Friday, February 28, 2014

Another Problem with the Roth IRA (Cookie-Cutter Solutions)

What works for one person might not work for others.   Financial advice is not generic, but specific to each person's situation.   Do the math on your own situation before adopting someone else's advice.

In an earlier post, I mentioned that converting to or starting a Roth IRA might not make sense.  Financial advisers tout how great the Roth IRA is, and many people go out and open them, without really understanding why they are better or worse than a traditional IRA.

In a very recent post, I mentioned that I did the taxes for some friends of mine, who between disbursements from their regular IRA and Social Security, made $44,000 a year and paid no taxes.  That's right, no taxes, neither Federal or State!

I also recently read, on the "Mr. Money Mustache" site, about a young man who is putting all of his retirement savings into a Roth IRA.

While his savings rate (15%) is commendable, I question whether he should think about starting a regular IRA as well, rather than put all your eggs in one tax basket.

You see, in a Roth IRA, you pay taxes on the money going in, but no taxes on the money coming out.   This can be handy, if you make a lot of money and want to live a rich retirement, tax-free.   It also means if you want to retire early, you can take out money tax-free.

BUT, for ordinary retirement, he may end up paying little or no taxes anyway, and in such a scenario, he is missing the boat - paying taxes at the highest rates (while earning) and avoiding non-existent taxes in retirement.

So what's the answer?   There is no answer.

You have to crank the numbers and do the math for your particular scenario.  Cut-and-paste answers don't always work.  What works for me, might not work for you, and vice-versa.

For example, this same young man was wondering whether to pay off his mortgage, and someone cited my experience as an example.

The problem is, my experience was that of a 50-year-old facing early retirement, with a 30-year 5% mortgage with a $3000 a month payment - and plenty of retirement savings.   For me, it made sense to take a tax-free lump sum payout from the sale of my vacation home and pay off my mortgage.  Going into retirement with a huge monthly nut to crack, made no sense at all.

For him, a different story.   He is 30, has a low mortgage payment with a small balance (compared to the market value) on a 15-year note at less than 4%.    He has time to pay off this note before he retires, the balance and the payment are not a substantial burden, and he should concentrate on building up savings, as well as paying down debt.

TIME - that is the key.   For him, compound interest is a friend.  Contributing to savings has a snowball effect.   For me, a dollar I put into savings today might be a  $1.25 in retirement, factoring inflation into the mix.   My needs at age 54 (now) are far different from that of someone at age 30.  I'm already a millionaire.  I don't need to "save up for retirement" anymore - just coast until age 59.

What worked well for me (eliminating about $20,000 a year in interest payments, that would have killed me in retirement) would probably be silly for him, particularly since his mortgage payment is so much lower than mine - and since he makes more money (at $75,000 a year) than I do.  In fact, he would benefit from tax deductions far more than I would.

Get a calculator, and use it.  Figure out what works best for YOU.

But do the math.  Don't just adopt off-the-shelf solutions.

Thursday, February 27, 2014

National Prescription Savings Network?

You may receive an unsolicited "prescription savings card" in the mail from National Prescription Savings Network, or a similarly named company.   Toss it in the trash.

In the mail today,  a window envelope with "Cards XXX enclosed" (in that computerized font that VISA and MASTERCARD uses) and the hefty feel of a credit card enclosure.   My first reaction is "If these are real credit cards, this is not a very safe way to mail them!"

But I open it up and there is this letter from the "National Prescription Savings Network" promising me "up to 75% off" on my prescriptions if I just "present this card" when I get a prescription filled.

This is not insurance, the letter says.  It is not part of a government plan, either.   I don't have to pay a fee, or join or anything.

So what gives?  Why would someone give out a card for free that would give you a discount?

Well, they aren't giving out free money samples today at the bank.  And in fact, no one gives away things for free.

There Ain't No Such Thing As A Free Lunch - TANSTAAFL!

So what are these people after?  Your money?  Maybe.  Personal information?  Maybe as well.   They are certainly after something, because no one - no one - just gives stuff away for free.

And of course, once again, we have a letter that is faked up to look like something from your insurance company, your credit card company, or the government, although if you read it carefully, it clearly is none of the above.

If you Google "national prescription savings network" you come up with some interesting hits.  In some instances, it seems they actually charge you more than the "cash price" for a prescription.   And if you have existing insurance, it is a far worse price.


"We showed the prescription cards to Tracie Mims at Family Pharmacy in Aiken. She says the cards offer little to no savings and only work for the uninsured.  We asked her if it was more of a trick than a treat when comparing the savings with the card to their own cash prices on various drugs.. "A trick," says Mims. While she is dressed for Halloween she also wants to dispel some myths about using some discount drug cards.  "If we submit a claim for that discount card it comes back close very close to our cash price. Sometimes more expensive than our cash price," says Mims."
"For example, Hydrochlorothiazide is $5.34 at Family Pharmacy and using the U.S. Prescription Discounts card it totaled 30 cents more. Even a more expensive drug like Nexium is $245 at Family Pharmacy and with the U.S. Prescription Discounts card the savings was only about $1.  "All your personal information that you give to the pharmacy is subject to go to these insurance companies," says Mims. Including what kind of medications you take. We investigated the company and discovered the Washington, D.C. address is just post office box inside a UPS store."
"The New York Better Business Bureau says the company name is Script Relief LLC which gets a C rating. The BBB says the company has these five alternate business names:
U..S. Prescription Discounts
Help Rx
National Prescription Savings Network
The Healthcare Alliance
"It submits to that discount card and they can know all the information about you," says Mims. Knowing this information now, Thelma Thornton says she knows what she will do with her cards. "I guess I will just throw them away," says Thornton."

The bottom line is that if you already have insurance you likely get a better deal with your co-pay than you do with this card, which might give a slight discount off the cash price of a drug.   By the way, it pays to ask what the cash price is, of any prescription, as it could be lower than your co-pay, and not all pharmacies automatically give you the lower price.

For example, I was a member of the Walgreens pharmacy plan (which had an annual fee) and my prescription under that plan was $9.99.   I wend to the pharmacy and they charged me the $15 co-pay that my insurance provided.   When I pointed out that I was part of the $9.99 plan, the pharmacist got all huffy and said, "well, you can't use both plans!"

To which I replied, "I'm not trying to.  I just want to use the one that costs less!"

I no longer shop at Walgreens or CVS.   Grocery store pharmacies are more convenient, easier to use, and cheaper.   I can now get that same prescription for $9.99 for a three month supply at Winn Dixie, and no annual fee is involved.

Many drugs are, in fact, cheap.   I went to the doctor for an antibiotic the other day, and she mentioned three pharmacies that would fill the prescription  for free -  without any insurance or co-pay.

So you have to watch pharmacies carefully and ask pointed questions, because they might not charge you the lowest possible price, unless you force the issue.   And if you present this "card" to a pharmacist, he may or may not point out to you that the cost is higher than your co-pay or the even the cash price.

Only an idiot would pay the "retail cash price" for a prescription at any pharmacy.  With prescription clubs offered by the pharmacies, you can get huge discounts automatically.  And if you already have insurance (which everyone should, now that Obamacare is here, right?) then you would likely get a better deal, using your insurance, than one of these cards.

