. The U.S. will be officially out in November 2020.

The face of climate change activism became Greta Thunberg’s, a 16-year old Swedish teen, proclaimed Time magazine’s Person of the Year for 2019. I’ll let her final tweet of 2019 outline where we need to go:

NEW IDEAS
The last decade may have been more about disruption than innovation. Tesla made its public debut in 2010, and last year’s IPOs alone brought Uber, Lyft, Pinterest and BeyondMeat into the public domain.

For 2020 and beyond, the unicorns (private companies valued at a minimum of $1 billion) in the pen include CrowdStrike, The RealReal, Cloudflare, Peloton, Progyny, Bill.com, AirBnB, SpaceX, DoorDash, Robinhood, Casper (bed-in-a-box) and Didi Chuxing (China’s Uber competitor, which recently spun-off its autonomous driving unit into a new company), Ant Financial, Droom, Gitlab, Hemptown, Instacart, Neptune Energy, Palantir Technologies, Saudi Aramco. Remember, the companies that go public are rarely start-ups, they’re often many years (and many rounds of financing) old. And while sometimes they do well, Renaissance’s fund-of-IPOs ETF (IPO), for example, was up by about 33% by the end of 2019…but the S&P 500 was up by 29% over the same period, and with a lot less risk.

LOOKING FORWARD: THE NEXT DECADE

Data — If you’re not paying for the product, you are the product. The “free” services we use so readily are gathering our personal data into privately-owned assets. You may not be concerned about your Instagram account, but you should be concerned about the silos of health care data that are owned not by you, but by a specific health care entity, and not shared. Look for agitation for a national health care database.

Demographics – Longevity, work and family structures are all changing, and our social safety net will need to change to reflect these shifts. There are ways to adapt our institutions to meet our future needs. Don’t get hung up on fear-mongering about costs and taxes; smart legislation on taxes, program eligibility, needs-testing, and even immigration can adjust programs that have proven to lift Americans out of poverty. As a leading First World nation, we owe it to ourselves to look to the future and blaze a trail.  There is a real opportunity here for elders and youth to unite, creating a “great trade” to reconfigure safety net programs like Social Security and Medicare in exchange for big structural changes like universal basic health care and climate action at corporate and governmental levels.  Both age groups have the numbers of people that could sway the vote, and coming together rather than working for their separate interests could benefit everyone.  Oh yeah, and we’ll still have a planet to live on, too.

Government matters – If the impeachment hearings have taught us anything, it’s that there is a whole slew of civil servants who make our lives work. They labor mostly invisibly, with much criticism and little praise, and even less in these last few years. Our trade, our travels, our place in the world owe TONS to these unsung Americans. Government and the people in it matter.

Power – There are two issues here: power politics and power generation. Leaders with dictatorial leanings are striving to consolidate power, and to change the rules so that they keep it. If you’re content as a serf, no need to worry. If not, you’re going to need to expend some energy here, to protest, to vote, to walk out. On the second front, it’s fine to talk about adapting to climate change when you live in a place with most of your energy coming from hydropower and nuclear power. Our economy is no longer dependent on horsepower, or manpower, but on electricity, and some places are going to have a harder time adapting than others. If you want them on board, you’re going to have to pay for it, so watch for ideas to pay for not using coal- or oil-fired plants. It’s like paying for guns to get them off the streets. If there’s a bailout that might be worth the dollars, this could be it.

Attention – When research tells us that being mindful and intentional makes us happiest, you might hesitate when offered the newest, greatest way to stream/play/get high. The age of distraction that’s coming is built of new forms of tv/streaming/video games along with legal cannabis in addition to booze and offers a challenge to us to stay in the game (life) even when we’d rather check-out.

Voting – The 19th Amendment, giving US women the vote, is 100 years old in 2020. This is one voting block that could decide the 2020 elections. The other is the Millennial generation (1981-1996), which is on the verge of surpassing Baby Boomers (1946-1964) as the nation’s largest living adult generation, according U.S Census projections.

The next time you’re inclined to say something snide about a Millennial, think twice.  They will hold an increasingly stronger hand over the next decade.  And besides, you will need them to teach you how to use that new app or how to control your household robot.

These past 10 years have been tough in many ways, and while I’m always glad to be able to make a fresh start, this New Year dawned with some serious dark clouds overhead.  We have big decisions to make; doing nothing IS a decision, just not one we want to make.  Thunberg said it above: This coming decade humanity will decide its future. Our future is really our kids. And the kids better vote.

