Tuesday, October 22, 2019

Unreliable Narrator

Depending on unreliable people can cause heartache in your life.  Depend on yourself, first.

First, a footnote.  A reader writes, in response to an earlier posting, that you should "keep your house"" rather than downsize in retirement, as if you go into a nursing home, "Medicaid can't take that house away from you!"  Technically, that might be correct, as Medicaid never takes anyone's house away from them, they can only deny coverage based on your assets.   It is also important to note that they can't take the downsized house away from you, either.  And if your house is worth more than $500,000, they can't "take it away from you" but they can deny coverage until you sell it and move into something cheaper.  So if you live, say, in a wealthy suburb of New Jersey, you may have to downsize anyway, just to qualify for medicaid - or deed the house to your kids.

And what are you saving the house for, anyway?   Yes, your spouse can live in it, but if you are single and in a nursing home, what is the point of having a house?   Once you die (or the last spouse dies) they can come after your estate for the cost of nursing home care.  If your goal is to leave money to your kids - in the form of a house - then you are better off to deed it to them long before you enter nursing care (there are time limits on this - you can't deed it to them the day before you enter the home).   I covered all this before, by the way.

No, instead of keeping a creaky old house on the premise you are leaving it to your kids, I think, personally, I would rather have a few hundred grand to spend on travel, entertainment, and fun, rather than watch a four-bedroom house on a 1/4 acre of lawn decay around me, so that some ungrateful heir can sell it later on.  But of course, the government, trying to be "helpful" can make this harder to do.

In Florida, we have the "homestead law" which in the past, sort of locked elderly people into their homes.  It froze your assessment at the level you were at when you bought the home, and if you moved, your assessment got "bumped up" to the value of the new home you moved to.  They changed the law, allowing you to move your homestead exemption to a new home, but the unintended consequence of this law is that anyone moving to Florida "from away" is socked with the highest taxes possible, while the old-timers and locals are paying very little.

In Georgia we have an even weirder thing. We have a homestead exemption, too (currently the subject of a class-action suit, as the tax assessor was locking people in at the rate a year after they moved in, which was a much higher number).  But at age 65, you no longer have to pay school tax, which means my taxes would go from $2700 a year to $700 a year or thereabouts, which is an incentive to stay in the existing house, rather than rent or move to a condo which I rented out part-time (and thus would not qualify for the exemption).

You can see how government intervention in the marketplace can produce unintended results.  But like with tax deductions, my philosophy is the same:  Do what you want to do in life, rather than chase deductions.  The IRS tax code is not investment advice!  Some people argue that "debt is good!" because you can deduct the interest.   But on the other hand, if you are living off a 401(k) plan, no debt is better, because you can lower your taxable income to the point where you pay little, if any taxes, if you have no staggering mortgage payment to make in retirement.   Not only that, you worry less about running out of money in retirement or losing your house to foreclosure.

Which brings us to today's topic:  Trust.   I wrote before about trust issues (sort of as a pun) but as I have indicated in various blog postings, I was raised in a family of untrustworthy people.  My father regularly lost his job as he would piss off some superior (and actually get into arguments with his boss and scream at them) which made our lives somewhat peripatetic.  We moved a lot, although by the time I came of age, my parents finally settled down a bit - living in New York for 18 years - the longest they ever lived in one place, before my Dad lost his final job at age 55. Dad was a rageaholic, and you never knew what would set him off.  You couldn't trust him - he would run off at the first sign of trouble, to his mistress, where he spent a considerable amount of my college fund.

And my Mother, well, I've covered that before - a bi-polar, manic-depressive, suicidal, alcoholic, closeted lesbian with a penchant for knife play when drunk - and also prone to fugue states of rage.  Some fun.   And my brother, who abused me in a number of ways, the least of which was stealing my paper route money.   In our family, everyone looked for a scapegoat, and we all took our turns in the hot seat, but as I became more successful, they decided to rename the chair in my honor, permanently.