So, the bottom line is this:  These people send you a card in a mailing that at first glance, looks like something from the government, your credit card company, or your insurance company.  This is deceptive and misleading.   Do you need to know any more?  They have telegraphed, up front, what sort of folks they are.  The relationship will not go uphill from there.

Second of all, they don't explain, in their letter, how their system works, or how, for no fee on your part that you are going to get something at a discount.    If someone can't explain, in ten words or less, what they do, they are likely trying to deceive you.

And if someone is operating under at least five different business names, you should think long and hard as to why they are doing this.

And I think the idea is this:  To get people to think this is their new insurance card, and to use this card in place of insurance and actually pay more for prescriptions.  The company gets a cut of this, and the pharmacy gets to charge more for the prescription.   They win, you lose.   No wonder it's free!

So, just toss it in the trash with the rest of the junk mail.  And walk away from free lunches.

Basically, anything that arrives in the mail, unsolicited, should be treated as junk mail and tossed.   You are never, ever, ever going to get a great deal from some unsolicited mailing, particularly one that is faked up to look "official".

UPDATE  May 2014:   A set of "prescription savings cards" arrives today in the junk mail - not even addressed to a named individual.  This time, they are in the name of "Healthcare Alliance".   Toss in the trash.


"How does the company make any money? They get a small amount, like a processing fee, from pharmaceutical companies when the cards are used; they’re aligned with this company to provide the discount the user receives."

In other words, they may or may not give you a "discount" from retail prices, but they get a small fee if you use the card.  If you mistakenly think this is your new insurance card and use it instead, you end up paying close to retail prices for prescriptions (instead of your co-pay) and get ripped off, and they get paid.

THAT is the gag...  They want confused people to think that this is their new Obamacare prescription card, when it ain't.

Tuesday, February 25, 2014

Little Money, Big Money

It is temping, once you start making big money - or accumulate big money - to stop thinking about little money.   But that would be a fatal mistake.

One weird thing about saving for retirement (as opposed to getting a pension) is that in order to retire comfortably, you have to save up this big pile of dough.   For a middle-class person hoping to maintain a middle-class lifestyle, this might mean saving a half-million to a million dollars.   And that is a lot of money - big money. 

Using the 4% or 5% rule, a half million to a million dollars will insure $25,000 to $50,000 a year in income, which with Social Security should be sufficient for most people to retire comfortably in most parts of the United States.

Thus, if you are getting a pension of $25,000 to $50,000, you have the equivalent of a half-million to a million bucks.   Yet most pensioners getting $50,000 a year don't think of themselves as millionaires.

And this is the interesting conundrum for the 401(k) generation.   For the first time in American history, a large number of people are starting to accumulate significant sums of wealth.   My parents' generation got by on a pension and social security - and maybe a small inheritance from their parents, and the money they cashed out from selling the family home, as well as what they managed to save during their working life.

Without that pension, our generation has to save at least double, perhaps triple, what our parents' saved, and it is a staggering amount of money.   And while many companies matched, dollar for dollar, 401(k) contributions in the early days, today few companies match at all.  So it is even harder for the next generation to save these huge amounts of dough.

But that was not the point of this post.

One problem that occurs when someone has a lot of money saved up or handed to them (particularly the latter) is that they think they are "rich" and stop thinking about the little money.  Businessmen have this same problem - they get a big check from a client, and think they no longer need to worry about small expenses (I know I fell for this, at one time, myself).

What do I mean by big money, little money?

1.  Take as an example Joe and Lisa.   Lisa inherits Big Money from her parents.   How much?  She won't say, but she says it is "a lot."   I suspect it is a lot less than she thinks it is.   A million dollars?  Perhaps.  But as I noted above, a million bucks isn't really a lot of money - just enough to finance the rest of your life - at a modest income.

But like many folks who get lump sum payouts, Joe and Lisa think they are "rich" now, and don't have to worry about little money - the daily expenses in their lives, which, when added up, come out to a lot of money, over time.

So they saddle themselves with lots of small expenses.   They buy a vacation home and a new car, adding thousand of dollars to their monthly expenses.  New smart phones, of course, and that luxury vacation.   They can afford it, right?   After all, they are millionaires.

Problem with being a millionaire is, once you start spending it, you ain't a millionaire anymore.

What will happen to Joe and Lisa is anyone's guess.  But I suspect, like with lottery winners, they will burn through a lot of money over the next few years before they realize that the amount they have isn't finite.  And when a million bucks becomes $400,000 or less, they will blame "the market" or the government or the welfare queens for "taking away all our money!" when in fact, they took it away from themselves.

2.  Another Example is the 401(k).   I am happy to say that I have enough saved up to retire on, fairly comfortably.   But checking the balance on it can be a nerve-wracking experience.  On a day-to-day basis, my net worth can vary by $5000 or more - sometimes as much as $25,000 or more.   When you have big money, small changes in the market result in big changes in your balances.   One day you can lose or gain enough to buy a brand-new car.   And your mind has a hard time wrapping itself around that.

And it is temping, having this much money, to think, "I don't need to worry about little money anymore - I can afford it!"   But that would be wrong.   Just  because you made $5000 in the stock market yesterday doesn't mean you can afford to be blasé about the cable bill or your cell phone bill.   It is these little expenses, that over time, can sink your rowboat.

For example, if we use the 5% rule for retirement withdrawals, and you have a million dollars saved up (that would be nice) you could have an annual income of $50,000 a year.   But if you increase your monthly expenses by 10%, you would need an additional $100,000 in savings to cover that additional $5000 a year.   And since you are retired, you really can't increase your savings at a whim.  The net result is, of course, that you are shaving a year or two off the duration of your savings, which could be catastrophic for you down the road.

Little money is still important - and in fact more important than Big Money, in terms of retirement lifestyle, no matter how much you've saved.

3.  A Third Example is the Small Businessman.   I remember when I started my own firm, I had nothing but an old desk and a laptop, and a dozen cases to work on.   Back then, we could charge $10,000 per case, and it wasn't long before I got a check in the mail for $80,000 from a client.   That's a lot of money - perhaps the largest check I ever held in my hand, at that point in my life.

And was tempting to think, "Gee, we're rich now, with checks like these!" and go out and rack up additional monthly expenses.   We need another phone line, a new desk, and maybe a secretary to help out with the docketing and filing.   With checks like these coming in, the gravy train has arrived!

But the truth is, of course, that there were already a number of expenses in running the business.  And once I got done paying the rent, the light bill, the phone bill, funding my IRA (which is an expense, just like the light bill, and should be treated as one) and also paying myself enough to cover my personal expenses, including the credit card debt accumulated in starting the business, well, not a lot of that money was left.

And the next check, was, well, months away.

And a lot of small businesses fall into this trap.  They let the little money expenses get out of hand, based on the premise that "we're making a lot of money" and suddenly the overhead overwhelms the business.  