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Breaking Down the 2020 Debates: Health Care

Posted on Sep 11, 2019 in Health, Planning, Retirement, Taxes

Whatever you might think about politics and politicians, decisions made in your state house, the White House and houses of Congress have an impact on you and your personal finances.

I’m writing this mini-series to break down the issues that come up during the Presidential debates in the months leading up to the 2020 elections. When candidates use buzzwords and scare tactics to win at the polls, we lose the real exchange about how we want our lives to look. You need to understand how a tax proposal, health care plan or student loan forgiveness could affect you.

Upfront I want to say that I offer this with no political agenda. My goal is to take the politics out of policy and try to outline what you need to consider in evaluating a proposal or a politician’s platform. What matters to me are the problems we all face, and solutions to them.

So with that in mind, let’s talk about health care. This a long post, so sit back, get a second cup of coffee (or something stronger), and let’s dive in.

WHAT IS HEALTH CARE?
Let’s start by separating the three components of this subject:
1. Health care insurance
2. Health care services
3. Health – your physical and mental well being

All three components have been touched on during the debates, but it’s the first part – insurance – that is the main focus at this point. Employer plans, the Affordable Care Act, “Obamacare” – this is what the “health care debate” has come to mean. That is: How do we pay for help to maintain, enhance and recover our health over the course of our lives?

We’ll start with an overview of the health care insurance system we have, a little history about how we got here, and the various proposals up for debate.

WHAT WE WANT
Here’s what I think most of us want when we think about health care:

• We want to live long, healthy lives.
• We want to prevent illness and understand that preventative care, check-ups and routine testing, can catch big health issues early and help us avoid them.
• We want quality medical care for accidental injury or the Big Issues we haven’t been able to avoid that treats us without bankrupting us.

WHAT WE HAVE
Our system is almost completely backward. Kristen Gillibrand, Tulsi Gabbard, and Marianne Williamson are all correct that we have a “sick care” system that emphasizes treating illness and not a health care system geared towards preventing it.  We see this in data like that from the OECD which shows that the U.S. has a much higher rate of hospital admissions for preventable diseases than in comparable countries.

In the U.S. we have FOUR health care systems:
• Government-paid / government-provided (the Veterans’ Administration (VA) system)
• Government paid / privately provided (Medicare)
• Privately paid / privately provided (Employer plans)
• Self-pay (the individual covers all costs)

Most countries incorporate everything into one system. Our patchwork arrangement was stitched together over time, during various presidential administrations and political regimes. The VA system was in place when Truman (1945-1953) introduced a proposal that 15 years later would become Medicare. When Eisenhower was president (1953-1961), only 9% of single elderly and 14% of elderly couples had insurance coverage for medical expenses.

Before Medicare, less than 15% of older Americans had insurance coverage for medical expenses

Eisenhower signed into law the bill that gave employers a tax exemption for workplace health insurance plans. The insurance industry does not want to deal with selling and administering plans to individuals, and the lobby behind keeping employer plans and their tax exemption is huge. Kennedy (1961-1963) introduced Medicare but it didn’t pass. It was under Johnson (1963-1969) in 1965 that Congress enacted Medicare under Title XVIII of the Social Security Act to provide health insurance to people age 65 and older, regardless of income or medical history.

Friend, colleague and adviser/physician Carolyn McClanahan notes that the concern at the time was coverage over cost; if the Congressional Budget Office (CBO) were to review the program today, it would not be found to be cost effective. Note also that there was no requirement that Medicare recipients pay into the system. The next time you cringe about “socialist” programs, consider that our wildly popular health insurance system for older Americans could be labeled this way. Put the labels aside and consider a program or proposal’s costs and benefits.

Sidebar: Interestingly, it was former President Truman and his wife former First Lady Bess Truman who were the first two recipients of Medicare

So here we are, 50 years after Medicare, and we are still battling two conflicted camps:
Coverage over cost (universal coverage) and Cost over coverage (lowest cost). The Democrats tend to fall into the first camp, Republicans into the second, and the emphasis in the second camp is not the total cost of the program, but the cost to the government.

What you should ask: When politicos are throwing around concerns
about the “cost” of care, ask “The cost to whom?” What we need to be concerned about is total cost to you in premiums, deductibles, out-of-pocket costs and taxes.

The first camp led us to the Affordable Care Act (the ACA, aka Obamacare) and the second is dismantling it in favor of a free market approach. So what does “Medicare For All” offer us?