So, yes, I have "trust issues" - and you should, too.   In a way, it was instructive for me to learn, at an early age, that human beings were frail creatures, selfish and arbitrary, vain and prone to status-seeking. The most trustworthy of person in your life will stab you in the back, if the situation warranted it - you'd be surprised what your relatives will do if a few dollars are on the table when someone dies.   You'd be surprised what people will do just for a slice of pizza, if they were starving.  Learning this aspect of human nature was a good thing, not bad.

And it made me appreciate good people in the world all the more - and help me understand the rest. People are people, and we are all prone to weakness. And that regard, it is instructive also to examine our own motives and own up to them - we all seek status, for example, and are vain and blind to the needs of others.  It is just a human thing - but it helps if you realize when you are doing it, and can pull back from the abyss now and again - and forgive yourself when you don't.

Where this is leading to is, trust is a shaky thing, and when you plan your life based on the assumption that you can trust others - your family, your employer, your government, your church, your God - you may find yourself a little disappointed.   As the Book of Job illustrates, God can be a real dickhead at times, and you can still love God, just as you can still love a parent who is abusive to you.  But that doesn't mean you shouldn't make alternative plans, rather than just giving up entirely and putting your fate in the hands of others and stop making an effort on your own part.

In the news today, a sad story about a nurse who put her trust in her employer, the church, and the government (no word about God).   She worked 30 years in a hospital in upstate New York, and when the hospital went bust, they voided her pension plan, leaving her with nothing.  Yes, you read that right, nothing. Turns out that any "religious affiliated" institution doesn't have to buy pension insurance and pay premiums through the Pension Benefits Guarantee Corporation, which would have at least paid 40 cents on the dollar.

(Note:  If you Google this story, you'll realize this issue has been going on for more than two years now, but for some reason, the Washington Post decided it was "news" just today.  I wonder why?)

Let's only hope that the church didn't duck out on Social Security as well (which some employers do - apparently some teachers don't pay into Social Security on the premise that they are already covered by generous government pensions).  Some lawyers are suing the church, which used the "religious exemption" to avoid paying pension insurance premiums, but is now claiming they were merely "affiliated" with the hospital, and thus are not on the hook for these pensions.  Even if the lawyers win (and they will likely win a lot for themselves) the pensioners will likely get less than they are entitled to.   It is a shitty situation.

But it illustrates why you can't trust people or institutions anymore - or I should say, ever.  After all, this isn't the first time the Catholic Church (or indeed any church) has let us down.  Yes, the younger generation likes to point to nostalgic television shows as an example of an earlier era where people were "luckier" than they are today - and got cushy jobs right out of college, generous paychecks, inexpensive houses, big gas-guzzling cars, and comfortable and guaranteed pension plans.

Sadly, that was just nostalgic television.  Much of what they are talking about is a two-decade postwar period of prosperity that even itself, had incidents of recession (such as 1958-1961). Yes, people who worked for GM or IBM or Proctor & Gamble or any one of America's mega-corporations had nice benefits, provided they were white, male, and never rocked the boat (as my father did) and remained loyal "company men" (and again, only men).   Many of these folks are still alive today, and yes, many of them are finding their pension promises are being voided, one after the other.

Retirement is a modern, post-war thing, and it has only been around a short time.  Before the war, you retired, you got a gold watch (if that) and that was it.  You had to hope you had your house paid for after 45 years in the factory - and that you would live that long.  You went home to cough your lungs out and hoped your kids got jobs in the factory and would support you until you died, which was probably five years later. Jobs were not an assured thing back then, indeed unemployment in the 1930's was well into the double-digits for years at a time. The whole idea that previous generations "had it easy" is somewhat overstated.  Oh, yea, that whole world war thing, too - twice.

Lifetime employment was a brief, post-war phenomenon, if it even existed then.  Back in the day, an Engineer could expect to work for a half-dozen companies before he retired, as each company hired, and then let go, engineering talent as projects were undertaken and then completed. That is one reason why the 401(k) plan was created - most Engineers never worked for a company long enough to be "vested" in a pension, and as we found out later on, those pension promises were unreliable.