Even big businesses fall into this trap.   You read, everyday, about some silicon valley or dot-com company that is making so much money that they provide all these "perks" to employees, like free day care, and a free latte bar.   And while this gets them on the "best places to work" lists in the media, it doesn't mean people are necessarily working harder.   Quite the opposite.   People take on the attitude that the company is so wealthy it doesn't matter if they slack off.

And pretty soon, the money stream dries up, as competition lowers prices or the fad dies off, and the first things to go, besides employees, are all these "perks."

As a small businessman, one of the mistakes I made was assuming those big checks would be coming in regularly.  I loaded myself up with overhead, in terms of employees and overhead costs, which did not generate the additional revenue needed.  As a result, I ended up squandering tens, if not hundreds of thousands of dollars, over time, on things that were not really necessary for my practice.  

I could have rented out unused office space and paid off the mortgage on the property.  But I thought at the time that "Hey, I can afford to leave this unused space vacant, as I'm making big money".

What I didn't realize is that watching the little money is the secret to success is most businesses.

* * * 

Big Money, Little Money.  It is a concept that affects us all.   We get a good job and think, "we're making big money now, I don't have to balance my checkbook anymore!" and of course, we are wrong.   We let our spending increase to accommodate our paycheck, kidding ourselves that we "deserve" a certain level of lifestyle.  But since we don't accumulate any of that wealth, we end squandering and not saving.

Keep an eye on the little money, and the big money will take care of itself.

Monday, February 24, 2014

Life Stages

At different times of your life, you may feel stress as you go through life stages.

Living here on retirement island is a real eye-opener.   Most of our friends are older than us - in their 60's, 70's, 80's, and of course, dead.  Unwinding your life is a difficult process, and there are a number of stages in the process, none of which are easy.

Of course, your entire life is made up of a series of stages.   Once you are old enough to be cognizant, you are shuttled off to school, and with any luck, you'll be there for about two decades.  But even this stage in your life has stages.

I remember that the first years of school were pretty keen.  Show up for class, pay attention, and remember to bring your milk money.   That was about it.

But by the teenage years, a new set of rules was thrust upon us, without warning.   Suddenly, wearing the right clothes, being "popular" and following the latest trends, was so, so important to us - or at least "they" told us it was.   And then college rolled around, and a new-found freedom gave us the chance to really point out how unprepared we were for "real life."

And not surprisingly, these teenage years and early 20's are when schizophrenia and other mental illnesses start to manifest themselves.  Some folks just can't handle the big life change from straight-A sixth grade student, to successful employee in the marketplace.   It is a big step.

But if you make it that far, then you are set for a decade - maybe two.  You are in a comfortable and static position.  All you have to do is show up for work on time, and you get a nice apartment, maybe a new car, and a girlfriend to have sex with, on occasion.   Of course, that girlfriend may have other ideas - and marriage may take you to that "next stage" in life, along with its subsequent stage, raising children.  Some men resist this stage.

Each one of these stages is fraught with stress and uncertainty.   You are thrust into a new environment, with new expectations and behaviors, and you feel, deep down, that maybe you aren't ready for this.

But the kids grow up and go off to college (yet another stage), leaving you at home with this stranger you've been married to for 30 years, that you finally get to meet.  And that's stressful as well.

And maybe, you start to think, talking to your financial planner (if you are lucky enough to have one, as well as finances) that your life is more than halfway over, if the actuarial tables are to be believed.  You are 45 years old, and maybe you've got another 10-20 years of active life left.   Now what?

And thus, the so-called midlife crises sets in - another stage.   Hopefully your marriage survives, and the Corvette dealer is denied yet another sale.

But it ain't over yet, by a long shot.  And each stage gets progressively worse - and scarier.   Because now you are looking at your own mortality, every day when you get up and look in the mirror.   You start to see your faculties diminish.  You wonder why people are in such a hurry all the time.   And these younger guys at work - they all seem out for your job.

You are facing a retirement - a big stage.   The 30-40 years of work are ending, and now what?    Where will you go?  What will you do?   Where will you live?   Your kids don't need you anymore, and they come to visit less and less.   You start to think about what the meaning of your life is, and realize there really isn't one.  That's OK.

But you achieve another level of stasis - at least for a while.   You settle into a retirement community and throw yourself into hobbies and clubs, with maybe a little volunteer work thrown in.   Maybe you get a part-time job to fill in the hours.   The grandchildren come to visit.   This seems like a pretty pleasant deal.

And then the first health crises occurs.   It scares you, but not as much as your spouse.   If you die, what the heck is she going to do?   But thanks to Medicare, they patch you right up again, and you can delude yourself that it is back to "life as normal".

But your faculties continue to diminish.  Despite your cataract operation, you find it uncomfortable to drive at night.  In fact, driving seems to be a chore, as do so many other things.  Your wife spends more and more time at church and Bible Study, "studying for that final exam" as you kid her.  And you realize you are on the cusp of another major life change.

Yea, that last 10 years or so - maybe less.   How will that play out?  In an assisted living center?  Some sort of retirement home?  In a nursing home?  Keeling over dead on the lawn?  The options scare the crap out of you.  And you realize now why your Dad said, "Son, let me give you one piece of advice - never get old!"   But the alternatives options are not pretty.

Figuring out that last messy part is the hardest - and most depressing.  It makes all those other life changes seem pretty simple by comparison.  Hell, picking which college to go to, that was fun, right?  And getting married?  The happiest day of your life, or so they tell you.  You look back and think, that shit was pretty simple, compared to this!

Now, I know what you are going to say.  "Gee, Bob, this is pretty depressing!"  But it isn't.  It is reality, and reality is value-neutral.  How you interpret reality is up to you.  You can view it as depressing or scary, or just realize its all a game.  A ride, if you will.  A giant roller coaster, where all you can do is hold your arms up in the air and go "Wheeeee!" all the way down.  Because you really have no other choice.

And one way to make these life changes easier to deal with, is to deal with them, head-on.  Rather than living in denial, or vacillating between one choice or another, figure out what is happening and take action in your life - control, to the extent God grants you, what you can.

I mentioned before how Mark's Grandmother, at age 68, as a widower, bought an apartment as Shell Point in Ft. Meyers, Florida.   She had a nice apartment there, and with a lifetime care contract, as she got older and hit those last "stages" they took care of her.   Some of her relatives thought she was crazy not to "stay in the house" until she was decrepit, and then be hauled off to some "home" not of her choosing.   But she was smart to confront the reality of the last years of her life, and make the best of what ultimately is, a dead-end situation.

Not deciding and not taking action results in depression - learned helplessness.   And that, again, is what depression is - your brain screaming at you to "do something!" when you refuse to do so.

If you feel you are on the cusp of one of these life changes, don't sweat it.  Yea, they are scary and all, but Billions of people have beaten down a path ahead of you.  Its been done before, and you're going to be all right - provided you take action and make choices, while you can.

I have two more of these life changes ahead of me (God or Darwin willing).   First, I have to transition from working (as little as I do) into full-blown retirement.   And that is a hard decision for many to make.  When do you retire?  No one wants to "give up" and no one wants to walk away from a career that is paying pretty well.   You might need that money later on, right?

