PHILADELPHIA REFLECTIONS
Musings of a Philadelphia Physician who has served the community for six decades

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Benjamin Franklin
A collection of Benjamin Franklin tidbits that relate Philadelphia's revolutionary prelate to his moving around the city, the colonies, and the world.

Revolutionary Philadelphia's Patriots
All kinds of people were patriots in 1776, and many of them were all mixed up about what was going on and how they stood. Hotheads in the London Coffee House stirred up about an inoffensive Tea Act, Scotch-Irish come here to escape the British Crown, the local artisan class and the local smuggler class, unexpectedly prospering under non-importation, and the local gentry -- offended to be denied seats in Parliament like other Englishmen. Pennsylvania wavered until Ben Franklin stepped forward with a plan.

Financial Planning for a Long Retirement

How should an individual investor ensure they have enough money for retirement?

Such a person is often a professional or entrepreneur who has worked to accumulate wealth. Legions of "advisors" are lined up to take this money and manage it or else to sell "products" that promise to solve some problem or other.

A person who has created their career and their wealth from scratch by intelligence and hard work can also manage their investments themselves, or at least supervise the process from a position of strength created by knowing what needs to be done.

This collection of articles explains to the individual investor how to take control of their wealth. They may eventually decide to look for help from an advisor but they will retain control of their assets and they will know what to do.

Financial Planning videos on YouTube

Old Age, Re-designed
A grumpy analysis of future trends from a member of the Grumpy Generation.

Why Bother Investing?
In a sense, money is worthless until you spend it.

Right Angle Club: 2013
Reflections about the 91st year of the Club's existence. Delivered for the annual President's dinner at The Philadelphia Club, January 17, 2014. George Ross Fisher, scribe.

Stretching Out Your Retirement Savings

{Benjamin Franklin}
Benjamin Franklin

Benjamin Franklin was able to retire from the printing business at the age of 42. His partners bought him out in eighteen yearly installments. In the Eighteenth century it was unusual to live past the age of 60, so Ben felt pretty well fixed. Unfortunately for this planning, he lived to be 82, so when he did reach the age of 60 he was forced to look around for postmasterships and other ways to survive, for what proved to be 22 more years.

This is the other side of a coin; on one side is written, "Protect your family if you should die too young". On the opposite side is written, "Be careful not to outlive your savings". For centuries, life insurance was sold to people who mainly feared the first possibility, but it never completely addressed the opposite contingency, since annuity insurance ordinarily is sold for a fixed number of years, and the insurance commissioners of some states require that to be the case to protect the solvency of insurance companies. Unfortunately, that shifts the risk of guessing wrong onto the subscribers' shoulders. Since the medical profession has unexpectedly lengthened the average life expectancy (by thirty years since 1900, or by five years in the last ten), experience rather like Ben Franklin's could become pretty commonplace.

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Retirement Saving Debt

There exists a type of insurance policy to address this issue, but few insurance companies offer it. We will briefly describe this sort of policy, in case it becomes more widely available, but it is primarily described here to illustrate some issues to consider. If you can get it for a reasonable price, or if you can get it at all, the outline of the policy would be to set a premium and promise to pay 6% for the rest of your life. Underneath the promise is the reality of paying 6% for eighteen years as a non-taxable return of principal. Following that, you don't need to get a postmastership, you are paid a taxable 6% until you die. Presumably, the insurance company has actuaries to help with the math, so the insurance company makes money if you live less than your life expectancy, and loses money if you live longer than your life expectancy. If life expectancy suddenly extends much longer (let's imagine a cure for cancer appears), the insurance company is going to go broke. That's why insurance commissioners are uncomfortable with the concept, even though it is obvious how desirable it would be if it could be made workable. And so that's also why annuity insurance typically states a fixed number of guaranteed years, and expects the subscriber to shoulder the risk that the guess turns out to be neither far too little, nor far too much.

Any insurance has an administrative cost, so everyone must consider some non-insurance solution to whole problem. Therefore, we propose you re-examine the old saw about "never dip into principal". If you don't have enough money, you can't do very much except depend on the government, your family, or your fairy godmother to help you out, although it must be obvious that all Americans would be wise to consider retiring five or ten years later than they hoped. Very likely, the government is going to have a difficult time sustaining even the present tax exemption of retirement funds, medical insurance and social security. Those are called entitlements, but if the government eventually can't afford them, it won't matter what you call them. If entitlements keep getting extended, we can expect our nation to resemble the ancient Chinese and Indian nations -- able to build palaces in their golden era, but eventually crumbling into a gigantic slum in centuries afterward. So please, if you are able to do it, try to keep gainfully employed for a few extra years. If you do it (and some people can't) you may be able to realize the American Dream.

{Inheritance Tax}
Inheritance Tax

The traditional American dream was to accumulate enough money to live off the income from it indefinitely, never touching principal, and then exposing the principal to destructive estate taxes after you finally die. Unless you are unusually wealthy, there isn't much left for the next generation after estate and inheritance taxes and expenses. It's a little inefficient to accumulate more than you actually need, but the government gravitates toward the least painful methods of collecting taxes. By confiscating this safety surplus, however, it declares that "Every ship (generation) must sail on its own bottom." And therefore it must acknowledge responsibility for what inheritances ordinarily pay for, like charity and good works. But there remains a quirk to this.

If Ben Franklin's partners had arranged to invest the money until he needed it, they could at least have afforded to finance two or three extra years. After inflation and expenses have eaten away at your retirement income, your principal may not generate enough income to last forever, but it is still big enough to pay for several years of retirement, which may in fact be longer than you are destined to live. Remember two things: 1) a principal sum, big enough to support you indefinitely, must be roughly eighteen times your yearly expenses. If it is only big enough to support you for fifteen years, it will seem too small until you realize you are probably actually going to live, say, five years. And 2) as far as leaving an inheritance to your children is concerned, there is a realistic probability that the government will consume most of the estate before it ever gets to the kids. These fundamental truths are presently obscured by the Federal Reserve artificially forcing interest rates to less than 1%. But if you can just hold out for a few years, it seems entirely likely that interest rates will return to 6% (meaning your principal will once again produce eighteen equal installments). But such a return of interest rates to normal levels will force government to pay a comparable amount as interest on its bond debts (meaning it will get hungrier to escalate your estate taxes.) This isn't nearly as satisfactory a solution to the life expectancy quandary as retiring five years later than you once expected to, but you can't say we didn't warn you.

And as for what happened to Ben Franklin, you can read his will. He died a very rich man as a result of shrewd investments, later in his life. Ben left eight or nine houses, several thousand acres in several states, a gold-handled cane, and a portrait of the King of France surrounded by hundreds of diamonds. But it would not seem wise for the rest of us to count on accumulating that much new wealth, after attaining the age of sixty.

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