But the glories of Corporate Socialism of the 1950's and 1960's started unwinding in the 1970's as the oil-based economy unwound under the pressure of rising oil prices.  I was lucky to attend General Motors Institute, before the company shed divisions, lost market share, and sold off the college. In the era of stagflation and foreign competition, GM couldn't afford that sort of nonsense anymore - no one can. The bills came due for all these promised pension and health care benefits, as well as generous wages, and no matter how many creaky, crappy cars you sold, it wasn't enough to pay everyone.  So Chrysler went bankrupt, twice and GM, too, finally threw in the towel in 2009.  And it ain't over yet for GM, either, as I noted before.

So what does this all mean for personal finances?   Well, you can't rely on any one thing these days, so you should rely on a plurality of things.  In the article cited above, it was reported that "people lost their houses" because of these lost pension benefits.  But that was likely due to the fact they were retiring with a mortgage, and couldn't make the payments.  It is temping to "take out cash" from your home during your working years, but later on in life, you might need that cash for yourself.

Now, I get the argument from some readers that saving money is for chumps. You save money, and then you die and your kids or next-of-kin get it.  You could have enjoyed that new Acura instead!  So why not spend it all now?  This is, of course, the argument made by someone who already bought their Acura, and wants a post-hoc justification for their poor financial choices.

Early on in this blog, when I had comments enabled, some wanna-be "gangsta" tried to argue that spending all your money on bling rims was a good idea, as in the ghetto, you might not live past age 30 anyway, so you might as well enjoy life.  Yet another argued that if you blew all your money in middle-age on stupid things, at least when you get older, you can relish the "memories" of all those good times.

I am not sure how to parse these arguments, other than to say, "bullshit!"  When you borrow money at age 30 for a motorcycle, a hobby car, a motorhome, or a boat, you are literally spending the money of the person that is you, tomorrow - Uncle Tomorrow.  And when you get old, not only will you have the cherished "memories" of these things, but the bills to pay for them as well.  And just because you paid off that boat loan, doesn't mean you don't still owe on it, if it means you never paid off your mortgage.   Debt is debt, and your car, boat, or house doesn't borrow money, you do.

Plus, the idea that when you get old, you are so infirm you can't do anything anymore other than reminisce about the good old days, is flawed - visit any retirement community and you'll see plenty of people enjoying life, and hobby cars, boats, motorcycles, or cruises or whatnot - which they can afford to pay cash for because they didn't squander their money on "I want it all NOW!" at age 35.

And that is one reason why I have always paid cash for things like that - or learned to live without or live with less. Maybe I squandered money on cars and boats and things, but at least I don't owe money as a result.

But getting back to trust, it pays to have multiple sources of income in retirement, because you can't count on a single one.   Even Social Security is suspect, as Republicans are always harping on how it is in peril (after they lower the withholding taxes that support it - and yes, Obama did this, too) and how it should just be abolished entirely or "privitized" so their Wall Street friends can have a "taste."  They always make this argument to young people who are paying in, but never to old people who are taking out. Funny how that works, eh? 

Pensions are fine and all, but as we have seen, can be shrunken in half - or down to nothing - in short order. Even government pensions are in crisis, as evidenced by the State of California's CALPERS plan. And of course, investments can go sour, particularly if you invest in just one thing - like a trendy stock, IPO, gold, bitcoin, or even just one type of investment (stocks, bonds, real estate, whatever). Spread out your investments (avoiding the trendy things) and if one goes bad, well, your ship isn't sunk. And it goes without saying the safest investment is debt that is paid off.

This is not to say you will live a carefree life in retirement, only that if one thing goes South - one investment turns out to be not trustworthy - you are not completely out of luck.   It is hard to feel sorry for people who put all their money into Enron, for example, without having a plan B in place.  The CEO that company exhorted his employees to put all their 401(k) money into company stock - even though at the time he knew the sharks were circling.    Turns out, he was not a trustworthy guy.

Hey, most people aren't - at one time or another.