And some, not wanting to confront this transition, keep working as a way of denying what is coming down the road.   Maybe that works for some, maybe not for others.  Frank Lloyd Wright worked until he was 90.  I'm not Frank Lloyd Wright.  Myself, after careful consideration, I realize that I need to retire as soon as it is practical.   I am not sure I will live to 100, and already my faculties are starting to slip.  Hell, today I fell off a bicycle.   That's how bad it is getting.

So, retirement.  Great.  Maybe a decade of seeing the world, or at least parts of it.  But the messy end part, that has to be contemplated, too.  And not too far down the road, I need to think about retirement village, and some sort of place that is 55-and-over (next year) where assisted living is an option.

This is not a sad thing.  Just reality.  And if you confront reality head-on, it is pretty value-neutral, if in fact, friendly.

So, don't sweat these life changes.  They are going to happen, whether you want them to or not.   Avoiding them is not going to solve anything - just make you depressed and unhappy.

Saturday, February 22, 2014

Why Surveys are a Waste of Time

Your opinion really doesn't matter.  But if you'd like to tell us more intimate information about yourself, please do so!

I recently received two "surveys" from J.D. Power and Maritz surveys about a cheap Japanese pickup truck I bought.   The Power survey was at least short, but so abstracted that you really can't tell them much other than rating things on a scale from 1 to 5.   And of course, they wanted to know how much money I made, my marital status, and what color my skin was - among other things.

Maritz sent a nine page survey with well over 100 questions (they are numbered 1-48, but some questions have over a dozen sub-questions).  And of course, they wanted personal questions about me, my age, number of people in the household, their relationship to me, my income, my educational experience, occupation, primary language, whether I donate to charity (!!), hobbies, and my e-mail address daytime phone and cell phone numbers.

You know, basic information, nothing personal or anything.

Needless to say, I threw the survey in the trash.  I have better things to do than to spend over an hour completing a survey.

And this makes me wonder a number of things.   While they claim to keep "my name and address" completely confidential, they did not extend this to my phone number or other data.   The demographic data harvested is a gold mine, and some of the questions ("How often do you donate to charity?  Sometimes, Often, Never") seem tailor-made for resale to a charity telemarketer.

Their privacy statement is interesting:
"If you provide us with your e-mail address, we may send you e-mail offers. We may use information you have given to us, for example, to measure your interest in various services or special offers, and inform you about new products and services. These offers may be based on information you provide in your initial visit with us, through surveys, or through information we collect about the pages you visit."
In other words, you just consented to receive SPAM.  How they track your online page visits, I do not know.

It gets worse, though:
"Maritz collects personal data from and about individuals for use generally in connection with the operation of its business. Such personal data may be used by Maritz to provide incentive, performance improvement, loyalty marketing, learning, travel, market research, or other goods and services to its clients. In addition, Maritz may use personal data in order to properly manage the employment or contractor relationship with the individual that is the subject of such data.  Maritz may disclose personal data to third parties when such disclosure is necessary or appropriate for Maritz' provision of such services to its clients or otherwise for Maritz' operation of its business. Maritz may also disclose personal data to third parties in circumstances described in the "Onward Transfer to Third Parties" section below."
While they keep your personal data "confidential", this confidentiality includes sending it to third parties.  But under what circumstances will they disclose this?
"Additionally, Maritz may disclose personal data to a third party if the disclosure is to a Maritz affiliate or to persons or entities providing services on behalf of Maritz, a Maritz client, or the individual (each a "transferee"), consistent with the purpose for which the information was obtained, if the transferee, with respect to the data in question (a) is subject to law providing an adequate level of privacy protection including, without limitation, transferees that are located within Switzerland, the EU or Canada or transferees that are otherwise subject to an "adequacy" finding, (b) has agreed in writing to provide an adequate level of privacy protection, and/or (c) subscribes to the Principles."
 So, in other words, (translating from legalese), they agree to keep your information to themselves, unless they decide not to, but they will only send it to other people who agree to keep it secret.   This is what I call a disclosure/non-disclosure agreement.   "We agree.... unless we decide not to."

So it appears from these statements in their "Privacy" agreement that they can sell your data to clients and affiliates, and hence the question about whether I donate to charity - which has nothing to do with cars.  Charities, on the other hand, particularly the odious ones, love to get mailing lists and contact information like this, and I suspect if I filled out this survey and said I "frequently" donate to charity, the folks at "Smile Train" or the "Central Asia Institute" will be sending me even more junk mail - after buying my name as part of a mailing list, from Maritz.

The second thing that hit me, was "what idiot would spend an hour answering questions like, 'do you like the wind in your hair while driving?'"   The "data" from such a "survey" is utterly worthless, as the self-selection by the respondents narrows the group to "lonely losers with lots of time on their hands."

Moreover, I am half-tempted to just fill out the survey with random answers and send it in, just to piss them off.  Or better yet, put my name down as "Robert Maritz Bell" and see how much junk mail I get addressed to that name.   And I wonder how many people "spoof" these surveys - and further pollute the resultant data.

And then it hit me, that maybe all the data in the survey is bogus.  What they really wanted was the last page - with the important demographic data, e-mail address and phone number.   And why would someone provide that information?  Well, if you want to win the contest and get $10,000 you better put it in!   So they dangle a "freebie" out there to get you to supply personal information.

In other words, it is a type of phishing scheme, and the eight other pages of "do you like the wind in your hair?" and "what is your favorite color" are just window dressing to get you to the penultimate deal - who you are, who you sleep with, how much you make, and what is your e-mail address.

Surveys are a waste of time.   Your opinion really doesn't matter.   And the data from surveys is meaningless.   Only sad and lonely people fill out these things.  Busy folks who have a life, do not.   So the resultant "data" is skewed into what depressed people think.

And maybe that is why Maritz uses this nine-page survey - as a filtering mechanism.   As someone with half a brain and other things to do, I throw it in the trash - knowing full well that Nissan doesn't care if I "like to feel the wind in my hair" or "donate to charity often".

But the person who has the dedication to fill out all nine pages?   They are a Grade-A Patsy, Prime Chump Meat, USDA certified SUCKERS.  And their demographic and contact information is priceless, as you can sell them anything

Why not? After all, they are dumb enough to think that major Corporations are hanging on their every word.  They already think that "their opinion matters" and that they are entered in a contest - and that Maritz is going to "respect their privacy".

In a way it is like the poorly worded Nigerian Scam e-mails.  Smart people don't fall for them, as they are such obvious scams, with the mis-spellings and poor grammar.   But dumb people believe them - and the poor grammar and bad spelling act as a filtering mechanism to filter out smart people.   Only an idiot would respond to a Nigerian Scam e-mail - but he is far more likely to be sucked into the scam.

Similarly, only an idiot would fill out these surveys, answer them online, or over the phone.  I've decided to stop being an idiot.

* * *

Of course, the interesting thing is, how did they know to send me the survey?   Well, someone must have sold my name and address to them.   Nice folks.  Thanks.