WHAT IS “MEDICARE FOR ALL”?
If you are confused about what they’re talking about when they say “Medicare for All,” it’s with good reason. There are TEN VERSIONS of health care insurance reform that fall into four broad categories:

Single-Payer (“Medicare-for-All”):
1. Jayapal (D-WA) and
2. Sanders (D-VT) – Single-payer programs covering all US residents, plus long-term care coverage, replaces all private health insurance by extending Medicare.
Public Program with Opt-Out (“Medicare-for-All-Who-Want-It”):
3. DeLauro (D-CT) & Schakowky (D-IL) – Makes Medicare a private option; individuals are auto-enrolled in Medicare for America, a new national health insurance pro-gram, but can opt-out in a year when they have other qualified coverage; employers can continue to offer group plan coverage or pay 8% of payroll for employee cover-age in Medicare for America; Medicare Advantage plans are retained.
Public Plan Options:
4. Cardin (D-MD) – Extends ACA, giving individuals the option to buy a federal public plan (i.e. Medicare); private and public coverages are retained
5. Bennet (D-CO)/Kaine (D-VA)/Delgado (D-NY) – Similar to #4
6. Schakowsky/Whitehouse (D-RI) – Similar to #4
7. Merkley (D-OR)/Richmond (D-LA) – Similar to #4 with employers able to offer a federal public plan
Medicare Buy-In:
8. Stabenow (D-MI) – Individuals can buy into Medicare at age 55; Medicare Advantage plans retained
9. Higgins (R-LA) – Similar to #8
MedicAID Buy-In:
10. Schatz (D-HI) /Rep. Lujan (D-NM) – States can offer a public plan option based on Medicaid

The Kaiser Family Foundation has created a side-by-side comparison of the competing proposals (current as of May 2019) with a futher breakdown of the details: Get KFF’s Side-by-Side Comparison

From a personal finance perspective, you care most about (1) what is a plan going to cost you, and (2) what benefits do you get with it. From a public policy perspective, we have to think about program costs, and cost containment.

WHO PAYS?
The short answer is, we all do. Directly and indirectly. A lot of people stop listening to the debate out of fear that their health care costs will increase or they will lose benefits with any kind of change. You need to think comprehensively about all the ways you pay for health care coverage, and whether you might get better or more comprehensive coverage under a new proposal.

It’s likely you are paying more for the coverage you have today than you did even a year or two ago. According to the National Conference of State Legislatures, in 2018 the average annual premium for employer-based family coverage rose 5% to $19,616 for by 3% for single coverage, to $6,896. Single employees carried 18% of their premium cost and workers with family coverage carried 29% of their cost, on average.

And it costs all of us by skipping preventative care and developing chronic disease.

How it Works Now
Under our current crazy quilt of coverage, if you’re over 65 and covered by Medicare, you still have premiums to pay; if your income in retirement is above certain thresholds, you’re paying a Medicare surcharge on top of that.

If you’re working, you’ll pay 1.45% of your gross wages with no income limit to Medicare as part of your payroll taxes. (Wages include things like RSU vests – you’ll pay $1,450 to Medicare on a $100,000 vest.) If you make over $200,000 (or $250,000 as a married person), you’ll pay an additional tax of 0.9% on earned income over those thresholds to Medicare, and another 3.8% on net investment income over thresholds.

In addition to your 1.45%, your employer is kicking in another 1.45%. If you’re self-employed, you’re paying the full 2.9% (and possibly + 0.9% + 3.8% over the above-noted thresholds). In case that’s hard to follow, you can find more detail on how these taxes work here.

If you’re working, you may have health care coverage through your employer – though 40% of workers do not. Even with an employer plan, you’ll still pay a portion of the cost for that, and your share has been growing as the costs of health care grow. If you’re self-employed, you’re paying into Medicare and covering your own health care insurance costs at market rates.

On top of your premiums and expenses up to your deductible, a portion of your federal taxes beyond payroll taxes goes to Medicare, and you have out-of-pocket costs for things your plan doesn’t cover as well.

Other Costs
The other ways we pay are through choices we can’t make without losing health care coverage:
• if you want to retire early (before age 65), you’ll have to factor in how to cover health care insurance costs before Medicare kicks in;
• if you lose your job, you’ll be paying the full costs of your insurance coverage (COBRA allows you to continue coverage, but not at the rate your former employer subsidized – you’re paying the full cost);
• if you want to leave your job to start a business, you’ll be doing the same, covering the full cost of your insurance as well as the cash burn of your business;
• if you’ve been covered on a spouse’s plan and want to leave a marriage when you don’t have a job that provides health insurance, you’ll have to find a way to pay for your health insurance.

Or you go without coverage, and we are right back to the problem of avoiding preventative care and facing potentially bigger problems down the road, a burden we all bear. All of these costs stifle the free movement of people and business and innovation.

THE HURDLES OF REFORM
A lot of the discussion about these new proposals centers around cost. And it should: our current system is not only not effective, it’s not sustainable. All the costs you have that are noted above are still not covering the cost of care. Medicare premiums and payroll taxes only cover about half the cost of the program. The balance of what’s needed comes out of the federal budget, and each year the share of your taxes going to pay for Medicare increases. In 2018, Medicare cost $582 billion, accounting for 14% of the federal budget and making it the second largest federal program.  And Medicare does not cover vision, dental, or long-term care.

A major scare tactic in the health care debate is that the new plans will cost you more. During the second presidential debate in July, Elizabeth Warren got it exactly right when she refused to be pushed into saying taxes would rise under a Medicare-for-All plan just in order to get a sound bite for the nightly news. Whether you would pay more in taxes is a red herring. That’s not the only cost you have. What you care about is your total cost for health care coverage.

If I am paying $10,000/year for health insurance with a $6,500 deductible, and someone says I could reduce my premiums to $8,000/year and lower my deductible to $5,000 if I pay $1,500 more in tax, my total annual cost for health care falls by $2,000 (and by even more if my expenses exceed $5,000), for an additional $1,500 in taxes. That $500 net savings is real money to me. Sign me up.

What you should ask: When fear-mongers are raising the issue of higher taxes from insurance reform, ask “What is the TOTAL COST to me?” You pay premiums, deductibles, taxes and co-pays; you need to be concerned about the total cost to you.

Not taking into account total health care expenses is often a costly mistake in retirement planning. According to Fidelity’s Annual Retiree Health Care Cost Estimate, a 65-year old couple retiring in 2019 can expect to spend $285,000 in health care and medical expenses throughout retirement, compared with $280,000 in 2018. For single retirees, the health care cost estimate is $150,000 for women and $135,000 for men.

Some of the proposals would result in substantially greater federal tax revenue, but not from you. Plans that remove the burden of health care coverage from employers also remove the tax deduction Eisenhower gave them for that expense. What happens when you lose a tax deduction? You pay more in taxes. Without the cost of having to provide an employer plan, businesses will pay more in taxes. McClanahan calculated the additional tax revenue to be $250 billion per year.

There are also protectionist obstacles to changing our system. With plenty of profit being made by insurers and fee-for-service specialty care providers, those factions and their lobbyists will do their best to maintain the status quo.

Changes in insurance plans isn’t a complete solution, though. The way we deliver health care in the U.S. has to change, too. We spend $3.2 trillion annually on health care in the U.S and 25% to 30% of that is overhead, while overhead in other countries runs 5-15%. By McClanahan’s calculations, we could provide primary care to all just by reducing overhead to 15%.

What you should ask: When you hear that “we can’t afford” a particular proposal, ask “Since the cost of our existing health care system is unsustainable, what is your proposal to reduce overhead costs?”

REAL REFORM
We started this discussion with the two primary concerns of the cost of care and the benefits you can receive. So far we’ve discussed is insurance coverage for individuals and families; none of this addresses the cost of the health care system, meaning the medical professionals, clinics and hospitals that deliver care, and the range of benefits for which you may be eligible under different plans.

Fixing our health care system mean changes not only in insurance options, but in the administration and delivery of medical care. Watch for who mentions these as the debate continues:
• Moving from four systems to ONE (like Canada);
• Using a single billing system (like France);
• Removing primary care from insurance, providing it as a public service (through Community Health Centers (like Spain);
• Developing a nationalized electronic database for our individual medical information, removing it as an asset that belongs to a specific insurer or hospital network, and shifting its focus from billing to patient history (like the VA ”blue button” system here in the U.S.).

These are all big ideas, but they are not new ideas. Preventative care is not an insurable event, it is something each of us needs and makes more sense to be offered outside of an insurance program. A hybrid system that combines a public-provided “primary care for all” for preventative medicine with public and private options for everything else would give us a couple of things:

All Americans would have the preventative care needed to stay as healthy as possible
We preserve choice for health care beyond basic preventative medicine by offering both public and private options for specialists and care that requires hospitalization
Competition can drive down costs further by having a not-for-profit provider like a public option in the mix to force down costs of for-profit organizations.