UPDATE:   This blog posting is very interesting.   It is now on the first page of Google if you search "Maritz Survey"  What is fascinating is the response from "Maritz CEO" whose rambling and incoherent responses are quite bizarre - perhaps it is a troll.  The grooming posts from "Maritz Recruiter" are also quite revealing - they apparently want to groom their image on the Internet by using a lot of credentialism to discredit the poster..

One poster said they apparently "won" the contest and received a form asking them for a Social Security Number and to sign a release form.

I would be hesitant to do either.  

UPDATE:   This BBB listing of complaints is interesting, and also illustrates why the BBB is worthless.  Several people complained of repeated unwanted calls at odd hours, despite their name being on the do-not-call registry.  The "response" by Maritz was that they are a legitimate survey company, blah, blah, blah, and the BBB "closed" the complaint as "resolved."   The BBB is pretty toothless, as I have noted before.

It gets weirder.   This site claims that Maritz uses "Work at Home" people to run their telephone surveys, as well as "Secret Shoppers".

Martiz does warn of phony secret shopper scams, which apparently invoke their name (the usual Western Union Scams).

A number of automotive discussion groups discuss this survey, too.  The common denominator is (a) the survey is too damn long and (b) it asks too much damn personal information.

I'd toss this "survey" in the trash - and hang up on their calls.

This Link has a number of complaints from a number of former employees, as well as what appears to be a grooming post (note how they were called on on using "WE" when the person posting claimed to be a "former employee".

Maritz research appears to be a legitimate company (although one with a storied history), but they way they behave on the internet - with grooming posts and the like, as well as their bizarre ultra-long survey, does give one pause....  I cannot fathom why anyone would design such a survey.  Even the Census Bureau has a shorter survey!  Hey Martiz - your Survey SUCKS!

They seem to have their fingers in a lot of pies.  Martiz Travel, for example, does employee incentive travel (one of my tenants was in this business).   Many companies will offer trips as incentives to employees (sales goals, etc.) and hire travel agencies who specialized in this area, to do group bookings.

I do not think Nissan "commissioned" this survey, so much as Maritz bought my name from a mailing list, and then sent out the survey.   The survey is very generic and broad, and has less to do with my satisfaction of the vehicle than a lot of esoteric things.   If this survey is legitimate (and I do not think it is), I believe the data is packaged and offered to automakers, not commissioned at the front-end.   But that is just a theory I have.

If they really wanted to know how I felt about the car, I'll tell them:  It is OK, but needed better springs in the back.  I already remedied that.

Surveys are worthless, as the sample base is self-filtering.   They are also worthless because people lie, to themselves, if no one else.

Women say they want a convertible ("Wind in the hair") but when they buy one, they never put the top down, as it musses their hair.  As a result, the next car they buy is a hardtop.

But if you asked them, in a survey, they'd say they want a ragtop...

UPDATE:  This Report from Atenga lists the "top 10 reasons" market research fails.   What is interesting about it, is that it is basically an ad for Atenga, and takes a dig at "amateur" survey data.   Since computers are part of every online ordering system, it is not hard to tack a survey onto an ordering form or follow up with a survey e-mail.   Atenga seems to be saying "leave this to the professionals."  But as I noted before, if the survey is a Bizrate survey, it may do more harm to your business than good.

I would add an 11th "reason" why market research fails - too damn much of it.   Not only are 200-question surveys offensive, but EVERYONE it seems, has a survey pop-up on their website these days - even the government.   "How are we doing?  Will you take this survey?" they say.  No, I'd just like do file a Patent, thank you.

And it is the same old problem:  I am too busy to take stupid surveys - most people are.  And as surveys proliferate, they become like a thick jungle we have to hack our way through, just to get across the Internet.  This creates survey fatigue in short order. As a result, the only people who respond are looney-tunes or folks angry with your site - an extreme filtering condition of your user database.

Throw in the fact that so many surveys are outright phishing expeditions or other scams, and, well, the safest thing to do is never answer a survey, ever, ever, ever!  There is nothing in it for you, other than possibly being ripped off, and even "legitimate" surveys are just making some survey company rich, not you.   Don't answer surveys - ever!

The best survey I've seen is on the Treasury Direct site.  Every time you log out, it asks you ONE QUESTION:  "How would you rate this site?   Excellent,  Good, Fair, Poor" and then displays to you the cumulative results of that one-question survey.   Not surprisingly, they get a pretty good response:

TreasuryDirect® Survey Results

Thank you for completing our survey. Your feedback is very important to us, as we work to improve our services. The results shown below are for the last 30 days and include your score. Due to rounding, the numbers below may not add to 100. Also, some of the numbers may be 0 because of either rounding or small sample size. If you'd like to provide more specific comments, please e-mail us.



Sometimes, simpler is better.

Stop surveying us to death!

Friday, February 21, 2014

Retirment Income and Taxes

When you retire, you may end up paying no taxes.

I recently helped a senior with their taxes, and it was illuminating.   They collect about $19,000 in Social Security and take out another $25,000 from their IRA, giving a total of $44,000 in retirement income.

Their tax bill?   Zero dollars and zero cents.

That's right, nothing, nada, zip.

They were complaining that they didn't make a lot of money.   But I explained to them that in order to Earn $44,000 in after-tax income, they would have to make about $55,000, which is above the median income in the USA (about $51,500 household).

$55,000 wage income
-12,200 standard deduction
$42,800 adjusted gross income
Tax on first $17850 @ 10% = $1785.00
Tax on remainder @ 15% = $3742.50
State Tax (est) = $1000.00
Social Security Tax @ 6.2% = $2653.60
Medicare Tax @ 2.9% = 1241.20
Total Taxes: $10,422.30                

Net Pay: $44,477.70
 So, $44,000 in retirement income, tax-free, is worth about $55,000 in taxable earned income.  Ouch.   You can see what Mitt Romney was talking about when he mentioned the 42% "takers" in our economy.   And as more and more of us retire and pay no taxes at all, the burden will shift to a younger and smaller group of people.

Oh, well, too bad for them, right?  Right.

This explains why retirement planners say you need far less in retirement than you need during your working life.  Once you are retired, you stop funding Social Security, and you may stop paying income taxes, as well!

What is even weirder about this tax situation is how it affects your behavior.  For example, one year, they had to take out $10,000 from their IRA to re-roof the house.   Not only did they have to pay taxes on this amount (as it put them into a higher bracket, showing real taxable income) it resulted in their Social Security being taxed as well.

I suggested to them that they take out the maximum each year, without incurring a tax liability, and putting that into after-tax savings.  That way, if they have a big expense (car, new roof, medical care, etc.) they will have some money to pay for it, without incurring tax liabilities.

And this explains why people in this situation will borrow money to buy a car, rather than pay cash.  If they paid cash, they would have to take more money out of their 401(k) or IRA, and then pay taxes on this - and get kicked into a higher bracket and get their Social Security taxes as well.

Again, unintended consequences of a tax system and tax incentives.

Now throw Obamacare into the mix.  As I noted in an earlier posting, for early retirees not eligible for medicare, collecting social security "early" may knock you into a higher bracket, making you ineligible for a subsidy.