It’s hard not to get swept up in the histrionics that make up political debate. Getting to the root of a proposal or plan, and understanding how it might affect you, is the only way to really protect your interests. When the candidates turn to health care, you’re now knowledgeable about the 10 flavors of “Medicare-for-All,” savvy enough to ask about whether they mean single payer, a public option, or a buy-in, and sharp enough to look past labels to the actual plans, to evaluate what they might mean for you.

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Labor Day and Investing in YOU

Posted on Sep 2, 2019 in Community, Investments, Planning, Retirement, Women, Worklife

We’re in an era of constant change. As soon as you buy one thing, there’s a newer version. In the old I Love Lucy television show, Lucy asks the question: “If everything now is new and improved, what was it before? Old and lousy?”

In the same way store shelves are continually restocked with the “new and improved,” we need to think of our skills and talents this way, too. You have no doubt spend time and money on knowing what you know, doing what you do, and becoming who you are. This human capital – you – needs on-going investment and care to stay in top form.

Keeping your tools sharp helps you jump on a new opportunity or take on a new role, and it’s important because sometimes the decision to make a change may not be yours. As the prospect of a recession looms, you need to be able to recover quickly if a downturn affects your job, or company or your industry.

A career transition expert tells me that while this is good advice, you’re not likely to move on it now, even if you’re in a bad job. Like being in a dead-end relationship or on the brink of needing to think seriously about a long-term care plan, no one likes to think about the possibility of future misfortune — job loss, break-up, or broken hip. And yet, now is the best time, when you don’t have to make a reactive plan, but can craft a proactive one.

If you think you can skip this step if you’re retired, you might want to think again. Whether it’s serving in a volunteer role, re-entering the workforce, or keeping up with the grandkids, you’re still going to benefit from learning something new. (Your brain will thank you too – more on that in another post!).

Think FaceBook, Instagram, Slack, Evernote, the newest shiniest iPhone…Continual learning is a habit all of us need to develop, not only to recession-proof your income-generating capacity, but also because the way we live will continue to change at an ever-increasing pace.

Bill Burnett and Dave Evans, co-founders of the Life Design Lab at Stanford and recovering techies themselves, argue that much unhappiness comes from an unsatisfying work life, and by designing your life you move into a mindset to constantly evolve who you are and what you can do.

There is no better time to start than right now.

Make it Personal
If it sounds daunting to tackle “how to keep up with an ever-changing world,” literally take it personally: think about what you’d like to do that you’re not doing now, and identify how you can add to your tools and talents in those areas.

You can use this exploration to think about career or industry changes, in addition to getting to the next career step. Yes, you need to pay your bills, and you’ll spend 2,000 hours this year working that 40-hour a week job to do it – you may work more. Life is short, but workdays are way too long to not like what you’re doing. Thinking about what you’d like to learn next could take you in a satisfying new direction.

What’s the next step? Do you want to move to the next rung on your career ladder? Pivot into a new function? Make a move to a new organization? Attract a new opportunity? This might mean thinking big, and sometimes that means making big changes. But this is your life, after all. What skill, experience or quality lights you up when you think about adding it to your toolbox?

When you do this, your values and personal strengths naturally enter into the mix. And when you align what you’re doing at work to what you value, you do better work, are more likely to be inspired and happy.

Shifting your thinking from “what skill do I have to have to keep my job?” to “what can I learn that will help me do my best in my career?” changes your focus from thinking about working in a job to thinking about working on YOU.

Make it Portable
It’s not only about what your organization needs next, it’s about what you can learn that you can take with you. In the work world today, you want and need to be able to jump into a new role, or to a new company, when you want to – and even when you don’t.

In her book, Radical Careering, Sally Hogshead explains portable equity this way:

Portable Equity is personal capital that boosts your long-term career opportunity and market value far beyond your current job: your experience, skills, network, reputation.

The portable part of this is important. Many covet the equity compensation that comes from working someplace that pays employees in some form of company stock. But that kind of equity can dissolve overnight based on the fickle nature of financial markets, and it can get left behind if you don’t stay long enough. Portable equity moves with you. It IS you. As Hogshead rightfully points out, “You can be fired from a job, but you can never be fired from your career.”

When you develop a mindset of continual improvement in yourself- in all the things you know and can do and can offer the world – you’ve made the leap to thinking about building your portable equity. It’s not a machine you leave on the shop floor, it’s not a proprietary software system your company built for internal use. It’s the skill you have to use that machine in any shop, the knowledge of a system that is like many other systems.

The Three Pieces of Portable Equity
Your human capital consists of skills and experience, your network, and your reputation. Start by choosing one thing to work on next, and write it down. Plans that you write down have a 42% better chance of being achieved:

“I will learn python.”
“I will understand tax reporting for Americans overseas.”
“I will learn canine CPR.”