But something to think about around tax time.  If you are retired and paying no income tax, think about how much you can take out of your IRA this year, without incurring a tax liability.  If you can take out more, without paying taxes, then do it, and put it into a safe, rainy-day fund.   Otherwise, taking out a lump sum, in retirement, would sock you with a hefty tax bill.

The IRA is a great vehicle for retirement.   But sadly, you can't take out lump sums, without creating tax burdens.   You can't pay off your mortgage, for example, without creating a huge tax bill.

Monday, February 17, 2014

eKit International Phone

If you sign up for an eKit phone, they send you this disposable dual-sim unlocked "burner" to use.

I bought an eKit phone when we went to France and Spain last year and rented a canal boat.  I figured I might want to check a credit card balance or call someone back home, and would need a phone.   The phone was $79 and I put $100 worth of time on it.  How many minutes that buys, of course, depends on what country you are in.  We ended up using about $50 worth of time on it.  We used it as much as we wanted to, but just didn't need any more time than that.

A tossable cell phone can be handy, as if you are in a foreign country, you can get socked with some pretty steep fees, and when you get home, you may be shocked to find that your cell phone bill is astronomical.   Supposedly, new regulations have changed this, as cell companies are required to tell you when your bill goes over a certain amount.   Perhaps the days of $10,000 surprise cell phone bills are behind us.

But don't count on it.

If you are going overseas, call your cell phone company and find out what the deal is.  They may have a roaming plan for the country you are going to.  When we had a regular AT&T plan, we used this when we went to the UK for a relaxing barge holiday.

However, since then, we have dumped our regular AT&T plan in favor of a minimalist GoPhone plan, which we are very happy with.  It gives us 1000 minutes a year for $100, and we've renewed it for a fourth year now, still not using all our minutes!  About $16 rolled over this year.

GoPhone coverage is limited to the US, Mexico (it actually worked in Cozumel!) and some areas of Canada served by Rodgers Wireless (sadly, not Montreal).  So for traveling overseas, some other alternative was needed.

So we bought the eKit phone.  I was a little nervous about this, as doing business with these types of deals, over the internet, is a sure-fire recipe for being fucked royally.   And to their credit, eKit didn't fuck me.  Not at all.   Thank you eKit for not fucking me.   It is a rare thing, these days.

And you know, that is all most consumers want, really.  Just don't fuck me too badly, eh?  But most American companies can't resist the urge, it seems.   And they wonder why consumption is down.

eKit has been very decent.   No, really.   Maybe someone has better prices or whatnot, but the basic bargain they made, they kept.  Amazing in this day and age.

But wait, it gets better.   The minutes (dollars) on the phone expire after six months if you don't use the phone or recharge it (monetarily, not electrically).   They actually sent me a reminder on this, via e-mail.   I just now made a short call on the phone to keep my $47.50 active another six months.   Why?   Well, we are going to Canada this summer, and it will be handy to have a phone that speaks French.

The phone itself (one of their lower-end units, pictured above) is not a bad piece of work.  It supports dual SIMs, so I can put my GoPhone SIM in one slot, and the eKit SIM in the other.  Kind of handy to have two phones in one.   The only bummer is that it does not have bluetooth, so I can't sync it with the car.  Big deal.  If nothing else, I will keep the phone as a "spare" for the time when one of our hoary old Motorola flip-phones bites the dust.

Do they offer texting and internet?  For Internet, you can get a fancier phone.  I chose not to.  The basic phone does text.  Indeed, it sends you a lot of messages, telling you, for example, what your local number is.  Your US number is re-assigned if you do not use the phone for a few months.  When you use the phone, a new number is assigned to it, and a text message is sent to you telling you what it is.  They also text you with how much is left in your account, after each call (just like GoPhone).

When you make a call, it is a little weird, as you make the call, and then they text you to say, "please wait" and then they call you and when you answer the call, it connects to your party.    A little weird, but it works - reliably.

It also has voicemail, and other stuff.  You can also link the phone to your Facebook page, so it will post to your page where you are, based on cell phone tracking.   Not a feature I used personally, but one our friends used.  And yea, you can send texts with it.  I actually sent one, if you can believe that (what is the big deal with texting?  Subject for another post).

So, overall, I can say I am very happy with this product and their service.  They provided everything they promised - and more.   And their communication with their clients is excellent.   It would be in their best interest to let my time 'expire' after six months and keep my $47.50 - and then make me buy more time to recharge the phone.   They could have "gone there" like many other telcons would have done - in a heartbeat.  But they didn't.

And that is a very rare thing these days, in the wireless business.

Sunday, February 16, 2014

The Gun Bubble

Real Estate, Gold, Silver, Copper, Railroad stocks, tech stocks, pork bellies, crude oil, and even guns, can all be subject to huge speculative bubbles.

A recent CNN story reports that gun sales have dropped by more than a third in January.   This is not surprising to anyone who has experienced any kind of speculative bubble or frenzied buying scenario.

What caused gun sales to drop?  It is not hard to figure out:

1.  After six years of the Obama Administration, no one came to "take their guns away", despite several high-profile shooting incidents.

2.  Everyone who wanted a gun - or multiple guns - bought all they could afford, and don't need anymore.   Once you have four or five assault rifles and handguns, do you really need another one?

3.  Guns are not cheap, nor is ammo, and people need money for more urgent daily needs than the "end times" or whatever.

4.   Weapons producers (and ammunition manufacturers) have been cranking up production to meet demand (just as gold producers have) and have saturated the market with weapons of all sorts.

The net result is, well, demand eventually slackens.   Whether it is hula-hoops or gold, eventually people stop buying - and stop panic buying - particularly once demand is satiated and people realize that any perceived "shortage" of a commodity is really nebulous.

Guns, like anything else, are a fungible commodity.   It turns out that anyone can manufacture a gun, with the right machine tools.   As a result, you are seeing a lot of new brands in the weapons business, and if you want an assualt-style rifle, you can buy one of several models, right down at Wal-Mart, starting at $999.99.

(Can't afford the real deal?   Want something to train the kiddies in paranoia?   How about the "Crossman Doomsday Bug-Out Survival Kit" available at your local Wal-Mart for $79. (you save $40!)   Just the thing to teach your children survivalism and a distrust of the government.   Militia membership extra!   And no, I'm not making this shit up).

I had thought about investing in a weapons manufacturer stock - or perhaps an ammunition manufacturer stock.   After all, making money off the foibles of the poor is like shooting fish in a barrel (or like shooting old appliances with your AR-15).    My Altria stock is paying a nice dividend and doing nicely, thanks to the legions of white trash who still smoke ciggies.   Why not tap into this ammo business?

I looked into it, and was shocked that some of the "old name" firearms manufacturers were actually not doing well, even in this era of gun paranoia.   Many of the old-line firms have contracts with the U.S. Government, and as we wind down our wars and stop shooting people, demand for government firearms is slated to decline.

And the more I thought about it, buying firearms or ammunition stock now was like buying Apple stock after it already shot up in price.   Once you hear about a trend in the media, it is too late to jump on the bandwagon.   The time to invest was before Obama was elected.   The time to dump was a month ago.