One: Skills and Experience
Picked a skill or experience to target? Once you have your target, research resources to help you get it:
Places – Classrooms, on-line learning, local workshops, your organization. Where can you find the resources to learn what you need to know or do? EdX, Coursera, your library, YouTube – there are more ways to connect with your interests than ever before.
Funding – Check to see whether your company offers financial assistance for what you’re planning, or if your boss will approve funds to pay for it. The thing about investing in your human capital is that while you’re going to benefit your company as long as you’re there, it doesn’t mean you can’t take it with you when you leave. Barring a corporate budget for development, think about setting aside your own reserve for career investment.
People – Who already has this skill you’re after? Who is doing the job you want? And how did they get it? Perfect questions for your network.

Two: Network
Decided to expand or engage your network? Just like getting a loan from a bank, it’s easier to connect with your network when you don’t need anything from it. A network, a real one, is not just 500-plus connections on LinkedIn. It is a living thing, and you need to participate. You are connected to these people for a reason.

Find a cohort – another person or small group of people you know who might be interested in the same thing. Early in my career, I wanted to learn SAS and gathered two other colleagues to take a weekend course.
Find an accountability partner and schedule regular coffee or lunch or exercise class. Even if you’re working on different next steps, you can encourage each other.
Don’t overlook the social part of your network. You never know what you’ll find when you speak from the heart about what you want next. A recently laid off woman in my book group found a connection to her next step, a career pivot, just by letting us know what was going on with her. Most people want to be helpful.
Update your connections – all of them – Keeping your network up-to-date isn’t about just asking for something. Your posse knows about your successes already; let your broader circle know what’s new. It might be as simple as turning on alerts in LinkedIn. Or when your brunch buddies are checking in since your last get-together, give yourself some snaps: “Things are good; had a few forgettable dates, still enjoying my yoga class, and took a class to learn python/taxes/canine CPR.” You never know who or where opportunities to use your new skills might pop up.

You don’t have to do this alone. And you shouldn’t. Find friends, colleagues, family who can help you. You don’t need a lot of people, but you do need people. They listen to your Big Idea if you have a major transition to work towards, they offer feedback, they refer you to others who can help, they are a shoulder to cry on. Sometimes just getting the word out to that first person can get the ball rolling.

A SPECIFIC CHALLENGE FOR WOMEN: Women are usually more than willing to offer help someone else. When you help another woman, and that woman asks “if there’s ever anything I can do for you,” ask her to pay it forward: when she has an opportunity to help another woman, ask her to commit to doing it. Imagine what we could accomplish if you knew that every woman you helped would help another, and that when you needed it, that huge network would be there to help you.

Three: Reputation
Want to ensure that your best self is what recruiters find when they go online? It’s super to have learned a new programming language, added another certificate in your field, completed a project that stretched your skills and knowledge. Don’t keep it to yourself.

Clean sweep your social – Whether you love social media or hate it, it has become a necessary tool of work life. A recent CareerBuilder Study found that 57 percent of hiring managers are less likely to interview a candidate they can’t find online, and 70 percent of employers use social media to screen candidates. More than half of managers have decided not to hire a candidate based on their social media profiles. Think about online complaints about your job, or photos from a late night out. Check your online reputation through the channels you manage yourself; do a Google search to see what else turns up about you. The rest of the world is going to see that too.
Update your “Atta Girl” file – We live in a culture that requires both competitive engagement and for women, modesty. Ladies, let’s get over that last part. If you can’t get comfortable using your own words, use someone else’s. You will need to sing your praises. On your resume, at your next performance review, at the interview. You need a file or e-folder where you keep track of every compliment, each piece of positive feedback, or stat showing successful outcomes that you receive or contributed to. And when a crap day rolls around, you have a secret weapon to remind yourself what you can do.
Update (or create) your LinkedIn profile – More than half of employers won’t hire a candidate without an online presence, and employers are increasingly looking online to check up on current employees. If you’re planning a career change, be smart about whether you want to advertise that you’re “looking for new opportunities”. Think about whether your online profiles reflect where you are – and where you might want to go next. If you’re enrolled in a class, add it to your profile. Your online profile becomes another accountability partner, and you’ll have another update for your circle once you complete your new thing.

Make It Happen
Other than a haircut, change doesn’t happen overnight. But it can look swift and feel effortless if it’s aligned with what you love to do.