Timing the market is very difficult, without a time machine.

So what does this portend for the future of weapons sales?   Well demand is saturated, and as the CNN article notes, supply has caught up with demand.  No doubt a lot of people got into weapons ownership - or expanded their weapons collection - in the last few years, as we are all herd animals, and whatever is mentioned a lot in the press seems like a good thing.

New firing ranges have sprung up all across America, and people are spending more time firing their weapons, instead of leaving them in a closet "just in case" the black people try to break in (and no, people really think that way - and yea, it is just a tiny bit racist).

But in a way, I think it is a bit like America's golf boom of the 1990's.   You remember that, don't you?   Suddenly, the baby boomers, all hitting late middle-age, decide to take up golf (and cigars - remember that fad?) with our party-boy President (Clinton) leading the way.   And yea, I have a set of moldering clubs in my garage, too.

New golf courses were built, membership in golf clubs expanded, and club and ball sales soared.   It was a heady time.   Since then, it has tapered off, somewhat, and today it is a lot easier to get a tee time that it was in 1998.   (And the walk-in humidor at the local liquor store is now just a storage closet).

Fads come and go.   There are still a hard core of golfers, to be sure.   But a lot of people who only dabbled in the game, might have moved on to something else.

And I suspect you will see the same with weapons.   Bud buys a handgun, as his paranoid friend Ted tells him "Obama is going to take away all our guns!".   And Ted says that spending Saturday afternoon at the range is "a lot of fun".   So Bud buys a handgun and ammunition at the local gun shop and spends a few weekends with Ted at the range.   At first it seems like fun and all, meeting new friends, and the thrill of firing a weapon.

But eventually, the thrill fades, and the cost of ammunition (inflated by the "shortage") starts to spoil the thrill a bit.   And Bud starts to realize that Ted has a lot of scary friends, and moreover, he has better things to do with his money.   So the Buds of the world lose interest, over time, and eventually, Bud decides to sell his handgun on Craigslist, as he needs the money.

I know a few Buds, personally.   Heck, there is a little Bud in all of us - latching on to the latest trendy fad, if just as a dilettante, before moving on to the next trendy thing.   The golf clubs in my garage attest to that.  I've been meaning to get out on the course (we only have four here on the island) but it seems something always comes up.   And suddenly four years go by, with no golfing...

So what is the upshot of all of this (no pun intended)?

1.  Whenever someone tells you that you should "buy now!" because something will be in short supply, take it with a grain of salt.

2.  The law of Supply and Demand is inflexible.  Whenever something is in short supply - and prices rise accordingly - other producers will enter the market with like or similar products, at slightly lower prices.

3.  Eventually, demand becomes satiated, and prices stabilize.

4.  Once demand slackens, a surplus may occur, and prices may in fact plunge.

We've seen this before in the vehicle market, for example.

In the 1970's, car manufacturers told us that "the Full-Sized American Car" will soon become extinct.   "Buy now!" we were told, as "They won't make them like that anymore!"

And there was a nugget of truth to that statement - the car manufacturers downsized all of their models in the late 1970's.   And many offered "collector editions" of these sleds, and newspapers at the time reported people buying huge America cars and putting them in storage as "collector's items".

But a funny thing happened.   It turns out no one really wanted these poorly-made cars which got horrible gas mileage and rusted quickly.   And in a few years, like most cars, they wore out, and were not "collectible" at all.   Even today, you can buy them fairly cheaply.

And, as it turns out, the "Full-sized American Car" didn't die out, but soldiered on.   The Crown Vic's, Grand Marquis, and Lincoln Town Cars of the 1990's and 2000's were nearly as large as their predecessors.   The re-sized Chevy Caprice of the 1990's was actually larger than its whale-sized ancestors of the 1970's.   The full-sized car did eventually die out, but not until 2011, when the last Crown Vic went down the assembly line in Ontario.

A similar thing happened in the Motorcycle industry.   In the late 1990's and early 2000's, sales of Harley-Davidson motorcycles expanded greatly.   Our economy was booming, and everyone, it seemed, including Maclom Forbes and Elizabeth Taylor, needed a new "hog". 

Demand shot up, prices went up, and before long, the Japanese motorcycle manufacturers started offering big, "American-style" bikes.   Even BMW got into the act with an amazingly ugly E-Z rider that was even featured in a Bond film.

Of course, real Harley riders weren't going to buy a "Jap Bike", so some enterprising folks resuscitated the old Indian brand, and Polaris came up with the "Victory" brand.   As the market for "hogs" has begun to slide, Polaris bought up Indian.

2009 brought an end to the hog craze.   Yea, sure, the hard-core bikers will still buy them and use them.   But a lot of other folks, who got into the game late, and were not as committed (but rather just following a trend) got back out again - and sold their bikes when the economy went downhill.

These things occur in cycles, and the one sure thing is that, what is insanely popular today (and in short supply) will be a glut on the market tomorrow.

So when someone tells you that you "must have" the latest thing, whether it is a Facebook page, a smart phone, an Aeropostale t-shirt, an ounce of gold, or a handgun, think long and hard before you buy the product - or the stock of the company making it.

Chances are, in a few short years, you'll find the same Beanie Baby at a garage sale, unsold, for ten cents.

UPDATE APRIL 2014:   Well, that didn't take long.  The Gun Bubble has burst.  And folks who paid top dollar for an "assault rifle" now own a useless commodity that is worth half what they paid for it.   Sort of like buying Gold at $1800 an ounce (it now is languishing at $1250 or so).

Guns, like Gold, are a fear commodity, and can sell only in times of uncertainty.   As the economy improves and threats of "cutting off gun sales" subside, the demand drops off the map.

And then people who really couldn't afford these things in the first place (Cletus in his Trailer) realize they squandered $1500 on a weapon worth maybe $500 on a good day.   And they realize it is just a "thing" languishing in the closet that has no real practical use in their lives. So they sell it when they need rent money or drug money or whatever, which further depresses the prices.

Meanwhile, gun manufacturers, who ramped up production, face a catastrophic fall-off in sales, as the market is flooded with cheap used guns.   Buying weapons stocks, in retrospect, would not have been a good idea - which is why I am glad I didn't take that gamble!

Saturday, February 15, 2014


If you decide to incorporate, your State Corporation Commission can be your best friend - or worst enemy, depending on what State you are in.

Many pot smokers sit around and say things like "Corporations are, like, evil, man, because, like, you know, all they are interested in, is profits!"

But of course, we are all interested in profits, for ourselves.   Even the pot smoker wants money - so he can buy more pot.   What pisses them off, of course, is that everyone else, it seems, has money, and they don't.   Profits are only evil when they are someone else's.

A Corporation is a legal entity constructed to allow a group of people to pool their assets together to invest into some business or enterprise.   In addition, a corporation can be used as a shield to protect individual assets from the liabilities of the corporation.

If you own Exxon stock, you are not liable if they crash a super-tanker into the Alaskan coastline.   However, if the company makes money, you may get paid in the form of dividends or in terms of capital gains.   You are an investor in the enterprise, not an active participant, so you are shielded from liability.