Reframe how you look at your talents not as what you need to do for someone else, but with an eye to what really floats your boat. Pick one step or all three, and get to work. Vocation or avocation, you’ll invest the majority of your time in it. Make sure it’s serving you and what you want out of life – and make sure you can take it with you.

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Awakening From Slumber: Ten Years After The Financial Crisis

Posted on Jun 27, 2018 in Community, Investments, Philanthropy, Planning, Retirement

Ten years ago I was in Rome and passed a shop on Via del Corso that sold crystal balls.  If I Image result for crystal ball shop italycould have figured out how to bring one home without setting off airport security, I would have picked one up for the office. Then when you ask me what I think will happen in the market, I can point you to my little Roman souvenir and you will be able to see the future as well as I can.

One of the closest things I have to a crystal ball is my relationship with PIMCO. In addition to being the largest bond manager in the world, PIMCO has the biggest and most geographically widespread research team I know. Most of you who work with me hold at least one PIMCO fund in your portfolio. Even if you don’t, you have heard of their research: they were the folks who came up with The New Normal to describe economic and financial life after the Great Recession. (And which you are likely using to describe any number of new trends in your own life.)

Each year, PIMCO holds its Secular Forum, a gathering of its internal investment professionals along with guest speakers to discuss and debate the state of the global economy and markets over the next three to five years. Like much of PIMCO’s team, my background is in bonds as well, in markets for which critical to understand not only an individual issuer’s ability to repay a debt, but also the longer-term trends that will affect its ability to do so. As part of PIMCO’s investment process, its Secular Forum is designed to promote new ideas and differing points of view, to look into the future for the trends they believe will have important investment implications. They meet, then they publish their results for their advisory firm clients.

The title of this year’s look at 2018 and beyond is called “Rude Awakenings.” That gives you an idea of where we are headed.

The Great Recession: Ten Years Later
After The New Normal, PIMCO dubbed the last five years (2014-2018) the “New Neutral.” This moniker described the low growth, low interest rate environment we found ourselves in world-wide, chugging along without much economic change, with your savings accounts earning next to nothing, but overall slow and steady growth in the economy.

PIMCO predicts our economy will be more volatile over the next several years than this past New Neutral period, and the global political environment will be rockier as well. Nations which worked together to combat the aftermath of the Financial Crisis are showing nationalistic tendencies, meaning it may be every-nation-for-itself when the downturn comes. Neutral no longer, we will need to be prepared for Rude Awakenings. We will need to be flexible, to be able to respond to changing conditions, and to take advantage of opportunities in the investment landscape as they present themselves.

Here are four of the Rudest Awakenings we can expect:

Rude Awakening #1: You expect the same stock market growth in the next 10 years that we’ve had since the Financial Crisis. The big question many of us are struggling with is the state of the business cycle, and when we will shift from expansion and growth to contraction and recession. PIMCO’s research points to a good chance of recession in the next three to five years, most likely sooner rather than later. It’s surprised many of us that the stock market continues to be supported at its current level.

PIMCO forecasts a downturn in 2020, though they note it could be a little later due to government spending (fiscal stimulus) on infrastructure, which means more jobs and economic growth. But because this type of deficit-spending is coming at a time late in the economic cycle when we have very low unemployment, PIMCO calls this stimulus a “fiscal sugar rush.” The “sugar rush” is the artificial high that comes from spending money we don’t have (deficit spending, thanks to tax law changes) on roads, bridges, and the like and risking overheating the economy when unemployment is already so low. This type of stimulus tends to be an expansion-killer as debt levels become unsustainable, and spending that creates deficits increases uncertainty that PIMCO believes is not yet reflected in the stock market. Any of you with kids know how bad the crash can be after a sugar binge.

The things that most affect the timing of the recession are what the Federal Reserve does to manage inflation, whether we get a rise in worker productivity, and whether the current trade spat turns into a full-fledged war.

Rude Awakening #2: Growth in worker productivity is always good for the economy  Worker productivity has been below average since the Great Recession, and while gains in productivity are typically desired as a means of expanding the economy, productivity growth can have a dark side.

Technology-driven productivity growth could extend the current period of expansion, pushing out the recession to a later year. But technology can also be disruptive to markets and the economy. In the case of new technologies, these have an additional impact on legacy companies: think Amazon and every bookstore chain you’ve ever known. New technologies often disrupt industries and displace/replace workers. This higher “technological unemployment” can lead to a populist reaction, and we’ve seen a snippet of what populist sentiment can reap in a number of countries, the US included.