And the reason why we do this is to encourage people to invest in enterprises.   If we did not have corporations or stocks, businesses would have to borrow money to raise capital (either through loans or bonds) and borrowers, although having rights in bankruptcy, would have no say at all in the operation of the business.

For an individual or small business, the idea of incorporating looks attractive, as it promises the ability to shield your personal assets from the liabilities of the business.

Is this a worthwhile proposition?   It depends on the nature of the business and the State you are in.

For example, if you run a small retail store, and sell to the public, and someone slips and falls in your store, then you may be liable for damages, if that person is hurt.   Similarly, if you go bankrupt, and the store owes creditors thousands of dollars, you may be personally liable for those debts - if you are a sole proprietor.

However, if you are a majority shareholder or even sole shareholder of Retail Store, LLC, you might argue that the Corporation is liable in these instances, not you, and your personal wealth might be shielded from lawsuits or bankruptcy of the corporation.

The key word here, of course, is "might".

In some instances, it may be possible to pierce the corporate veil, particularly when the corporation is not being run as a corporation, but merely run out of the back pocket of the sole owner.  In addition, certain personal services and professional services might not be shielded by a corporation, particularly in some States.

For example, you run a hair salon, and you incorporate in your State.  You burn the scalp of a customer by leaving the perm solution on their hair too long, and now they are permanently bald.   They sue you, and you argue that since you are incorporated, you have no personal liability, and your $1M in assets is shielded, and the hair salon, which is nearly broke, has no money to pay out.

Nice try, but it likely would fail.   You personally performed the service in question, and thus would be personally liable (just as one of your employees would be personally liable, if they did the deed) and you can't duck out of it by arguing that the shell corporation (which is kept broke or nearly broke all the time, by passing through all profits to your personal account) is on the hook, and not you.

And this is why you have insurance - and why your now-bald customer will go after the insurance company, and not you.

For professionals, the situation is similar.  In the Commonwealth of Virginia, at least, you cannot shield yourself from professional liability by using a Corporation.    So, as a Lawyer, if you commit malpractice, you can't argue that you are not liable, but your shell Sub-S Corporation is.   You are still on the hook, which is why we carry insurance - and pay a lot for it.

You might not be shielded from the debts of the corporation, either.   When you go to borrow money, the banker will ask you (and your fellow shareholders) to personally guarantee the note.  Why?  Because bankers aren't stupid (although people think they are, over and over again).   They know that if they lend money to an LLC, and the company goes bust, they can't go after the owners.   So in order to play, you'll have to pay - and in effect sign the note personally, putting your own assets at risk.

I was incorporated as an LLC at one time (Robert Platt Bell, PC) but dissolved the Corporation once I laid off my staff.   Since the LLC did not shield me from professional liability, and since I had no employees (no employment liability) and no office (no slip-and-fall liability), it made no sense to fill out all those forms every year and file an extra tax return, for no real gain.

Many attorneys do incorporate as an LLC, however, but usually to insulate themselves from liability of their fellow attorneys in their practice (which might be a partnership of LLCs or an LLC of LLCs or whatever) and to insulate themselves from the debts of their partners.

I also formed a second LLC, Hollin Hall Holdings, LLC, which owned all the investment Real Estate we had.   As a landlord, there are all sorts of liabilities that you can incur, and it is useful to have an LLC to insulate yourself from those liabilities - to the extent possible.   Also, it allows you to have a group of investors get together to invest in the company, and then divide the proceeds and profits - and by keeping separate books, you understand how much the enterprise is making, as opposed to having the funds co-mingled with your own assets.

By the way, the term "Co-mingled" does not denote a crime.   I had a friend, who was even a lawyer, who thought that "co-mingling" was some sort of criminal activity.   In some instances, yes, it is - if you are co-mingling money that belongs to someone else, with your own personal funds.   But this does not mean in all cases that "co-mingling" is some sort of nefarious scheme.

I dissolved Hollin Hall Holdings, LLC when we sold the investment properties.    We still have one condo, but there was little point in keeping the LLC alive for that, considering we are well-insured, and most of our assets are un-attachable, as they are in retirement accounts.   The hassle of filing tax returns for the corporation, keeping up corporate records, and paying annual corporate dues, outweighed the advantages, at that point.

Which brings us to the next point:   Your State, and how it views corporations.

In Virginia, the State is very pro-corporation.   Call up the State Corporation Commission, and they will send you a "how to" pamphlet on how to incorporate, as well as sample forms.    The annual fees are cheap, and they are very helpful if you need them.

California, on the other hand, has the pot-smoking "Corporations are evil, man!" attitude, and charge huge fees and make it a pain in the ass, to maintain a corporation.  

So consider what State you are in, before you even try this.

Bear in mind that you will have to file annual tax returns, annual corporate reports, maintain corporate records (meeting minutes, notes, corporate seals, resolutions, etc.) and register your corporation with the IRS as a subchapter-S corporation.

Yes, Subchapter-S.   If you are an individual or a small company, that is the way to go, really.   There are two types of Corporations, named after their respective sections of the IRS code - Subchapter-S and Subchapter-C.

Subchapter-C corporations are taxed at the corporate level, and again at the shareholder level.   GM is a Subchapter-C corporation.   You likely don't need to go this route, as it really costs you a ton more in taxes.

A Subchapter-S corporation does not have taxation at the corporate level.  Rather, profits "pass through" to shareholders, who then pay taxes at ordinary income rates.   You are limited in the number of shareholders that can be in the company, and thus, Subchapter-S corporations are ideal for small businesses, but ill-suited for a large company.

Most Subchapter-S corporations have suffixes like "LLC" or "Limited Liability Company" or the like.   This is required, usually, by the State Corporation Commission.

Is it worthwhile to incorporate?   That depends on more factors than I can address in this brief article.   I would talk to your accountant (and you should have one, if you decide to incorporate) as well as an Attorney.   The initial costs are pretty low, but there is a fixed, but small annual cost in filing the extra tax returns, annual reports (and annual fees) to the State Corporation Commission, as well a the hassle of the paperwork.   Add in accountant's fees and the like, and you are looking at $500 to $1000 a year in extra expenses.

If you are running a home-based business, maybe such a step isn't necessary, and being a sole proprietor is sufficient.   If you are running a brick-and-mortar store, with employees and customers (as well as inventory, accounts payable, and the like) maybe such a step might make more sense - particularly when there is more than one owner.  Stock ownership is a useful vehicle in allowing co-owners to define their ownership rights in manners other than 50/50.

For me personally, it made sense, when I had well over a million dollars in Real Estate to manage, as well as a busy law practice.  But even then, I still had to guarantee all those mortgages, personally.  And my professional liability was not shielded by the LLC.

As I sold off my Real Estate business and downsized my law practice, having these corporations made less and less sense, so I dissolved them.

So that illustrates another aspect of the equation.   It might make sense to incorporate at some time in your life - but not at others.

So, think it over carefully.  A lot of people rush into incorporating, thinking it is essential, when starting a business.  They saddle themselves with some extra paperwork and overhead at the get-go, which might not be really necessary, at least at the beginning.