Rude Awakening #3: Populism doesn’t seem to have much impact on the economy Whatever you might think about the current US administration, the American version of populism has been well-liked by financial markets. But expect a different flavor of populism if we hit a recession: Expect a more radical populism that demands redistribution of wealth or income tax increases, nationalization of key industries, and/or a protectionist trade policy.  Italy is serving up an early 21st century version today, where we’re seeing a widespread populist reaction to world events.

Rude Awakening #4: Protectionist trade policy will level the playing field for US goods PIMCO considers China to be less of a risk to the global economy now than previously, as they have re-centralized power and are exerting more control over their economy; they are less of a loose cannon now. That said, tensions over the trade imbalance with the US and over intellectual property rights are growing. PIMCO sees the US-China smackdown as the Rising Power vs. Ruling Power WWF fight of our time: In ancient times, Athens challenged Sparta, in the last century, Germany challenged Britain. Neither of these bouts ended well for the challenger, but there was a whole lot of disruption to global economic systems. China’s challenge to the US as the world’s pre-eminent power is not expected to lead to armed conflict but could lead to rude awakenings on the geopolitical front. Not even a month after PIMCO’s Secular Forum, it appears this expectation of disruption is becoming reality with escalating trade tariffs.

What Will this Next Recession Look Like?
If the future plays out in these ways, what kind of recession will we be waking up to find? The expectation is that this time, the downturn will be shallower and longer than it was in the Great Recession (December 2007-June 2009). Two things that are different now are that (1) it’s hard to rely on central banks to ride to the rescue this time, and (2) we have much greater economic inequality worldwide. The first issue means we won’t have the same solutions we had during the last downturn to help avoid a global economic meltdown, and the second issue means that more people could be affected in this next time, with seriously frayed social safety nets and little protection against great economic harm.

What To Do?
So now that I’ve given you lots over which you can lose sleep, what are you supposed to do about it? How you can prepare? Consider the following:

Get serious about paying off debt. Whether it’s credit card balances, a home equity line of credit or other non-mortgage borrowing. The next year or two is the time to get serious about paying it down. It’s going to cost you more in interest as the months go by, and you might need that debt capacity if things hit the skids.

Build up your cash reserve. If you’re working with me, I’ve already bored you with the fat cash balance I think you should have in reserve. For the rest of you: plan on setting aside a minimum of six months’ worth of expenses (12 months if you are self-employed) in a savings account, or a couple of CDs.

Start setting aside funds for planned major purchases.  You could end up getting them for cheap. One of the things about a recession is that overcapacity as the economy winds down means many goods such as cars and other big ticket items go on sale, and start to come on the market at better prices. If you can, maybe wait to 2019 or 2020 to pick up a new car or major household appliances for less.

Work on pink slip-proofing your job. You know you are doing a great job at work, but you will need to make sure others know, too. No one is immune to job loss, and if you think you’re high enough up on the food chain to avoid being sent packing, remember from the company’s perspective, getting rid of you means getting rid of your big comp package too.

Retirees need to re-assess their asset allocation. -With the next recession expected to be shallower but longer than previous ones, that means arranging your resources so that you’re not having to liquidate anything at an inopportune time. If you’re working with me, we’re building “buckets” of assets to protect your retirement draws three to five years from now. Going forward, structuring this protection becomes even more important.

Consider stockpiling your resources for charitable giving.  Our social safety net is more frayed now than it has been before, and when the recession comes, more people will need help. Demand on charity will be greater, just at a time when donors are more strapped, too. If you are charitably inclined, using a donor-advised fund to accelerate the tax benefit of your contributions is one way to stockpile funds to donate when needed over the coming years.

Take this time to reflect on what’s really important to you. This is my standard refrain. When times are good, it’s often easy to drift towards all things bright and shiny and to forget about the warm and wonderful: the people you love, the things you like to do, the experiences you want to have. It’s also a hard time to put off gratification when it seems like the whole world is on a shopping spree (they are, but it will more than likely come to no good end.)

In our always-changing world, it should come as no surprise that the next ten years will look very different from the last ten. Best we can tell, you can expect more volatility, and be prepared for a recession in the near term. The timing of a downturn is always a confluence of events that are not hard to see but whose coming together is difficult to predict. In the meantime, be cautious about getting overextended — whether stretching financially to buy a new house or taking on other debt to finance spending — and be mindful about maintaining or stockpiling a cash reserve.

Remember that there are limits to the things you can control, and the trajectory of our global economy is not one of them. Consider what you can do on the list above, and then go out and enjoy the rest of life: take a walk, see friends, hug your dog, hang out with family. These things you can do something about, and ultimately they are what really matter as well.

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